Customer Centric Org

Customer Centric Organisation
Sub Code - 398
Developed by
Prof. Sandeep Narvekar
On behalf of
Prin. L.N. Welingkar Institute of Management Development & Research
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Advisory Board
Chairman
Prof. Dr. V.S. Prasad
Former Director (NAAC)
Former Vice-Chancellor
(Dr. B.R. Ambedkar Open University)
Board Members
1. Prof. Dr. Uday Salunkhe  2. Dr. B.P. Sabale  3. Prof. Dr. Vijay Khole  4. Prof. Anuradha Deshmukh 
Group Director  Chancellor, D.Y. Patil University, Former Vice-Chancellor  Former Director 
Welingkar Institute of Navi Mumbai  (Mumbai University) (YCMOU)
Management Ex Vice-Chancellor (YCMOU)
Program Design and Advisory Team
Prof. B.N. Chatterjee Mr. Manish Pitke

Dean – Marketing Faculty – Travel and Tourism
Welingkar Institute of Management, Mumbai Management Consultant
Prof. Kanu Doshi Prof. B.N. Chatterjee

Dean – Finance Dean – Marketing
Welingkar Institute of Management, Mumbai Welingkar Institute of Management, Mumbai
Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Dean – Management Development Programs Faculty – Media and Advertising
Welingkar Institute of Management, Mumbai Founder of EVALUENZ
Prof. B.N. Chatterjee Prof. Vineel Bhurke

Dean – Marketing Faculty – Rural Management
Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Director – Intraspect Development Faculty – Healthcare Management
Manager Medical – Air India Ltd.
Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Dean – IT/Business Design Faculty – Hospitality
Welingkar Institute of Management, Mumbai Former Manager-Catering Services – Air India Ltd.
Prof. Sandeep Kelkar Mr. Anuj Pandey

Faculty – IT Publisher
Welingkar Institute of Management, Mumbai Management Books Publishing, Mumbai
Prof. Dr. Swapna Pradhan Course Editor

Faculty – Retail Prof. Dr. P.S. Rao
Welingkar Institute of Management, Mumbai Dean – Quality Systems
Welingkar Institute of Management, Mumbai
Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Dean – Banking Dean – Marketing
Mr. P.M. Bendre Course Coordinators

Faculty – Operations Prof. Dr. Rajesh Aparnath
Former Quality Chief – Bosch Ltd. Head – PGDM (HB)
Welingkar Institute of Management, Mumbai
Mr. Ajay Prabhu Ms. Kirti Sampat

Faculty – International Business Assistant Manager – PGDM (HB)
Corporate Consultant Welingkar Institute of Management, Mumbai
Mr. A.S. Pillai Mr. Kishor Tamhankar

Faculty – Services Excellence Manager (Diploma Division)
Ex Senior V.P. (Sify) Welingkar Institute of Management, Mumbai
COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development & Research.

Printed and Published on behalf of Prin. L.N. Welingkar Institute of Management Development & Research, L.N. Road, Matunga (CR), Mumbai - 400 019.
 
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permission of the publisher.
NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY.
1st Edition (May-2014) 2nd Edition (Jan - 2015) 3rd Edition (July - 2018)
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CONTENTS
Contents
Chapter Chapter Name Page No.

No.
1 Customer-centricity: Why Now More than Ever! 4-46

2 Customers Can be Difficult 47-93
3 The Journey toward Greater Customer-centricity 94-121
4 Designing the Customer-centric Enterprise 122-159
5 The Outside-in Organisation 160-193
6 Outside-in Product Decisions 194-228
7 Outside-in Value-based Pricing 229-281
8 Outside-in Communication 282-313
9 Outside-in Channels of Distribution 314-345
10 Customer-centric Transformation – 346-378
The Blueprint to Execution and Profitability
11 Transform Business Processes through Business 379-413

Intelligence
12 Evidence-based Customer-centric Service 414-436

13 Leading through the Management Processes towards 437-460
Customer-Centricity
Customer-Centric: Case Studies 461-470
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CUSTOMER-CENTRICITY: WHY NOW MORE THAN EVER
Chapter 1
Customer-Centricity: Why Now More than
Ever
Objectives
After going through the chapter, students should be able to understand:
• Understanding customer-centricity
• The importance of customer-centricity
• What is not customer-centricity!
• Designing the infrastructure for customer-centricity in an organisation
• Focusing on customers first
• Key attributes of customer-centricity
• Develop customer-centricity with CRM
Structure:
1.1 Introduction
1.2 What is Customer-centricity?
1.3 Why is Customer-centricity So Important?
1.4 What Customer-centricity is Not!
1.5 Customer-Centric Characteristics
1.6 How Well Do You Know Your Customers?
1.7 Placing Customers at the Core
1.8 Key Attributes of Customer-centricity
1.9 The 7 Pillars of Customer Centricity
1.10 Best Practices: How to Become a Customer-centric Company?
1.11 Benefits of Customer-centricity
1.12 Develop Customer-centricity with CRM
1.13 Summary
1.14 Self Assessment Questions
1.15 Multiple Choice Questions
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1.1 Introduction
In order to be a successful and viable firm, a company must have a

customercentric capability. The early movers will gain a competitive
advantage, while strugglers will scramble for a competitive necessity. In
most industries today, it is difficult to make money by just selling products
and services to customers. Stand-alone products and services commoditise
rapidly and collapse profit margins. The new foundation of profitability is
the customer relationship. This thinking results from studies that show that
sales to existing customers are more profitable than sales to new
customers. It costs more to acquire new customers, and they are more
likely to switch. Most desirable is a loyal, long-term customer who has a
relationship with the company. But to be effective, customer loyalty and
relationships have to be managed; companies need to organise around
these loyal customers.
1.2 What is customer-centricity?
1. Customer-centric means putting the customer at the center of

everything that you do, or, doing everything with the customer in mind.
2. Customer-centric means designing your products from the customer’s

perspective.
3. Customer-centric means designing your sales process to make it easy

for the customer to buy from you.
4. Customer-centric means providing customer service that's easy for the

customer.
5. Creating a customer-centric culture is all about understanding your

brand value and delivering it consistently to customers. (Figure 1.1)
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Customer
Lifecycle
Customer
Centricity
Customer
Customer
Value
Experience
Figure 1.1: Customer- Centricity
Put simply, customer experience is the sum total of relationships a

customer has with a business and is based on all interactions and thoughts
the customer has about the business.
To succeed in this multi-touch-point world, businesses must indeed shift

from channel-centric organisations to customer-centric organisations. The
best way to achieve this transformation is to connect internal data, teams,
and technologies to drive cohesive personal experiences that increase
engagement, sales, and loyalty across channels.
Customers who have a positive experience are more likely to become loyal
customers to the business. This doesn’t mean doing everything customers
want. It means focusing on what they value most, in line with your overall
business strategy and brand promise. Redesigning your organisation to put
customers at the center of every business decision can be challenging,
especially if your business is product-focused, highly diversified or change-
resistant.
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Exceeding expectations of the customers helps ensure superior customer

experiences that make the consumers return to a brand more often. Poor
experiences are typically a result of unmet expectations, leading
consumers to move to newer vendors.
IBM is an example of how a company switches from product to customer

focus. One of the world’s largest firms, IBM operated for decades as a
company manufacturing hardware and software. The company’s success
was based on its ability to market its products to as many customers as
possible. After many years of disappointing financial results, IBM
transformed itself into a consulting company, initially specialising in
outsourcing and technology. Now, IBM is truly customer-centric; it is a
business consulting company, creating partnerships with its customers in
every aspect of business.
Activity A
1. What does it mean to be “customer-centric”?

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1.3 Why is Customer-Centricity So Important?
Companies today are shifting their focus to stimulating organic growth.

Companies are increasingly looking to their customers to drive growth by
tailoring offerings and the whole organisation to customers’ needs.
Thus, today we see the entire approach of doing business and providing
services to be ‘customer-centric’.
Being customer-centric is about knowing your customer well, responding to

the stated and unstated needs of the customer whenever feasible. A
person working in a customer- centric company understands not only what
the customer values, but also the value the customer represents to their
bottom line. Thus, it is an attitude aimed towards delivering the greatest
value to the customers at the least cost.
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Companies recognise the importance of an effective customer relationship

strategy and the need to be more customer-centric for ensuring long-term
success. They are realising that customer-centricity provides the best
means to develop close and profitable relationships with their customers.
Firms that have managed to successfully traverse the path to customer-

centricity have reaped rich rewards in the form of superior financial
performance and loyal customers. This is because customer-centricity
enables firms to achieve a competitive advantage that has proven to be
sustainable and not easily countered by competition. In essence, customer-
centricity is a necessary condition for firms to succeed in the marketplace.
In the General Electric Aircraft Engine Business Group’s attempts to

improve service for their jet engine customers, the company studied in
depth what customers wanted in terms of responsiveness, reliability, value
addition and help in improving their productivity. Their findings led to such
changes as assigning a corporate vice president to each of the top 50
customers in order to build the relationship, putting leaders of the
company’s Six Sigma quality program on site with customers, using the
Internet to personalize the delivery of parts, and incorporating customer
service metrics into employee evaluation criteria.
1.4 What Customer Centricity Is Not!
It is also important to understand what customer-centricity is not, so you

do not expend unnecessary investment, resources and time chasing largely
unobtainable or low return targets.
a. Customer-centricity is not the sole responsibility of the contact center.

b. Customer-centricity is not a commitment to delight every customer.
c. Customer-centricity is not a set of technologies and solutions.
Not the Sole Responsibility of the Contact Center
Contact centers are often unfairly tasked with sole responsibility for
achieving customer satisfaction, which is unrealistic. Customers form their
opinions of companies and brands based on a totality of information and
personal experiences. There are relatively few situations where the contact
center is the only or even the primary contact point between customer and
company. Bank customers speak with tellers more often than they call the
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contact center. Airline passengers form their opinions from interactions

with ticket agents, flight attendants, and even the pilot who always says
thank you as you exit the plane.
Not a Commitment to Delight Every Customer
Despite the popular cliché, customers are NOT always right. Nearly every
agent you talk to has stories about callers that attempt to beat the system
by trying to extract undeserved concessions. And of course there are
plenty of simply unpleasant people. Some situations simply cannot be
resolved in a way that will bring smiles to the customer. Some customers
have unreasonable expectations of you and your company. Some
customers will never be happy or satisfied, until they win some sort of
“superiority position” in your relationship that allows them to take
advantage of you. If the expensive gift arrives a day after the wedding, no
amount of empathy, understanding or even contrition is going to make that
customer happy. She will respond unfavourably to a customer satisfaction
survey even if the agent did an exceptional job of handling a difficult
situation. Being customer-centric means you do look for equitable
solutions, but there are times when you simply need to say no – in as
polite a manner as possible
Not a Set of Technologies and Solutions
Customer-centricity is a mindset. It’s a way of thinking that puts the

customer first and drives product and service providers to learn as much as
possible about their customers so they can devise ways to deliver more
memorable customer experiences, while at the same time contributing to
the financial success of the enterprise. New technologies and solution sets
undeniably provide a critical enabling platform for achieving customer-
centricity, but the first step is an unwavering commitment to the concept.
Activity B
2. Why can customers be wrong sometimes?

