Seven requirements for becoming customer-centric

July 26, 2010

There is a lot of talk these days about putting the customer at the center of business thinking and operations. Whether motivated by the economy, competition or a shift in strategic focus, the dialogue in some hallways and boardrooms is starting to explore the following questions:

  • What would be different if we put the customer at the center?
  • What would have to change?
  • How would we get started?
  • How would it make us more successful?

Although many retailers are trying to embed a customer orientation into their organization’s decision-making and culture, most are struggling to make real progress. dunnhumby’s global experience in helping to transform large, complex organizations has helped define the seven requirements for customer-centric transformation. The following seven areas are necessary for a successful and sustainable transformation:

1. CEO commitment to change strategy and culture

The CEO sets the strategic agenda for the organization. The decision to create a customer-centric enterprise will touch every aspect of the organization. Therefore, strategic accountability must belong to the CEO rather than to a specific function or group. In owning the transformation toward customer-centricity, the CEO can reset highly-visible, enterprise-wide KPIs, as well as rewards, accountabilities and questions. The most effective CEOs empower their entire organizations by emphasizing and demonstrating the need for learning and humility. Their message shifts from "do more of what I say" to "do more of what our best customers want."

Successful CEO leadership shifts the emphasis of the enterprise and reorients everyone to create winning outcomes for high-value customers.

CEO commitment to change strategy and culture
From traditional emphasis ... ... to customer emphasis
Beating the competition Winning with the customers who matter most
Meeting short-term investor expectations Growing long-term customer value
Maintaining legacy strategies, structures and processes for "stability" Reinventing the enterprise to improve customer experience
Data, reporting and inquiries which focus on what is selling Data, reporting and inquiries which focus on who is buying

2. Dedication to earning and growing customers’ lifetime loyalty

Many retailers and brand owners long ago declared as dead the idea of earning customers’ loyalty to their store or brand. As a result, most organizations have failed to identify, disproportionally engage and adequately reward those customers who matter most. Since (1) much of their investment lands on the wrong customers, and (2) their best customers find most of their efforts irrelevant and even annoying, their choices fulfill their hypothesis: Customer loyalty declines.

Happily, some retailers and brand owners are starting to turn the question around. Instead of asking "why are customers disloyal to us?" they are asking "how loyal are we to our best customers?" These leading thinkers are rebalancing investments and refining strategies and tactics in order to earn and grow customers’ lifetime loyalty.

3. Intimate, customer-level insight and understanding

Most companies — even those who believe they are customer-centric — often rely on obsolete, institutional knowledge, assumptions, intuition and averages when discussing customers and their needs. Organizations must develop the commitment to set aside "what we think we know," replacing it with a current, accurate and data-driven understanding of their customers.

Simply put, you can’t be customer-centric if you can’t answer the following questions:

  • Which customers matter most?
  • What do they buy?
  • How do they buy?
  • Why do they buy?

4. Customer insight embedded in core processes

To put the customer at the center of decision-making, applying customer insight can’t be optional or left at the discretion of individual managers. Each major decision process must incorporate structured customer insight requirements which are inescapable and heavily weighted.

Taking this action will change and improve decision outcomes, as shown in the Assortment example below in which traditional product-centric factors are replaced with customer-centric metrics.

Assortment process - Which items should stay or go?
From traditional metrics ... to customer-centric metrics Customer impact
Item velocity Overall customer value The store is loyal to their best customers
Item margin Trip value The store considers the total customer visit
Item image contribution Item exclusivity The store knows which items are not substitutable

5. Insight-led collaboration between trading partners

Leading pairs of trading partners are achieving breakthrough results by combining a new level of customer understanding with the recognition that they can create greater customer value by working collaborating vs. working separately or at cross purposes.

How are they making progress while their competition is still "stuck"? They are replacing traditional store- and brand-centric thinking with a customer-centric approach. This is improving the dialogue — and the results — for companies which can set aside yesterday’s model:

Area Traditional store- and brand-centric dialogue Emerging customer-centric dialogue
Desired customer behaviors How can we drive more customers into the store? How can we understand our best mutual customers and grow their trip frequency?
Category growth drivers Can we grow 7 percent this year? Can we grow 12 percent by improving share of wallet by 20 percent among our best mutual customers?
Merchandising We will trade off endcaps between your brand and our brand. We can maximize sales by sharing the endcap because your brand and our brand attract different customers.

While these examples reflect the operational or category level, it’s also critical to establish a practice of collaboration at the top-most levels of the trading partners. The most successful collaborative efforts occur when the executive leadership of the retailer and the manufacturer each lay out a clear vision of what they are trying to achieve, play back their understanding of what the other party is aiming for, and propose concrete ideas for working together to advance their overlapping strategic aims … all grounded upon a focus on customers and how to win with them.

6. Relevant, targeted, and brilliant activation

For years, marketing and media departments have told brand managers and merchants that optimized marketing plans were those with the lowest CPM (cost per thousand) for reaching a broadly defined audience with the desired number of contacts (frequency).

But times have changed. The broader availability of granular shopper data, the proliferation of vehicles for behavior-based targeted marketing, and the growing demand for marketing accountability means that no one should have to guess (or give up) regarding marketing ROI.

An insight from Edwina Dunn, CEO of dunnhumby ltd., connects the dots between relevance, efficiency, and effectiveness: "The more targeted the offer, the fewer gimmicks you need to sell it. It will sell itself because it’s what people want."

7. Continual measurement and improvement

Becoming customer-centric creates sustainable growth because it isn’t a one-time event. To drive steady growth, you must have an active learning plan. Once the right measurements are in place, effective organizations measure and review constantly to drive improvements over time.

The old adage "what gets measured gets done" is not just an encouragement; it’s also a warning: If you don’t measure what you say is important, you’re unlikely to achieve your goals. If this happens over a meaningful time horizon, you will also undermine your organization’s commitment to achieving the goals.

Matt Nitzberg is Executive Vice President, Manufacturer Practice at dunnhumbyUSA. In this role, Matt leads dunnhumby's strategy and client relationships with brand owners in emerging channels and directs global strategy among dunnhumby’s consumer packaged goods business. (Photo by donebythehandsofabrokenartist.)

Topics: Consumer Behavior , Marketing

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