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1.5 Customer-Centric Characteristics
Customer-centric is nothing new, but it is becoming increasingly important

in today’s age of the customer, when organizations are undergoing digital
marketing transformation, creating a corporate customer culture, and
managing the customer experience. Customer-centricity needs to become
a mindset across the organisation with buy-in from all stakeholders,
because all departments need to work from a customer-centric standpoint
rather than a product-centric perspective to profit from the most valuable
customers.
Customer-centric organizations keep the customer lifetime value of their

customers at the center of their efforts. They do not focus on the average
customer, attempt to acquire or retain low-quality customers, or spend too
little on acquiring high-quality customers.
Rather, customer-centric organisations have the following characteristics:
a. Use customer data to better understand and segment the customer

base
b. Identify the best customers
c. Focus on products and services for the best customers
d. Use Customer Lifetime Value to segment customers
e. Have a commitment to customer success
f. Engage with customers from the beginning
g. Demonstrate customer commitment from the top-down
h. Foster a customer-centric culture
i. Recognise the customer across all channels
j. Design processes and policies from the customer’s point of view
k. Measure what matters to customers
l. Encourage customer innovation
The challenges facing many businesses today are greater than ever. Ever-
rising customer expectations, intensifying competition (coming from further
afield), greater transparency, reduction in trust and customer loyalty, the
increasing pace and dramatic effects of change, not to mention squeezes
on resources and margins: these are just some of the issues today’s
business leaders tell us they face.
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In most market sectors, there is an abundance of suppliers. So, it is the

businesses that deliver remarkable customer experiences that are
succeeding. It is a world where customers are putting up more barriers to
stop businesses invading their space, where people are questioning much,
much more and trust is getting harder to win and develop. Customer
expectations are rising all the time: they want it how they want it, when
they want it, and they want it now !
Successful businesses are the ones that manage to create a customer

focus throughout everything they do. We call them 3D Businesses because
they are ‘Dramatically and Demonstrably Different’ from their competitors.
3D Businesses do not just meet customer expectations. They exceed them
and create delighted customers. What’s more, this is not a one-off. They
are able to do this consistently, which is how they build loyalty and even
devotion.
So How Can You Create Delighted and Devoted Customers?
There are no magical answers, but here are 10 things we see them do
consistently that helps them.
3D Businesses…
1. Are quick: Their speed of response to enquiries, queries and

complaints consistently surprise their customers (in a good way,
obviously).
2. Are easy: That means easy to buy from and easy to do business with,
both online and offline. This is not just at the sales end of the business,
it is everywhere, even in the accounts department.
3. Exceed expectations: They go that ‘extra mile’ to ‘exceed’ their

customers’ expectations and create delight. That does not mean a ‘buy
one, get 10 free’ offer, but genuine, spontaneous, personalised
customer experiences. (By the way, you can actually plan spontaneity).
4. Do it consistently: By exceeding their customers’ expectations, they

raise the bar (which is a good thing!). They therefore consistently work
to deliver against those raised expectations and keep raising them.
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5. Deal with disappointment: Things go wrong in all businesses (even

3D ones). So, they proactively and consistently spot and deal with
customer disappointment.
Have you ever had a situation where a customer has not been happy
about something, but the way you have dealt with their disappointment
actually delights them? That is what this is about: in fact the real
measure of the strength of the relationships you have with your
customers is how big a mess you can make and still keep them.
6. Empower their people: 3D Businesses encourage and empower their

people to act spontaneously and take the initiative to exceed their
customers’ expectations.
Health warning: ‘Empowerment’ is not just one of those management

speak buzzwords, but it is about giving people permission and authority
to deliver outstanding customer experiences. For example, every
member of staff at Ritz Carlton Hotels are empowered to spend up to
$2,000 to resolve a customer’s problem if needs be without getting sign-
off from a manager.
7. Equip their people: As well as ‘authority’, 3D Businesses ensure that

their people are equipped with the attitudes, skills and tools to do the
job. They train, support, encourage and help them to get better. Check
out how Southwest Airlines do that.
8. Spot and remove blockages: They proactively review their customer

touchpoints and eliminate blockages that undermine their customer
experience. We call it ‘standing in your own queues’. When was the last
time you rang up your own business, visited and tested your own
website as a customer, or even listened to your out-of-office or answer-
phone message? Here is a simple toolkit to help you do that.
9. Champion their customer champions: In a 3D Business, people are

recognised and rewarded for exceeding customer expectations not just
for achieving sales targets. They do not limit this only to frontline
customer facing staff, but include and encourage everyone in the
business. It is about recognising internal customers and the contribution
that every individual can and does have an impact on customers.
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10.Embed customer-thinking at every level: In the early years of

Amazon, Jeff Bezos would bring an empty chair into meetings to
represent the most important person in the room, the customer.
For a 3D Business, customers are an integral part of everything they do

and on the agenda in all internal communications, team meetings and
discussions. They highlight great examples, share customer feedback,
encourage problem-solving and ideas to improve the customer
experience – and they keep doing it.
So, how do you measure up against these 10 things? What do your

people think? More importantly, what do your customers think? Why not
ask them? That’s what 3D Businesses do!
1.6 How Well Do You Know Your Customers?
A few concrete steps that will help you get closer to your customers are:
1. Stand in your customer’s shoes: Look beyond your core business

and understand your customer’s full range of choices, as well as his or
her ecosystem of suppliers, partners etc. — of which you may be part.
This exercise will also deepen your understanding of competitors and
help you better anticipate their moves
2. Staple yourself to a customer order: Track key customer

experiences as they traverse your company’s pathways and note where
the experience breaks down. Some hospitals ask interns to experience
the check-in process as fake patients. One client asked managers to
listen in on its call center. If you can’t exactly put yourself through a
customer experience, try role-playing exercises at all points of the
customer’s experience with your company.
3. Field diverse customer teams: One bank added members of the

back-office support group to its customer team, supplementing the
usual customer-facing roles. IBM sends senior teams from different
disciplines into the field to meet customers’ needs and develop a deep
understanding of how to serve them better.
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4. Learn together with customers: GE invited its top customers in

China, along with local executives and account managers, to a seminar
on leadership and innovation. Doing so not only helped GE executives
better understand the mindset of Chinese counterparts; it also helped
them to influence that mindset.
5. Lean forward and anticipate: Focus on what customers will want

tomorrow, as Steve Jobs and Richard Branson did so exquisitely. Try to
envision different futures through tools like scenario planning and then
explore how underlying market shifts may affect your customers.
Harley-Davidson is not merely building reliable motorcycles. It aims to

fulfill the dreams of its customers through the motorcycle experience. If
that means going beyond the signature full-throated roar of their Harley
and enabling the Harley owners to embellish their vehicles with grassroots
folk art, the company will help them do it.
1.7 Placing Customers at the Core
If there is a single defining characteristic for customer-centricity, it’s this: It

begins at the top and permeates through the entire organisation. It should
be built into the organisation’s mission statement and value proposition,
and corporate leaders must create the right organisational structures and
repeatedly underscore the company’s commitment to the concept. This
means that every employee, whether they deal directly with a customer or
not, should understand how his or her actions, every day, affect everyone
who purchases and uses the company’s products or services.
Today’s businesses all claim to be customer-centric. So, how do you create

a successful customer-centric business? You start with customers; not
products. You focus on what those customers want to do. If you design any
organisation (for-profit or not-for-profit) from the customers’ perspective,
your organisation will remain nimble and focused on customers’ changing
needs and market conditions. And, as customers, we recognise when we’re
interacting with a company that really values us and our business. 
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!
Figure 1.2
It’s clear that everyone in the organisation understands what we need and
what’s important to us. We also notice when we cross the boundary
between the customer-centric brand we value and one of their partners
who doesn’t deliver the same kind of experience. (Figure 1.2)
We want our customers to bond with the enjoyable experience that we,
and our entire customer ecosystem (organisations that are aligned around
what the customers are trying to do) provide. Thus, the customer-centric
organisation creates products, processes, policies, and a culture that are
designed to support customers in their endeavors and to provide them with
a great experience as they are working towards their goals.
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CASE STUDY
McDonald’s Mission and Values:
McDonald's brand mission is to be our customers’ favourite place and way

to eat and drink. Our worldwide operations are aligned around a global
strategy called the Plan to Win, which center on an exceptional customer
experience – People, Products, Place, Price and Promotion. We are
committed to continuously improving our operations and enhancing our
customers’ experience.
McDonald’s Values
We place the customer experience at the core of all we do. Our customers
are the reason for our existence. We demonstrate our appreciation by
providing them with high quality food and superior service in a clean,
welcoming environment, at a great value. Our goal is quality, service,
cleanliness and value (QSC&V) for each and every customer, each and
every time.
We are committed to our people. We provide opportunity, nurture

talent, develop leaders and reward achievement. We believe that a team of
well-trained individuals with diverse backgrounds and experiences, working
together in an environment that fosters respect and drives high levels of
engagement, is essential to our continued success.
We believe in the McDonald’s System. McDonald’s business model,

depicted by our “three-legged stool” of owner/operators, suppliers, and
company employees, is our foundation, and balancing the interests of all
three groups is key.
We operate our business ethically. Sound ethics is good business. At

McDonald’s, we hold ourselves and conduct our business to high standards
of fairness, honesty, and integrity. We are individually accountable and
collectively responsible.
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We give back to our communities. We take seriously the responsibilities

that come with being a leader. We help our customers build better
communities, support Ronald McDonald House Charities, and leverage our
size, scope and resources to help make the world a better place.
We grow our business profitably. McDonald’s is a publicly traded

company. As such, we work to provide sustained profitable growth for our
shareholders. This requires a continuous focus on our customers and the
health of our system.
We strive continually to improve. We are a learning organisation that

aims to anticipate and respond to changing customer, employee and
system needs through constant evolution and innovation.
It is possible to earn a high degree of goodwill from customers, yet fail to

take full advantage of it. The loyalty leader must create conditions that
make it easy for loyal customers to act on their love of the company by
offering them opportunities to expand their relationships. This requires
serving up the right additional products and services at the right prices
through the right channels. It requires ensuring customers have compelling
stories to tell their friends based on their own experience. A system of
constant feedback, learning and action allows a company to understand
how to serve its most attractive customers in ways that truly differentiate
the company, making it easy to stay longer, buy more and convince their
friends to come along.
Activity C
3. Why is it important for companies to have a mission statement?

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1.8 Key Attributes of Customer- Centricity
Customer-centric organisations understand that, in order to be successful,

their customers need to succeed. And there is a lot of emphasis placed on
the “customer experience.” But customer success is not based on just
having a good experience, although that is a very important piece. It is all
about customers achieving their goals. The key attributes and behaviours
that characterise an organisation that holds customers at the core are:
a. Customer care that extends and reinforces the brand.
b. Creation of customer experiences that transcend the ordinary -

memorable, not simply satisfactory.
c. Treating customers as individuals.
d. A deep understanding of what motivates customers.
e. An understanding and measure of the true value of customer

relationships
(a) Customer care that extends and reinforces the brand
Most businesses expend significant financial and human resources creating

and supporting their brand. To consumers, a brand represents a promise.
They know your brand stands for something – be it value, dependability,
superior flavour, convenience, excellent service, etc., or some combination
thereof. Consumers have higher expectations for branded than unbranded
products and are typically willing to spend more for that confidence.
Buyers of consumer goods, such as food, clothing, cosmetics, electronics,

etc., may never personally meet an employee of their favourite brands. But
at some point, odds are they will at least contact the company — to
register a complaint, pose a question, ask for instructions, request a
payment postponement or even apply for a job. If at the point of service
delivery the customer experience is unsatisfactory or even ordinary, the
customer will be disappointed and may eventually lose faith in the brand.
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Karyn Furstman, Vice President of agent and customer experience at

Safeco Insurance, says that her company’s customer-centric strategy
involves three critical areas, beginning with “experience design.” This
involves reviewing the company’s portfolio of products and services,
understanding the customer journey, and seeing whether there may be
gaps from the customer’s perspective. Second, Furstman seeks to
understand the voice of the customer, through social media, online
reviews, and call center data, among other sources. The final step, she
says, is to “bring the customer experience to life” for members of the
organisation by helping each employee understand how their role impacts
the customer experience. By following this process, she says, companies
are defining a service philosophy, which is a distinct activity from brand
building.
Activity D
4. What constitutes a brand in the eyes of the consumer?

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(b) Customer experiences that transcend the ordinary
A common misperception is that providing “satisfactory” service is good

enough to be customer-centric. Not so. In fact, studies show that about
80% of customers that cease doing business with a company were
generally “satisfied” at the time they switched or stopped doing business
with the company. But customers expect to be satisfied. What customers
do not expect is to be delighted. So when they are, they tell others,
through e-mail, blogs and social media, the word can spread more quickly
than ever.
(i) *That can obviously be a very good thing when the word is positive, but
it also works against you when service is perceived as poor or worse.
Service providers are now finding themselves quickly and visibly portrayed
in a negative light due to the speed and breadth of information outlets now
easily accessible to disheartened customers. Before long, thousands of
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current and potential customers can hear about it and as a result make a
negative impact on reputation of the company.**
(ii)*Companies can enhance delight by partnering with buyers. For

example, Quadrant Homes, a division of Weyerhaeuser doesn’t build homes
and then try to sell them. Quadrant sells homes before building them and
involves buyers in each step of the design. The customer can choose from
multiple footprints and floor plans. The result is high demand in a weak
market and strong word-of-mouth advertising.
(iii) **Take for example an article in “The Hindu” dated January 12, 2011
by M. Venkatachalam, CEO of Custommerce Service Excellence Foundation;
a non-profit foundation striving to make Indian companies and India
customer-centric. “Last week, I went to IIT-Madras to arrange a talk about
customer-centricity to the students. The campus is very different today,
compared to the days when I studied there. It has many eateries and
hang-outs such as Café Coffee Day. Much against my teenage daughter's
advice, I mobilised the courage to walk into Coffee Day. I ordered a puff. It
was served with a sachet of ketchup. I seriously wondered how to open the
sachet and apply a layer of ketchup on the puff without spilling it on my
shirt. I thought it would be indecent to use my teeth to open the sachet. I
requested the waiter to open the sachet with a pair of scissors and give it
to me. I was taken aback when the waiter refused to open the sachet for
me. In fact, he gave me tips on how to open the sachet using my teeth. He
also said that all his customers did the same thing. I did not make a big
fuss and used the proven tool, my teeth, to open the sachet. While getting
out of Coffee Day, I knew there was a lot of work for our foundation. I was
wondering how to make Indian companies customer-centric?”
Activity E
5. How can companies go the “extra mile” to more than satisfy the
customers?
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(c) Treating customers as individuals
Customer centricity is about treating customers as individuals, not just

members of a “bucket” that share some common characteristics. This is
key to delivering memorable service. Simple things like using their name
are helpful but even more important is creating and maintaining an
extensive customer knowledge base so agents can quickly see the
individual preferences, patterns and current or past issue related to
individual customers. Adding the personal touch will help your organisation
gain customer loyalty. The key to building loyalty is to provide value, as
defined by the customer (Figure 1.3)
Research has shown that when this happens customer satisfaction

increases. Anything you can do to make each of your customers feel they
had your complete attention and have been dealt with personally increases
their sense of satisfaction.
IMC Financial Services Ltd. are delighted to inform their clients that they
have embraced all aspects of customer-centricity of satisfying each and
every individual customer. “We have always conducted our business with
the best interest of our clients being the fundamental goal. We follow very
clear processes when dealing with both potential and existing clients. Our
advice process enables all our advisers to fully understand our client’s
financial needs as well as any specific goals they may have now or in the
future. As an independent advisory firm, we have access to the whole of
market for products such as MORTGAGES, PROTECTION, INVESTMENTS
and PENSIONS, which ensures that our recommendations are both suitable
and specific for our individual clients.”
! !21
!
Figure 1.3: Individual Attention to the Customer
Activity F
6. How does it help the companies to treat its customers as individuals?

…………………………………………………………………………………………………………………………
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(d) A deep understanding of what motivates customers
Truly customer-centric contact centers deploy the technology needed to

analyse the volumes of information they collect through internal sources,
such as archived recordings, CRM data, customer satisfaction surveys and
enterprise databases. Analytics is basically a set of applications that allow
management to drill down into this vast storage tank of recorded voice and
data interactions to spot trends, opportunities, patterns and cause and
effect relationships. Armed with this information, agents can be more
proactive by initiating outreach to potential or likely customer defections
before they occur or by creating sales offers that are ideally suited to
individual requirements or interests.
! !22
(e) An understanding and measure of the true value of customer

relationships
One of the outcomes of in-depth customer analysis is determination of the

actual present value of customer relationships, commonly referred to as
the “lifetime customer value” metric. Contact centers need good and ample
information to construct this metric, including for example, the cost of
customer acquisition, average purchase rates for individual customers or
groups of customers, and the average period of time they remain
customers.
Activity G
7. How can information on customers help companies deliver value?

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1.9 The 7 Pillars of Customer Centricity
! !23
Key Takeaways
“Customer-centricity is sometimes used as a catchall term for talking about

customer feedback or customer satisfaction results, but making people
happy is only one part of the equation.”
The seven pillars of customer-centricity help provide marketers with the

insight to measure and assess their customer loyalty programmes.
The pillars include experience, loyalty, communications, assortment,

promotions, price and feedback.
Businesses across the industry are embracing the concept of customer-

centricity by forgoing traditional business-driven strategies and adopting a
more customer-driven strategy. To have sustained success, companies
must understand current customer needs and wants, and ensure that there
are the right internal and customer-facing strategies, processes and
marketing initiatives to satisfy them.
That is where a new structure, born of data-driven customer science,

comes in. The seven pillars of customer-centricity provide a framework for
action, giving companies the insights needed to track, measure and
improve in seven core areas. By analysing customers’ perceptions against
these.
Here are the seven core pillars and how they help boost customer
loyalty:
1. Experience: Make the customer experience easy, enjoyable and

convenient. Companies that excel in customer experience make their
customers so happy that they want to share their positive interactions
with your brand.
2. Loyalty: Reward and recognise customers in a consistent way that is

relevant to how they want to be rewarded. Loyal companies reward
shoppers in ways that are meaningful to customers.
3. Communications: Personalise the message to customers, based upon

what they buy, and in a way they like. Highly communicative companies
! !24
provide tailored, relevant communications based on customer

preferences.
4. Assortment: Have the right products and a strong variety to meet

customers’ needs. Companies should not necessarily have the widest
selection of products, but they should stock the ones their customers
want.
5. Promotions: Leverage promotions on the items that are most

appealing and often purchased by current customers. Companies with
successful promotions programs promote the products that matter the
most to customers.
6. Price: Provide prices that are perceived to be in line with what the
customer is looking for on the products they purchase most often.
Brands do not have to be the price leaders, but they do need to have
pricing that customers perceive as fair.
7. Feedback: Hear and recognise customer concerns. Companies that

rank high in customer feedback have a two-way conversation and
emotional connection with their customers.
Customer-centricity is not just about making customers like you. Recent

research demonstrates that when customers perceive a company as being
“right for them,” it correlates to long-term revenue growth.
How can marketers help foster that kind of growth for their own
businesses? It is crucial to focus strategies, operations and activities on the
people who are ultimately responsible for a company’s success: loyal
customers.
True growth—and the customer centricity that drives it—is not

accomplished by a strong rallying cry or a catchy slogan. A company must
understand its customers’ behaviours and attitudes and have the internal
processes in place to create a cultural change within the organisation. By
aligning deep customer insights with communications and operational
processes, and identifying gaps in performance among the seven pillars of
customer centricity, a company can drive sustainable results.
! !25
1.10 Best Practices: How to Become a Customer-Centric

Company
While essentially every company is customer-focused, very few companies

are customer-centric.
What is the difference between the two? Tried and true customer-centric
companies invest in their customers, expand their offerings to address
their needs and desires, and put consumers at the heart of all their
decision-making.
And their efforts pay off handsomely. Numerous research studies show that
customer-centric companies regularly outperform their competitors. While
this seems like the logical road to take, and with it being a critical success
factor, there still is a considerable void in the number of companies
implementing customer-centric best practices.
So how exactly does a company become customer-centric?
At its heart, it involves cultural transformation, driven from the top. It is a

shift that requires the alignment of three critical actions:
1. Companies must establish a compelling, differentiated strategic

narrative;
2. Empower employees to join the cultural transformation needed to

deliver on the brand promise; and
3. Infuse the organisation with customer input.
All three are important, but the key element is the first and often most
daunting task – creating a strategic narrative.
To achieve a customer-centric culture, executives must first define and

communicate their company's strategic intent:
(i) Why does the business exist?

(ii) What is its value proposition?
(iii) What does the business want to be known for in the marketplace?
! !26
Creating and sticking to a narrative produces immense power. As

individuals, our personal narrative defines us. This is the story we tell
ourselves (and others) about who we are. Are we fighters or victims? Are
we lucky or hard done by? Our perception of our place and purpose in the
world influences how we interpret what happens to us – and everything we
do.
Organizational narratives have the same effect. Beyond any management

instruction or policy, narratives influence how employees respond in any
given situation – how and why decisions get made. Without a uniting and
compelling narrative to support it, cultural change will fail.
As an example, part of Starbucks' strategic narrative is to be its customers'

"third space" – for customers to consider their go-to places as: (1) home,
(2) work and (3) Starbucks. And the company goes to extraordinary
lengths to make this narrative real. This is why, Starbucks employees will
never bother you to buy a beverage, and why millions of consumers are
willing to pay a premium for their coffee.
The strategic narrative serves two purposes:
• The first is a translation to the external marketplace in terms of

positioning and differentiation, and
• The second is the translation to the internal organisation outlining the

intended customer experience.
Leaders who have effectively created a compelling strategic narrative, then

focus their efforts in three specific areas:
1. Executives need direct interaction with customers.
The key to executive buy-in, commitment and active support is first-hand

knowledge and understanding of what is delivered to the customer, relative
to their needs and desires.
Traditionally, CEOs have received customer feedback second or third hand

– filtered through layers of management, by people who do not want to be
the bearers of bad news. Hearing about the good and the bad – direct from
! !27
customers – is a reality check for any executive. It helps create a sense of

urgency.
2. All employees need to embody the intended customer

experience.
A narrative must be cascaded down to every single individual in the

organization. Your employees must clearly understand their role in
delivering the promise the narrative makes to the end customer. This
requires multiple conversations and socialisation across all business
divisions and at every level, not just for customer support roles.
3. Just say “no” to off-strategy ideas. Excitement abounds in most

organisations with ideas and fresh thinking that may lead to new
revenue streams.
However, it is imperative to recognise that customer-centricity is not a

destination but rather a multi-faceted, multi-year journey that will require
laser-sharp focus, commitment and investment. Organisations need to
challenge off-strategy ideas when they run the risk of diluting the core
focus and compromising the long-term commitment to growth through
centricity.
The opportunities to drive business growth through customer-centricity are

real and exciting. The use of a compelling and differentiated strategic
narrative should be the cornerstone of any organisation. It opens the door
to co-creation and innovation. The integrated intelligence will allow your
organisation to continuously learn, anticipate and pivot. Once you have
defined the narrative for your company or brand, and have senior-level
executives push the ethos through, you will be well on the way to winning
the hearts and minds of consumers.
! !28
1.11 Benefits of Customer Centricity
Being customer-centric is the best way to supercharge your organisation.

When present to audiences about thinking like a customer, they all say
they want to become more customer-centric. However, few of them can
really articulate why they want to become that way.
Let's explore the benefits of transitioning your organization to becoming

more customer-centric.
1. First and foremost are profits.
“Companies that improve their ability to consistently meet their customers'

needs will produce positive bottom-line business results.”
The financial perspective is a direct benefit that starts most organizations

on the journey to increased customer relevance.
There are many other reasons, of course, but let's focus on two that are
even more important.
(a)First, customer-centricity produces freedom for an organisation.
"The customer is in world-class organisations, not outside...If left outside,

the customer gets treated with indifference at best, and offers the same in
return.”
Freedom empowers everyone in the organisation to customise their

treatment of customers rather than to deliver lackluster performances that
customers feel are indifferent.
Freedom rises out of the confidence that all employees understand why
and for whom they are working.
Freedom also manifests itself when a company is proactively working on

customer solutions, rather than reactively handling complaints and
resolving customer issues.
All of this translates to fewer worries, coupled with brand new opportunities
to achieve greater heights in terms of innovative and creative solutions.
! !29
b. Secondly, companies will enjoy stronger employee loyalty if they

embrace strong customer relationship values.
While your employees certainly want to receive a paycheck from you, they
really care more about their customers than they do about you. Sorry to
break the news to you. Much of employees' satisfaction comes from
delivering strong, common-sense solutions to their customers.
Customer-centric organizations rise above internal procedures, which the

customer does not care about, and focus on a logical service or product
which makes the customer's life easier.
Employees' answers to our surveys always confirm that the way their
employer treats customers is one of the most important drivers of their
satisfaction as workers.
If employees are empowered to take care of their customers, they will like
working for you much better. Not a bad combination, is it? Happier, more
committed employees and customers at the same time.
2. Companies that outperform the competition have “customers”as

a core competency.
Teach everyone in your organisation the benefits of being customer-centric.

Do not assume that they know. Communicating the positive results of
thinking like a customer in every aspect of your business will serve as a
foundation or touchstone that will accelerate the transition within your
organisation.
Being customer-centric aligns everyone around one purpose—to make the

customer successful—and the customer loves you for it. But, your
organisation also reaps the benefits in ways most leaders have not
considered. Those other benefits are the real reasons that you start the
transformation.
Entrepreneurs put a significant amount of effort into planning their

ventures such as writing business plans that include detailed descriptions
of the company's mission, the products and services it plans to offer, and
how it plans to achieve profitability. Businesses sometimes become too
focused on their own inner workings and ignore the wants and needs of
! !30
customers. “Customer-centricity" is a business strategy that involves

looking at a company from the perspective of customers.
3. Recognising Opportunities for Growth
One advantage of customer-centricity is it can allow companies to

recognise and take advantage of opportunities for growth, such as
unfulfilled customer needs. For example, an electronics company that
performs customer surveys might find that the majority of its customers
are women and that they prefer having others help them install equipment
in their homes. This could lead the company to expand its business to
offering in-home installation of electronics.
4. Increasing Customer Satisfaction
Another potential benefit of a customer-centric business strategy is that it

can increase customer satisfaction. The purpose of customer-centricity is to
find out what customers like and do not like, and to tailor products and
services to better fulfill those needs and eliminate sources of irritation. For
instance, a hotel might offer high-speed wire and wireless Internet
connections in each room to allow customers to use the type of connection
they prefer. High customer satisfaction makes customers more likely to
come back in the future.
5. Creating a Unique Experience
Consumers have many choices of where to buy goods, so creating a

unique, high-quality shopping experience can be just as important for
getting customers to come back as the products themselves. This is an
area in which small businesses can have an advantage over larger
competitors. Because small companies have fewer customers than large
ones, they can spend more time giving personalised assistance and
creating strong relationships.
6. Market Share and Profit
Because many markets are inundated with suppliers, maintaining and

increasing market share is key to increasing profits. Companies that do not
focus on customers run the risk of losing customers to competitors that
offer similar products and better overall shopping experiences. While
! !31
resisting the implementation of customer-centric changes might save

money in the short term, it can result in declining market share and lower
profit in the long term.
1.12. Develop Customer-Centricity with CRM
Contrary to popular belief, Customer Relationship Management (CRM) is

not a system, or a technology, or a simple application. CRM is a holistic
strategy that places customers at the center of all business operations.
Some call this customer-centricity; others coin this approach as listening to
the “voice of the customer.” Regardless of semantics, CRM is the
integration of people, processes, and technology, which allow a company to
leverage its information assets to identify, attract, and retain profitable
customers.
A core tenet of CRM is customer-centricity and having this instilled in your

business culture leads to success. Also getting the right mix of people,
process and technology leads to long-term success.
Effectively implementing a customer-focused business strategy requires a

cultural shift that converts the focus from products to customer needs. Is
your product management process supported by empirical market research
data? Do you ever stop to consider what the lifetime value of a customer is
to your organisation?
Rather than heavily promoting products to create perceived needs,

consider working collaboratively with customers to really understand how
you can help them. Advancements in customer self-service and support
technologies are making it much more convenient for customers to help
themselves, while simultaneously reducing costs.
Return on Investment Strategy
“CRM allows companies to make more meaningful contact with their

customers, giving the customer access to the products and information
when they need it.”
Developing a return on investment strategy is essential for determining

initial and ongoing costs, and estimating returns or benefits from deploying
a CRM system. The simplest method for demonstrating ROI is to ask each
! !32
stakeholder for a key performance indicator (KPI) that they are looking to
improve as a result of the project.
Customers may want to reduce customer support/helpdesk resolution

time; Sales may have an eye on increasing win-rates; Marketing will likely
want to reduce acquisition cost per customer; and Senior Management
should be interested in benchmarking and improving the average Customer
Lifetime Value (CLV) of your client base. When building your business case
for the CRM implementation, it is important to clearly communicate the up-
front and ongoing support costs. These costs be amortized over 3-5 years
and be compared to the benefits derived in each functional department.
Cost reductions for sales, marketing, and support, are the first areas to
analyse when determining long-term return on investment. Increased
revenues are hard to match directly to CRM initiatives, but can generally be
expected.
CRM Implementation Benefits
1. Increased revenue: Most organisations report an increase in annual

sales revenue of between 5-15% per sales representative following a
successful CRM implementation. When completing your ROI, consider
how much time will be saved due to streamlined processes, and how
that equates to more time for selling.
2. Boosted margins: knowing your customers implicitly reduces the need

to discount offerings, helps identify new ways to add value to your
products, and reduces the overhead required to cement new business.
3. Higher conversion rates: An increase of 3-5% in sales conversion

rates can be expected, especially if you add an e-commerce module to
your system. Having a better understanding of your sales cycle will
facilitate “no-bidding” on less profitable or low-probability deals.
4. Improved customer satisfaction: As your organisation becomes

more customer-centric, satisfaction ratings can be expected to improve.
If you don’t have a satisfaction survey process, strongly consider
developing one.
! !33
5. Reduced sales, marketing, and support costs: A decrease of 5-10%

is reasonable for sales, marketing, and support administration costs. As
you become more proficient with knowing your customers,
segmentation and more highly targeted marketing occurs, saving time
and money.
6. Informed product management: Placing customers at the center of

the product management process will certainly provide the information
needed to make better product management decisions. Strikingly, many
companies are not leveraging focus groups, or customer advisory
panels. Strongly consider doing so.
CRM System Features and Functionality
What is available and what should I look for in a system?
1. Contact and Account Management: Tracking of activity history, key

contacts, customer profiles, and sales cycle history, current and future
opportunities.
2. Sales Force Automation: Account and contact management,

opportunity management, sales pipeline forecasting.
3. Field Sales Support: Data uploading and order entry via mobile
devices such as blackberries. Retrieving collateral, proposals, or other
documents.
4. Simple User-friendly Interface: As adoption rates are one of your

chief concerns, having a very easy-to-use system is essential for CRM
success.
5. Security: Role-based Rights and Access: It is critical that your system

has inherent role-based security settings. Ensure that only the right
people have access to sensitive information.
6. Sales Management and Reporting: look for forecasting, sales

metrics, and sales cycle analysis across teams, and other sales
reporting features.
! !34
7. Marketing Management and Automation: Email marketing,

campaign planning, campaign ROI analysis, customer segmentation,
integration with web analytics, collateral content management, real-
time messaging, lead capturing etc.
8. Customer Support and Self-service: Incident management, tracking,

and assignment, web-based order tracking and self-service, resource
library, warranty, SLA* (Service Level Agreements), and contract
management.
*You need to provide a guarantee for service to your customers. It is

required that you develop a service level agreement template that you
can use to define the level of service between your company and its
customers.
9. Partner Relationship Management: Visibility into channel partner

pipeline, partner recruiting, partner opportunity management, workflow,
analytics.
10.E-Commerce Features: Shopping cart and checkout, online order

entry, request for proposal (RFP), request for information (RFI), email
order confirmation.
11.Contract Management: Ability to create, manage, update, and renew

contracts. Service Level Agreement (SLA) creation and automated
monitoring.
12.Quote Generation: Integration of quote generation applications, or

inherent quote building capabilities.
13.Process Automation Technology: Lead and opportunity assignment

and transferring, activity management, calendaring, HTML email,
channel management, collateral delivery, campaign execution, help-
ticket resolution, contract monitoring.
14.Scalable and Flexible Architecture: It should be relatively

straightforward to integrate new applications to expand the scope of
your CRM system.
! !35
15.Dashboards: Determine if your potential system will require visual

dashboards that synthesize metrics to provide predictive insight.
Different views (Senior Management, Sales Management, Marketing
Management, and Customer Service Management) should be available
for different users.
16.ERP Integration: Although it is not recommended that you complete a

full ERP or back-end integration right away, knowing that the project is
feasible is essential to making the right decision on a CRM platform.
CRM Readiness Assessment
Conduct a CRM Readiness Assessment, which will identify your current

capabilities and areas of weakness that need to be rectified to ensure a
smooth deployment.
• Senior Management Commitment: Your executives must understand

that CRM is a complex, long-term initiative. They need to commit to
providing the required budget, resources, and potentially upgrade back-
end integrated systems. Additionally, senior management must enforce
CRM adoption or risk project failure.
• Customer-centricity: Is your business driven by customer needs? Have

you profiled an ideal customer and communicated that profile across
departments? Do customers typically deal with more than one
representative? Are you customer-centric? Have a 360 degree customer
centric view (Figure 1.4)
! !36
Figure 1.4: CRM 360 Degree View
• User-driven Project Management: Working with stakeholders from

the beginning is essential for nailing business requirements and starting
the adoption process on the right path. Engage a project team and
sponsor.
• Alignment with Goals and Objectives: CRM must be on your strategic

plan for organisational development priorities. Each department needs to
document their requirements for the system, and indicate how the
functionality will help them achieve current/future goals.
• Process Maturity and Documentation: Defined, repeatable, and

measurable processes need to be documented for Sales, Marketing,
Customer Service, Billing, and Order Management.
• Data Management and Accuracy: Customer and product information

needs to be accurate. Have your system administrator diligently check
data accuracy, retrain users when errors occur, and monitor data quality,
to ensure your reporting is reliable.
! !37
• Customisation and Integration: Don’t make the mistake of trying to

build the perfect system before it ever gets released. Most CRM projects
that fail are the result of too much up-front integration. Ensure you
customize your system to align to your processes and workflows, but
don’t be afraid to take a phased approach to back-end integrations.
• System Training and Support: Appropriate resources need to be

allocated for training system users and administrators. Consider creating
a position for a Director of Sales Support and/or a CRM Administrator
who can manage the CRM program, monitor adoption rates, and provide
application support.
15 Actions to Achieve Better CRM User Engagement and Adoption
The ability to change in business today is inevitable reality. End-user

adoption is key to a successful CRM initiative. (Figure 1.5)
!
Figure 1.5: CRM User Engagement and Adoption
! !38
1. Think about the impact of CRM strategy on people – the benefits

and consequences of changing or not changing. Demonstrate clearly to
those involved that the new system will benefit them. Spend some time
explaining how CRM will benefit them directly and not just the company
as a whole.
2. Have the various stakeholders involved in the design and pilot

phase. Early participation with feedback is key to long-term adoption.
Cover how CRM helps in their day-to-day activities. What steps can be
eliminated or reduced. Test options during the pilot and make needed
adjustments.
3. Communicate project progress. Hold regular meetings across all

departments to communicate how it is going. How can interactions
among various departmental personnel be improved and important data
captured and shared.
4. Keep employees in the loop by providing information and clarity

about what is happening. Pilot team members should share in the
progress.
5. Encourage employees to speak up about changes and listen to

what they have to say. For example, discover what sales processes they
are already doing in Microsoft Outlook and then see what can be
leveraged into the CRM application.
6. Give employees time to make the transition and adjust to the new
approach. Find out specific struggles some users are having. CRM is a
journey and some people adapt faster than others.
7. Support the managers who are leading the CRM march toward
greater success. What activity roll up reporting can be accomplished to
eliminate the need for sales call reports. What dashboards can provide
snapshots of their department’s key performance indicators?
8. Understand that effective implementation of CRM is a cultural

process. It will take time for everyone to adjust to new ways of doing
business. Start with entering sales contact key information, performing
lookups and navigating. Later move into sales opportunity management
and business analytics.
! !39
9. Inform and involve customers about the company’s vision for a

customer-centric organisation. As you make changes, get their
feedback.
10.Communicate that growth of the company is enhanced by the users

sharing information that they gather about customers: their concerns,
needs and wants. It’s about “building” a customer relationship and
sharing profile characteristics.
11.Provide useful educational resources that are focused on the

desired results for each audience. Have these easily accessible. Web-
based how-to be in an audio-video format work well and can become
quick refreshers.
12.Conduct frequent audits, review progress, make adjustments —

this is a discovery learning process. Continually assess results weighted
against the expectations. Invite the sales team to review weekly or
monthly reports and share feedback.
13.Reward the adopters, the power users, those who help their
associates so the whole ship rises to new levels. Make part of their pay
dependent on activities within the CRM solution. We have had several
clients replace sales people with those that became engaged with use of
CRM shared knowledge — and sales increased! Get the right people on
the team and go in the right direction.
14.Celebrate the successes, large and small. Talk about the improved
customer experiences, the smarter on-time customer information, and
so forth.
15.Use subject-matter experts as effectively as possible.
! !40
Customer Loyalty
Many believe that customer satisfaction is a primary driver of customer

loyalty. Understanding what influences customer loyalty helps a company
devise a strategy appropriate to the needs of each targeted customer
segment. (Figure 1.6)
! !41
CRM is implemented in an organisation to reduce cost and increase

company performance, which means profitability result through customer
loyalty. Indeed, in a successful CRM implementation, data are collected
from internal and external sources such as sales department, customer
service, marketing, after-sales services, procurement, and others. This is
crucial in obtaining a holistic view of each customer requirement in a real-
time system. This information will be able to aid employees to make fast
and accurate decision when dealing with the customers in different areas
and touch-points. The finding of this study shows that the customer
perception and treatment given to each customer individually able to assist
in solving many customer’s problems. Thus, customer satisfaction and
loyalty would be achieved through a successful CRM implementation.
Therefore, organisation should discover different requirements of the
customers and adjust their policies according to their needs to increase the
firm’s competitiveness.
The aim of CRM is to maintain the customers and increase their loyalty and
organisation profit. Customer satisfaction and pleasing are the two main
elements in a successful CRM implementation for retaining customer’s
loyalty to a firm.
Behaviour of the employees also plays a significant role in increasing

customer loyalty. The organisation must put emphasis on the two elements
which are behaviour of employees and relationship development.
Employees are expected not merely to be polite and courteous towards
their customer, but most importantly must have the product knowledge
and communication skills that can create a relationship with the customers.
Positive employees’ behaviour is vital in sustaining customers’ loyalty.
Employees must be trained to respond to the customers’ needs in an
appropriate speed. They must also be able to show concern and care to the
customers. Behaviour change can only be done if management team is
serious in investing in their human capital. This can only be done through
series of training and developmental programs for the employees. By
improving the competencies of employees in this area will definitely
improve the overall service quality of the organisation. An organisation
must also constantly keep their employees motivated because highly
motivated people would definitely be able to provide better services.
! !42
1.13 Summary
It takes a customer-centric capability, a lateral networking capability and a

leadership that sees and builds its organisation as a source of advantage in
order to deliver the company to the global customer. Many firms are not
keeping pace with changing market and consumer dynamics and are far
behind other industries in meeting customer expectations. To succeed in
this fast-changing environment and to achieve sustainable top-line growth,
firms need to focus on redefining customer relationships, transforming
business models to embrace data and digital and introducing an innovative
culture in support of strategic decision-making.
Achieving customer-centricity is less about implementing a grand vision

than about building cadence today, next week, next month and next year.
But the time has come when the journey is a strategic necessity, and all
firms need to be clear about where they stand and what steps lay ahead
for them.
Overall, the goal of this chapter is to also provide companies with CRM
insights so that they might design and then successfully implement CRM
initiatives, which may include a loyalty component. Another reason that
many companies need a loyalty strategy is that the marketplace is
changing, customers are becoming more demanding and have higher
expectations than ever before. They also have more choice, and changing
suppliers is becoming easier. In short, it is becoming increasingly sensible
to:
• Focus on the best customers that you already have;

• Optimise the profit that can be made from them;
• Increase the period in which they remain customers;
• Be able to produce measurable results of success.
A well designed and run loyalty programme can do all of these things.
! !43
Study Questions
1. How does a company practice customer-centricity internally?
2. How to create a customer-centric approach in customer service?
3. How do you measure ‘customer-centricity’?
4. What do companies need to do to become customer-centric?
5. How can we determine if the customer is at the center of what we do?
6. Which problems can be solved by implementing a CRM strategy?
7. Why customer loyalty is considered invaluable in a CRM initiative?
1.15 Multiple Choice Questions (MCQs)
1. Customer-centricity means _________.

a. Putting the product at the center of everything you do
b. Designing the customer to the product’s point of view
c. Putting the customer at the center of everything you do
d. Creating technologies and solutions for customers
2. If companies have to be profitable, they will have to ________.

a. Form long-term relationships with the customers
b. Interact with customers across multiple points of contact
c. Do uniform business with all its customers
d. Create value for customers
3. A company can deliver global value for its business buyers by

________.
a. Competing against rival businesses
b. Asking customers to walk away from a relationship
c. Getting closer to the customer
d. Implementing a customer-centric dimension in all its businesses
! !44
4. A product centric company is _________.

a. The one that concentrates on one product
b. The one that tries to find as many users and customers for its
product
c. The one that tries to find many products for many customers
d. The one that offers new solutions to its customers
5. The task of a company coordinator involves _________.

a. Making the management to assemble a portfolio of its customers
b. Building and managing the infrastructure for customer support
c. Create training programs for its management and employees
d. Putting in an extra effort to make a sale
Answers:
1. (c), 2. (a), (b), and (d), 3. (c) and (d), 4. (b), 5. (a), (b) and (c)
! !45
REFERENCE MATERIAL
Click on the links below to view additional reference material for this
chapter
Summary
PPT
MCQ
Video Lecture - Part 1
Video Lecture - Part 2 
! !46
CUSTOMER CAN BE DIFFICULT
Chapter 2
Customer Can Be difficult
Objectives
• Recognise a variety of difficult personality types.

• Customer Complaints: Verbal and Non-verbal Responses
• Use the Emotion-reducing Model to help keep difficult situations from
escalating
• Determine appropriate strategies for dealing with various types of
customers
• Dealing with dishonest customers
• Develop better relationships with internal customers
• Use the six-step Problem-solving Model in handling difficult customer
situations
Structure:
2.1 Why are Customers Difficult?

2.2 7 Types of Customers and How to Handle Each of Them Successfully
2.3 9 Rules For Serving The Difficult Customer
2.4 Customer Complaints: Verbal and Non-verbal Responses
2.5 How an Emotion-reducing Model Works?
2.6 Strategies for Dealing with the Types of Difficult Customers
2.7 Dealing with Dishonest Customers
2.8 What Is the Difference between a Dissatisfied Customer and an Angry
Customer?
2.9 Working with Internal Customers (Co-workers)
2.10 3 Ways to Prevent, Identify and Engage Unhappy Customers on
Social Media
2.11 The Problem-solving Process
2.12 Summary
! !47
Introduction
The customer may be always right, but that doesn’t mean all customers
are easy to deal with. Anyone who's ever worked in customer service can
tell you, customers can be downright unruly. Still, if you want to stay in
business, you’ve got to deal with them. It helps to use a customer-centric
perspective that puts you in the place of your customer. Try to see the
situation as they do. What exactly is causing them stress? What are the
solutions they might find satisfactory? How can you apply those solutions
with minimum effort?
Finding techniques that help you disarm unhappy customers and win them
to your side is the key to providing great customer service – even when
you do not want to serve them.
2.1 Why are Customer’s Difficult?
If you can get even a remote idea of what is making a customer act in a
negative way, you can begin to address the situation. You’ll have a greater
opportunity to achieve your goal of solving the problem.
Solving the problem is good for your employer, of course. Saving a

customer keeps business coming back. Solving the problem is good for the
customer, too. S/He will be happier.
But how does solving the problem help you? When you learn what causes
ordinarily nice people to become difficult customers, you’ll discover simple
methods for handling these challenging situations.
There is always a reason for the way customers behave. You just may not
always know what it is. It may be that they are having a horrible day, and
their mind is preoccupied by problems that have nothing to do with you or
your business. You won’t always be able to figure it out completely.
Difficult customers come in a wide variety. There are those whose

personality rubs you the wrong way. They may not be difficult for someone
else, but they are for you. And then there are those who are difficult for
everyone: Picky people, know-it-alls, egocentrics, fault-finders, constant
complainers, etc. Every salesperson can list a number of the types.
! !48
But perhaps the most difficult for everyone is the angry customer. This is
someone who feels that he or she has been wronged, and is upset and
emotional about it. These customers complain, and they are angry about
something you or your company did.
There are some sound business reasons to become adept in handling an

angry customer. Research indicates that customers who complain are likely
to continue doing business with your company if they feel that they were
treated properly. It's estimated that as many as 90% of customers who
perceive themselves as having been wronged never complain, they just
take their business elsewhere. So, angry, complaining customers care
enough to talk to you, and have not yet decided to take their business to
the competition. They are customers worth saving.
Not only are there benefits to your company, but you personally gain as
well. Become adept at handling angry customers, and you’ll feel much
more confident in your own abilities. If you can handle this, you can handle
anything. While any one can work with the easy people, it takes a real
professional to be successful with the difficult customers. Your confidence
will grow, your poise will increase, and your self-esteem will intensify.
Activity A
1. In what way can difficult persons prove to be profitable?

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! !49
2.2 7 Types of Customers and How to Handle Each of

Them Successfully
What does “type of customer” really mean, and how do you recognise the
differences between the various types of clients? We collected and
compared our experiences, summarising seven different types of
customers.
What Does “Type of Customer” Really Mean?
Different customers can have similar characteristics such as interests,

appearance, shopping behaviour, etc. So, we can divide them prototypically
into customer segments, or “types of customers”. Of course, each
customer is unique, but classifying the different personality types can help
understanding the various types you may encounter.
Here is a list with 7 personality types and additional advices on

how to handle each one of them:
1. The Negotiator
Doesn’t matter if calm and quiet, or confident and loud – negotiators
always want to bargain. If you are dealing with them, know that a common
objection is to bargain your price based on a cheaper competitor’s offer.
But most of the time, they want to bargain as a matter of principle.
How to deal with a negotiator/: If you have room for negotiation, go on

as long as you do not harm your selling principles. Sometimes, negotiators
will get unpleasant and keep asking for more until they are certain they will
not get more. The negotiator seeks to beat you down, no matter how good
the deal is. Do not get lured into any discussion and argue calmly and
professionally. Stay confident and point out the good quality and
performance of the product. Make it clear if you do not want to bargain and
move to a close.
2. The Well-informed
The well-informed are confident. They will walk directly towards you, giving
you a firm handshake. Although they already seem to know everything,
they expect professional advice from you. Often, their decision to purchase
is based on how the product reflects their social status.
! !50
How to deal with the well-informed: It can get quite exhausting

dealing with a know-it-all. But, power comes from inner peace. Even if they
already seem to have formed an opinion, provide them with precise
information. Acknowledging their competence will comfort them. If their
idea is false, try not to lecture them as this will make them uncomfortable
and perhaps even angry. Small talk might not be appropriate in this
context. Instead suggest products without trying to persuade them in their
final purchasing decision.
3. The Annoyed One

Every once in a while you have to deal with customers who complain about
almost everything. Whether it is the high price, the bad quality or the
unfriendly seller – there is nothing really you can do to please the
customer. They are just always irritated.
How to deal with the annoyed ones?: A way to handle these types of
customers is to impress them with expertise. Also, you are able to ease the
customer’s mind with the right balance between problem solution,
approval, politeness and courteous treatment. When getting the feeling of
being listened and responded to, you are eventually able to convince them.
They might even flash a smile!
4. The Suspicious One

Suspicious customers will not hide their mistrust of products and
advertising. They are the one thing above all: critical. They will gladly let
you explain everything and surprise you with a strong opinion and
knowledge.
How to deal with the suspicious one?: Do not interrupt them, make
them feel that they are taken seriously. You need to seek confidence and
show them that they are in best hands. Assure to provide reliable
information and convince them with great expertise. Everything else will
make them even more skeptical. By finding the source of mistrust in a
particular product (e.g., supposedly high electricity consumption), you can
invalidate the presumption with facts and give proof to clear his
misunderstanding. Giving out product data sheets is a good way to
convince the suspicious type.
! !51
5. The Questioner
This type of customer can be very pushy as he wants to know everything.
How to deal with the questioner Firstly, try to find out if they really
intend to buy. Perhaps, they already ordered the product somewhere else
and just want a free consultation. If you do not think so, stay friendly and
patient as always. Even if questioners are not buying right away, your
patience will be remembered.
6. The Ones Who Agree on Everything
These customers are reserved and act shy. They will say “yes” quickly. At
the same time, they are overwhelmed and feel that they have been taken
by surprise. The sales conversation is a stressful moment for them.
Sensitivity is required here.
How to deal with the ones who agree on everything Keep talking
calmly and in a non-binding way. Otherwise, they will feel pushed into a
corner quickly and obliged to buy. You will not probably sell to him a
second time when he gets the feeling he needs to buy, simply to get out of
the situation. So, try not to turn this customer off by letting him feel like
he is being sold to. Make sure you ask open questions to find out about the
customer’s needs and preferences. Give him the time for consideration and
leave him in the meantime. Let him approach you for his final purchase
decision.
7. The Indecisive
These are the customers who are not really sure about what they want.
They will give you short, indecisive answers, saying things like “maybe” or
the dreaded “I don’t know.” There is a lot going on in their head. Numerous
questions show that they are considering whether to buy or not to buy.
How to deal with the indecisive?: To convince them, they are going to
need a little, or a lot handholding. Learn more about them, they will
probably give you enough to help you lead them down the right path.
Educate this type of customer on why your product is the best one for
them. Support their final decision a few more times by approving the
purchase.
! !52
Bear in mind that most people are going to be some sort of combination of
these customer types. However, understanding each type and how best to
approach them will help you attract all of the personalities and hopefully
close more sales.
2.3 9 Rules For Serving The Difficult Customer
Every business owner knows of at least one challenging customer for

whom we hold the phone ten inches away from our ear. And who of us has
not received an ALL CAPS e-mail with expressive punctuation? The real
cost of dealing with these irate customers can be significant in terms of
capacity, stress and dollars.
Satisfying an angry, rude, or condescending customer does not have to be

difficult.
Here are nine rules that can help you turn difficult customers into
happy clients.
1. Know a difficult customer when you see one.
Watch for the signs. Some can be subtle at first but flags should go up
when you hear terms like “payment,” “issue,” “problem,” “bug” or “slow.”
Be sure to listen closely when it comes to such matters. Also watch for an
increase in the volume of the customer’s voice or the use of sarcasm;
these can be signs that a request has the potential to escalate. Make these
potentially difficult requests first priority; unhappy customers tend to be
more impatient than happy ones.
2. Stay on the lookout. Everywhere.
Great customer service can happen anytime but only if you are aware that
there is a customer in need. Keep your finger on the pulse by making
support easily accessible. Make sure you have a “Contact Us” link at the
top of every webpage and closely monitor social media accounts like
Twitter, Facebook, LinkedIn and others, where someone may be trying to
contact you. Also keep an eye on message boards and blogs for dissatisfied
customers and other queries. Google Alerts is also a great tool for
monitoring social mentions and comments.
! !53
3. In customer service, the hare wins the race.
The slow, steady tortoise may win out in the proverb, but in customer
service, the fast response wins the hearts of consumers. Customers like
knowing that someone is paying attention and the faster the response, the
stronger that message will be. Difficult customers can be especially
impatient and immediate responses go a long way to reduce their angst. Of
course, never sacrifice quality for timeliness, but strive for the delicate
balance. If you need more time, send a note to say you are working on it
and when they can expect the completed task or order.
4. Get personal.
When correspondence is not face-to-face, a customer is much more likely

to express anger that they might not display in person. It is critical to let
demanding customers know that they can speak with a human being, not
an automated robot. Customise responses, avoid overuse of boilerplate
language, introduce yourself personally and call them by name. When it is
possible, include a photo that they can view or ask if they have access to
Skype or other visual communications tool. It is harder to yell at someone
who takes the time to be personable, compared to a nameless, faceless
agent.
5. The spoken voice is better than the written word.
If face-to-face communication is not feasible to resolve a touchy matter,

given the choice between a verbal conversation and e-mail, always go for
the voice. When defusing a “situation,” it is more effective if the customer
cannot only understand what is being said, but can literally hear it, too. A
good writer can craft a fantastic response but nothing beats human tone
and inflection when a customer is upset.
Plus, e-mails can always be misconstrued.
6. Give them what they want.
The best way to turn an angry customer around is simply to give them
what they are asking for. If it is a refund they want, do your best to get
them their money back. If it is an apology, then say you are sorry (and
mean it). If they want you to admit you were wrong and they were right,
! !54
do just that. An unhappy customer can damage your company and its
reputation way more than that refund will cost.
7. Tell the truth and be accountable. Be honest.
If your site is broken, say so. If it was your mistake that led to the
customer’s distress, fess up. If you do not know the answer, admit it and
tell them you will find out and get back to them as soon as possible. People
appreciate transparency; but more so, they appreciate humility. Healthy
doses of both help to calm tense users and build trust; this is needed to
find a workable resolution.
8. Say please and thank you.
There is no context in which it is more important to be polite than in

customer service. No matter the voice volume or foul language being
directed your way—it helps immeasurably to stay polite, civil and maintain
equanimity. When dealing with unhappy customers, ask yourself if
whatever you are doing for them were done to you in the same situation,
would you feel satisfied? If the answer is yes, you are probably doing the
right thing!
9. Start with “I’m sorry” (even when it’s not your fault).
A great response to a difficult request should always begin with an apology

and end with gratitude. Start with something like, “So sorry to hear that
you ran into this issue” and end on “Thanks for bringing this to our
attention.” Alternatively, try “First, let me apologize for the difficulty you
are experiencing.” A simple opening like this acknowledges the customer’s
pain, sends a caring message and cuts right to the problem, without
dodging the issue that something is amiss.
Skillful customer service is part of any great user experience, and more
than that, a powerful marketing strategy.
! !55
Example: The Case of the Tires
I like to finish with my personal favourite about a Warehouse in America.

In the spirit of customer satisfaction, they created a new slogan: When a
customer has a complaint, we first solve the issue, satisfy the customer,
and after that—when still needed—we look for the cause. Why does the
customer need to know what the cause was of who’s fault it is? The
customer wants to be helped!
One morning, an angry customer enters the warehouse’s counter with

two bicycle tires: “Less than 4 months ago, I bought these tires here and
they are already completely worn out. This can’t be possible, right?”
The counter employee sees the memo with the new slogan and decides
to directly act on this slogan. She offers the customer her apologies and
tells him to return to the warehouse on Saturday. She will make sure
there will be two new tires ready to be picked up.
“Yes, you better fix this,” growls the customer and walks away. On
Saturday, the customer returns and directly offers his apologies to the
employee. He’d misunderstood his wife and accidentally he’d mixed
up the shops. The employee responses: “No problem sir, this can happen
to everyone. Here are your new tires.”
The customer looks surprised at the employee and says: “But I never
bought these tires here!”
The employee responses with: “I already told that the last time sir,
because we don’t sell bicycle tires here.”
This action may have cost the warehouse around 20 dollars, but this
story has gone completely viral and has given the company a fantastic
image. It proves that you can truly focus on customer satisfaction, even
with a lot of creativity and a small budget.
!  
! !56
2.2 Customer Complaints:Verbal & Non-verbal Responses
Verbal cues are oral cues expressed in spoken words. A non-verbal clue is
when you observe someone’s expression or body language to decide what
they are meaning or thinking. (Figure 2.1)
Considering that most dissatisfied customers never bother to complain,

customers seeking redress for their complaints provide companies with
opportunities to improve their management and marketing programs so as
to enhance customer satisfaction and profitability.
Ineffective handling of customer’s complaint increase frustration and

dissatisfaction, reinforce negative consumer reactions and harm a
marketer’s reputation. In other words, failure to promptly handle
consumers’ complaints provokes consumers’ unfavourable behaviours (e.g.,
negative word-of-mouth or exit intentions) and this can have catastrophic
effects on an organisation’s business.
The greater part of dissatisfying service encounters is the result of front-

line employees’ inability to respond to service failure situations. Customers
often switch to an alternative service provider, not because of core service
failures, but because of the unacceptable response of employees to
customer attempts to redress failure. This can be attributed to existence or
absence of many factors. Broadly speaking, in any service recovery
encounter there are at least three elements: (i) environmental elements
(physical setting), (ii) technical elements (essential performance skills),
and (iii) personal presentation (verbal behaviour and non-verbal
behaviour).
Since the provision of a service recovery requires interaction, the various

forms of verbal and non-verbal communication rest at the heart of service
delivery and evaluation processes. Non-verbal communication takes place
every time one person interacts with another, it may be intentional or
unintentional and is part of the rapid stream of communication that passes
between two interacting individuals. The non-verbal components are
reported to be at least as important as the verbal components of
interpersonal communication in shaping the outcome of employee-
customer interactions. Nearly half of the variations in response to
interpersonal communication can be attributed to non-verbal factors.
! !57
Studies show that verbal interactions need the support of non-verbal

communications.
Non-verbal Communication Verbal Communication
conveying facts conveying emotion and feelings
the message needs to become part of the message does not need to be
a permanent file permanent
there is little time urgency there is time urgency
you do not need immediate feedback you need immediate feedback
the ideas are complicated the ideas are simple or can be made
simple with explanations
Figure 2.1: Verbal and Non Verbal Communication
In a service recovery situation, non-verbal communication may determine

how the service recovery strategy, conducted by the employee, is
perceived by the customer. Customers’ responses to service delivery,
perceived service quality or satisfaction, could be dependent largely on
their interpretation of various non-verbal signals during the encounter and
their decoding of the meaning associated with them. Previous studies
revealed unpleasant or displeasing non-verbal behaviour as one of the
major reasons for customer dissatisfaction.
Following a service failure, customers would be desirous of getting their

problems or elements of their dissatisfaction resolved as quickly as
possible. Service failures would evoke anxiety in customers and thus they
would be particularly vigilant to notice non-verbal cues in an attempt to
discern the service.
Activity B
2. What major reasons are attributed to dissatisfied customers?

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! !58
2.3 How an Emotion-Reducing Model works?
Emotions in service encounters: we all have experienced them. On one

hand, it is not difficult to recall the positive experiences that we as
customers might have had. They affect us, and they move us whether we
experience them as customers or as employees. It is vital for service
providers to understand the role of emotions in service encounters from
these perspectives. (Figure 2.2)
When dealing with people who are behaving emotionally (e.g., irritated,
angry, upset, crying, or raising their voice) that they are typically upset
with the structure, process, organisation, or other factors over which you
and/or they have no control. They are usually not upset with you. What
customers really want (but rarely get) is just a satisfactory solution to their
service issue. Individuals who are in a positive emotional state have been
shown to evaluate products more positively than individuals in neutral or
negative emotional states.
Research studies show positive affect indicates a “benign (kind, gentle,

caring) environment” that does not require any action. Therefore,
individuals in a positive emotional state are not motivated to engage in
systematic processing of problematic issues and use more simplistic
processing and heuristics instead. On the other hand, negative affect
represents a problematic environment, therefore individuals in a negative
emotional state are motivated to engage in systematic processing, which is
better suited to problem solving and handling “threatening” situations.
Customers who experience a strong (negative) emotional response to a

service failure will evaluate the organisation’s overall recovery effort more
systematically in forming their satisfaction judgments than customers who
experience little or no emotion. 
! !59
Figure 2.2: Emotions in Service Encounters
If your customer perceives that you are not attuned to his or her emotional
needs or thinks that you are not working in his or her best interest, you
become part of the problem, rather than part of the solution. Sales Reps
should focus on reducing the effort customers must make. Doing so
increases the likelihood that they will return to the company, increase the
amount they spend there, and speak positively (and not negatively) about
it—in other words, that they’ll become more loyal.
To meet customers’ expectations, reps should anticipate and head off the
need for follow-up calls, address the emotional side of interactions,
minimize the need for customers to switch service channels, listen to and
learn from disgruntled customers, and focus on problem solving, not
speed.
Therefore, research has shown the importance of providing managers with

insights into how to (1) train personnel to identify and respond effectively
to customer emotions caused by service failures, (2) enable staff to tailor
service recovery efforts to “fit” the emotional state of the customer, and
! !60
(3) empower front-line employees to ease negative emotions and diffuse

customer anger.
Example:
Assume a customer has a problem. As the customer approaches (or when

you answer the telephone), greet him or her with “Good morning (or
afternoon),” a smile, and open body language and gesturing (customer-
focused message). Then, as the customer explains the problems
(emotion), you can offer statements such as, “I see,” “I can appreciate
your concern, frustration, or anger,” or “I understand how that can feel
( c u s t o m e r- f o c u s e d ) .” S u c h s t a t e m e n t s c a n h e l p yo u c o n n e c t
psychologically with the customer. Continue to use positive reinforcement
and communication throughout your interaction. Once the problem has
been defined and resolved (problem resolution), take one more opportunity
at the end of your interaction to send a customer-focused message by
smiling and thanking the customer for allowing you to assist. Also, one last
apology may be appropriate for inconvenience, frustration, mistreatment,
and so on.
Activity C
3. What influences a customer to become negative?

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! !61
2.4 Strategies for Dealing with Difficult Customers
Difficult customers are those in which you have to deal with negative, rude,
angry, complaining, or aggressive people.
Angry Customers
Handling angry customers can be one of the most challenging aspects of a

job. Whether they confront you face-to-face, or you speak with them over
the phone, chances are you are going to be met with frustration,
aggressive anger, and little patience. Dealing with angry people requires a
certain amount of caution. For you to effectively serve an angry customer,
you must move beyond the emotions to discover the reason for his or her
anger.
a. Be positive. Tell the customer what you can do, rather than what you
cannot do.
b. Acknowledge the customer’s feelings or anger. By taking this

approach, you’ve acknowledged the customer’s feelings, and also
demonstrated a willingness to assist.
c. Reassure. Reassure the customer. Indicate that you understand why he

or she is angry and that you will work to solve the problems.
d. Remain objective. Angry customers are usually angry at the

organisation, product, or service that you represent, not at you. If they
do not settle down, calmly but assertively explain that although you
want to assist, you cannot do so until they help by providing
information.
e. Determine the cause. Through a combination of asking questions,

listening, feedback, and analysing the information you receive, try to
determine the cause of the problem. The customer may simply have
misunderstood what was said. In such an instance, a clarification may
be all that is required.
f. Listen actively. When people are angry, they need a chance to vent
their frustration and be heard. Avoid interrupting or offering “Yes, but . .
.” types of remarks.
! !62
g. Reduce frustrations. Don’t say or do anything that will create further

tension. For instance, don’t transfer a caller to another extension if the
customer told you he or she has already been transferred several times.
h. Negotiate a solution. Elicit ideas from the customer on how to solve

the problem. If the customer’s suggestions are realistic and feasible,
implement them. Or negotiate an alternative. By using customers’
suggestions, you are likely to gain their agreement.
i. Conduct a follow-up. Once an agreed-upon solution has been

implemented, take the time to follow up to ensure that all went well.
Activity D
4. A customer is angry because the salesperson is taking time in attending

to him. How would you tackle the situation?
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Dissatisfied Customers
Occasionally, you will encounter customers who are dissatisfied or unhappy

when you meet them. Dissatisfied customers’ emotions tend to be short-
lived and result in passive, if any, action, such as not returning to the
business. But they sometimes spread the word about their experience to
others.
Possibly they have been improperly served by you or one of your peers, or
by a competitor in the past. Even if you were not personally involved in
their previous experience, you represent the organisation or you may be
considered “just like that last service employee.” Unfair as this may be, you
have to try to make these customers happy. To do so, try the following
strategies:
! !63
i. Listen. Take the time to listen actively. Often, when people are upset,
all they want to know is that you’re willing to attend to their concerns.
When faced with a customer encounter that isn’t going well, remain
positive in language. This will help you avoid escalating the situation.
ii. Remain positive. Even though angry customers drain your energy,
don’t get drawn into mirroring their anger or agreeing with their
putdowns of your company, competitors, peers, products, or services.
This only fuels the fire. If appropriate, smile and interject positive
comments into the conversation as you listen, and try to determine an
effective course of action.
iii. Smile, give your name, and offer assistance. Sometimes a typically
cheerful greeting is not possible because a customer verbally attacks
first (e.g., you pick up a ringing phone or a customer walks up as you
are serving another customer or looking down or away). In such
instances, listen to what the customer is saying, use positive non-verbal
cues (e.g., nodding, open or non-threatening body posture, and
smiling).
iv. Don’t make excuses. Typically, customers are not interested in why
they did not get the product or service they wanted or thought they
paid for; they just want the problem solved (in their favour). Look for
ways to correct a mistake rather than cover it up.
v. Be compassionate. Try to remain warm, compassionate, and

empathetic while you are trying to uncover the cause of the problem.
You can then attempt to service the customer properly and promptly. In
effect, empathizing with the customer, shows he or she is not alone in
the way he or she feels and shows there is a solution.
vi. Ask open-ended questions. By using specific open-ended questions,

you can obtain the information you need to serve the customer. For
example, “Mr. Washington, can you explain exactly what you expected
from our service contract?”
vii.Verify information. To prevent misunderstandings or the possibility of

escalating an uncomfortable situation, be sure that you received the
correct message. Too often, we believe we understand the meaning of a
message, only to find out later that we misinterpreted it. Test your
! !64
interpretation of a customer’s message by stating it in your own words.

For example, “Mr. Rasheed, if I heard you correctly, you were told by the
clerk who sold you this table that it would be assembled upon delivery,
but the driver refused to do so. Is that correct?”
viii.Take appropriate action. After you have gathered all pertinent

information you need to make a decision, work with the customer to
satisfy his or her needs.
Activity E
5. What is the difference between an angry customer and a dissatisfied

customer?
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Indecisive Customers
You will encounter people who cannot or will not make a decision. (Figure
2.3) Indecisive customers truly do not know what they want or need, as
when they are looking for a gift for a special occasion. Sometimes, such
customers are afraid that they will choose incorrectly. In these situations,
use all your communication skills. Otherwise, indecisive customers will
occupy large amount of your time and detract from your ability to do your
job effectively or to assist other customers.
!
Figure 2.3: Indecision
! !65
Strategies for dealing with an indecisive person are:
• Be patient. Indecisive people can be frustrating but they are still

customers. Greet such customers just as you would any other customer
and offer assistance. If the customer refuses your help or wants to
browse, that’s fine, but indicate where you will be and watch for the
customer to signal for assistance.
• Ask open-ended questions. Just as you would do with a dissatisfied

customer, try to get as much background information as possible. The
more data you can gather, the better you can evaluate the situation,
determine needs, and assist in the solution of any problems.
• Listen actively. Focus on verbal and non-verbal messages for clues to

determine emotions, concerns, and interests.
• Suggest other options. Offer alternatives that will help in decision-

making and reduce the customer’s anxiety. For example, “Ms. Naidu, if
you find that the colour of the fabric doesn’t match your wallpaper, you
have 30 days to return it.”
This approach shows that you are informed and trying to assist, and it
may help the person make up his or her mind. Suggesting a warranty or
exchange possibility may make the customer more secure in the
decision-making process.
• Guide decision-making. By assertively, not aggressively, offering

suggestions or ideas, you can help customers make a decision. Note that
you are helping them, not making the decision for them. If you push
your preferences on them, they may be dissatisfied and return the item.
Then you, or someone else, will have to deal with an unhappy customer.
Activity F
6. Why indecisive customers are considered difficult to handle?

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Demanding or Domineering Customers
They are overly confident customers who feel they know more and are
better than the average person. Customers can be demanding or
domineering for a number of reasons. Many times, domineering behaviour
is part of a personality style. In other instances, it could be a reaction to
past customer service encounters. A demanding customer may feel a need
to be or stay in control, especially if he or she has felt out of control in the
past. Often, such people are insecure. Some strategies for effectively
handling demanding customers are discussed in the following sections:
• Be professional. Don’t raise your voice or retaliate verbally.

Unfortunately, some adults “regress” to childish behaviour. Your customer
may revert to negative behaviour learned in the past. Both you and the
customer lose when this happens.
• Respect the customer. Showing respect does not mean that you must
accommodate your customer’s every wish. It means that you should
make positive eye contact (but not glare), remain calm, use the
customer’s name, apologize when appropriate and/or necessary, and let
the customer know that he or she is important to you and your
organisation. Work positively toward a resolution of the problem.
• Be firm and fair and focus on the customer’s needs. Assertive

behaviour is an appropriate response to a domineering or demanding
person; aggression is not. Also, remember the importance of treating
each customer as an individual.
• Tell the customer what you can do. Don’t focus on negatives or what
can’t be done when dealing with your customers. Stick with what is
possible and what you are willing to do. Be flexible and willing to listen to
requests. If something suggested is possible and will help solve the
problem, compliment the person on his or her idea (e.g., “Mr. Mehta,
that’s a good suggestion, and one that I think will work”), and then try to
make it happen. Doing this will show that you are receptive to new ideas,
are truly working to meet the customer’s needs and expectations, and
value the customer’s opinion.
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Activity G
7. What makes some of the customers domineering?

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Rude or Inconsiderate Customers
Some people seem to go out of their way to be offensive or to get

attention. Although they seem confident and self-assured outwardly, they
are often insecure and defensive. Some behaviour they might exhibit are
raising the voice, demanding to speak to a supervisor, using profanity,
cutting in front of someone else in a line, being verbally abrupt (snapping
back at you) even though you’re trying to assist, calling you by your last
name, which they see on your name tag (e.g., “Listen, Smith”), ignoring
what you say, or otherwise going out of the way to be offensive or in
control.
Strategies for dealing with rude or inconsiderate customers are:
i. Remain professional. Just because the customer is exhibiting

inappropriate behaviour does not justify your reacting in kind. Remain
calm, assertive, and in control of the situation. For example, if you are
waiting on a customer and a rude person barges in or cuts off your
conversation, pause, make direct eye contact, smile, and firmly say, “I’ll
be with you as soon as I finish with this customer, sir or madam.”
If he or she insists, repeat your comment and let the person know that
the faster you serve the current customer, the faster you can get to the
person waiting.
Also, maintaining decorum may help win over the person or at least
keep him or her in check.
ii. Don’t resort to retaliation. Retaliation will only infuriate this type of
customer, especially if you have embarrassed him or her in the presence
of others. Remember that such people are still customers, and if they or
someone else perceives your actions as inappropriate, you could lose
more than just the battle at hand.
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Talkative Customers
Some people phone or approach you and then spend excessive amount of
time discussing irrelevant matters such as personal experiences, family,
friends, schooling, accomplishments, other customer service situations,
and the weather.
Strategies for dealing with talkative customers are:
a. Remain warm and cordial, but focused. Recognise that this person’s
personality style is probably mainly expressive and that his or her
natural inclination is to connect with others. You can smile, acknowledge
comments, and carry on a brief conversation as you are serving this
customer.
b. Ask specific open-ended questions. These types of questions can

assist in determining needs and addressing customer concerns.
c. Use closed-ended questions to control. Once you have determined

the customer’s needs, switch to closed-ended questions to better control
the situation and limit the opportunity for the customer to continue
talking.
d. Manage the conversation. Keep in mind that if you spend a lot of

time with one customer, other customers may be neglected. You can
manage a customer encounter through questioning and through
statements that let the customer know your objective is to serve
customers.
2.5 Dealing with Dishonest Customers
In business you’ve probably come to the realisation that the customer is

not always right. Sometimes they’re not only wrong, they’re dishonest as
well. How you handle situations with difficult customers says a lot about
you as a company, and as a person.
There are dishonest customers who will make false claims. The best
example of this type of dishonesty relates to clothing and jewellery stores.
Garments and items will be returned after they have obviously been worn,
but the customer says they are not satisfied or have changed their mind. It
! !69
is fairly clear that the customer never intended to keep the outfit and just
wanted something new for a particular occasion.
So what is the best way to handle this issue? Since it is often difficult to tell
if the complaint is valid or not, the company should follow the saying, “The
customer is always right.” However, the business would certainly keep a
record of this occurrence and would not allow the customer to repeat the
performance!
Joey was appalled when he saw a customer at the suburban Minneapolis

Dairy Queen store where he works pick up someone else’s $20 bill and slip
it into her purse.
So when the woman got up to the counter to order, Joey refused to serve
her unless she returned the money. When the woman refused, the 19-
year-old store manager went a step further: He gave the visually impaired
customer who hadn't realised he'd dropped the money $20 out of his own
pocket.
“I was just doing what I thought was right,” Joey said “I did it without even
really thinking about it. ... Ninety-nine out of 100 people would’ve done the
same thing as me.”
Even so, Joey has received loads of praise since a customer’s e-mail about
him to Dairy Queen was posted online.
Now, people are calling the store, thanking Joey and even offering him
jobs. Customer traffic at the Hopkins Dairy Queen has doubled, and many
people are leaving large tips — money that Joey says he will donate to
charity
Activity H
8. If you were in Joey’s place, what would you have done?

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2.8 What Is the Difference Between a Dissatisfied

Customer AND an Angry Customer?
Dissatisfied and angry customers arrive at their feelings from different

circumstances, but neither is good for your business. Soothing unhappy
customers might actually enhance your small business's image – as one
that cares if customers are happy giving it a competitive advantage.
Dissatisfied vs. Angry Customer
A dissatisfied customer is one who feels a business did not provide a

product or service as expected. A diner at a restaurant might feel the
service was somewhat too slow, taking up more of his evening than
expected. This customer may be annoyed or frustrated, but he is not quite
angry. Angry customers' feelings run much deeper. These customers feel
betrayed by the company, believing the company violated the norms or
ethics of a customer-company relationship. If, for example, a customer
received poorly wrapped, broken merchandise but has to spend several
weeks getting the company to respond, he might feel betrayed because the
company created the difficulty and keeps failing to solve it. Betrayal is not
simply a case of extreme dissatisfaction. It is a deeper emotion that causes
customers to respond strongly, often by taking some revenge.
(i) Unhappy Customer Reactions
Dissatisfied customers' emotions tend to be short-lived and result in

passive, if any, action, such as not returning to the business, according to
Tripp and Grégoire. However, dissatisfied customers usually do not let the
company know they are unhappy. But they sometimes spread the word
about their experience to others between 10 and 20 people, according to
the researchers and these others might be dissuaded from being a
customer. Business owners are left not knowing there is a problem.
Angry customers tend to let the company know they are angry. But their
feelings of betrayal can lead them to engage in unforgiving behaviours,
such as letting the world know through social media that they are unhappy
with a business.
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(ii) Appeasing Angry Customers
“Act quickly to assist and resolve complaints by angry customers. The

longer the customers wait, the more they seethe,” says WorkExcel.com.
Apologise but then let them air their complaint without interfering.
Empathse and repeat the customer’s complaint to her, keeping a calm,
positive tone. Lowering your voice and speaking slowly and calmly can
relax and disarm an angry person. If you cannot provide an immediate
solution, take the customer's contact information and let her know how you
will help her, including how long it should take. Give your name.
According to WorkExcel.com, making a customer feel that she is valued,

she won't be abandoned and she is connected with someone who will be
accountable and available for follow-up dissolves some of her anger.
Enhance the business's reputation by exceeding an angry customer's
expectations, recommends the Washington State Small Business
Development Center. Consider giving a discount on her next service.
(iii) Handling Dissatisfied Customers
To assist dissatisfied customers, Highline Community College recommends

smiling and giving your name to help the customer relax and feel like
someone is being accountable. Listen to the customer, then ask open-
ended questions about his experience. Verify what you think the customer
has told you, then take steps to resolve the situation. Ask if you can do
anything additional for him, also exceeding his expectations, advises the
Washington State Small Business Development Center.
7 Ways to Pacify an Angry or Dissatisfied Customer
The customer rules. Customers are gold in every business and no business
succeeds without customers patronising it.
A lot of us get very excited when we receive testimonials and praise from
clients, but when it is a complaint, we tend to play the blame game.
Whether justifiable or not, a customer has the right to be angry when he/
she is not pleased with a service.
! !72
Customers are the key players in every field, and they help to promote
your business, especially when they are treated like the gold they are.
Therefore, avoid a customer leaving dissatisfied or angry.
It takes months to find a customer and only seconds to lose one!
No matter how complicated their needs are, they must be met directly or
indirectly. Just like the saying goes,
“Every contact we have with a customer influences whether or not they’ll

come back. We have to be great every time or we’ll lose them.” – Kevin
Stirtz
There are several ways to pacify an angry or dissatisfied customer. Here

are a few:
1. Listen, listen and listen.

2. Let them know you are truly sorry.
3. Put yourself in the customer’s shoes.
4. Remain cool, calm and collected.
5. Never justify your wrongs.
6. Solve the problem in a way that is fair to both parties.
7. Always end on a good note.
1. Listen, listen and listen
Never argue with a customer no matter who is at fault. Dissatisfied

customers tend to take out their frustration on you. Do not take it
personally.
Take your time to listen and understand what the customer is dissatisfied
with, and then find a way to help.
Never argue with a customer no matter who is at fault.
2. Let them know you are truly sorry
If dissatisfied customers refuse to calm down, show empathy.
! !73
Be sincere, respectful, tell them you understand, smile at them, tell them
you are truly sorry for whatever the issue is, and let them know you are
there to help them.
Respect and understanding will help reduce the tension and ease
the angry customer.
3. Put yourself in the customer’s shoes
Imagine being in the dissatisfied customer’s shoes. What would you want
to hear?
You will be able to turn the situation around if you can think of what you
would want if you were the angry customer.
The customer needs to know you are on his/her side and that you
are sincerely trying to solve the problem.
4. Remain cool, calm and collected
At some point in the discussion, you might get on the verge of exploding
with anger, but you have to keep your emotions in check and remain calm.
You should be gentle with your customers and pass your point
across without offending your customer’s feelings.
5. Never justify your wrongs
Do not give flimsy excuses for mistakes or wrongdoings. Customer does

not want to hear excuses but solutions.
Whether the complaint is justifiable or not, do not give excuses. It is only

by suggesting a reasonable solution that you would be able to calm the
customer and make them go away happily.
Customers do not expect you to be perfect. They do expect you to

fix things when they go wrong.
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6. Solve the problem in a way that is fair to both parties
While trying to solve the problem, do not make the mistake of promising
unrealistic solutions.
Do not bite off more than you can chew. Promise what you can deliver so
that you do not go back to where you started.
Be fair to the customer, and to yourself.
7. Always end on a good note
Your last few moments of interaction is what your customer will remember.
Make sure you give your meeting a happy ending. When you end with a
positive conclusion, the customer starts to forget the problem they had
earlier.
Never leave a dissatisfied customer.
2.6 Working with Internal Customers (Co-Workers)
Internal customers are those people within your organisation whom other
parts of the organisation connect with. (Figure 2.4) While internal
customers may not necessarily purchase the products or services offered
by their employer, the internal customer relationship also plays a key role
in the business’s success. In the sales example, the salesperson who does
not work well with customer service may have greater difficulty placing
orders or obtaining answers to his external clients’ questions, resulting in a
poor level of service. Strained internal relationships can also adversely
affect company morale.
! !75
!
Figure 2.4: Working with Internal Customers
Ways to enhance your interactions with internal customers are:
Staying Connected
As a business owner, you may have a natural tendency to focus on the

relationship with external customers, as they are the ones who purchase
your products and services. Still, seeking ways to improve internal
customer relations can lead to a healthier work environment. You can take
steps to improve internal relations by training employees to think of co-
workers in the same manner as external customers and provide the same
high level of service. Set an example by showing appreciation for your
employees’ efforts and encouraging their feedback.
Meeting All Commitments
Many times, service providers forget the importance of internal customers.

They do not give the attention to internal customers in a way that they
would give to external customers. This can be a big mistake. For example,
if you depend on someone else to obtain or send products or services to
external customers, that relationship is as crucial as the ones you have
with external customers. If you depend on internal suppliers for materials,
products, or information, these people can negatively affect your ability to
serve external customers by delaying or withholding the items you need.
To prevent possibilities of such breakdowns, honour all commitments you

make to internal customers. If you promise to do something, do your best
to deliver, and in the agreed-upon time. If you can’t do something, say so
! !76
when your customer asks. If something comes up that prevents you from
fulfilling your commitment, let the internal customer know of the change in
a timely manner.
Don’t Sit on Your Emotions
Some people stifle their anger, frustration, and other negative emotions
rather than getting their feelings out into the open and dealing with them.
It could be damaging to their health, but also destroy working
relationships. If something goes wrong or they are troubled by something,
they have to go to the person and, talk about the situation. Failure to do so
can result in unhappy internal customers, causing damage to the
customer-supplier relationship, and damaging their reputation. Not
forgetting that they will have to continue to rely on their customer in the
future too, therefore cannot afford a relationship problem.
Build a Professional Reputation
Through your words and actions, go out of your way to let your customer
and your boss know that you have a positive, can-do, customer-focused
attitude. Let them know that you will do whatever it takes to create an
environment in which internal and external customers are important. Also,
regularly demonstrate your commitment to proactive service. This means
gathering information, products, and other tools before coming into contact
with a customer so that you are prepared to deal with a variety of
situations and people. It also means doing the unexpected for customers
and providing service that makes them excited about doing business with
you and your organisation.
Adopt a ‘Good Neighbour’ Policy
Take a proactive approach to building internal relationships so that you can

head off negative situations. If your internal customers are in your
department, act in a manner that preserves sound working relationships.
You can accomplish this in part by avoiding the following negative work
habits: 
! !77
1. Avoid gathering of friends and loud conversation in your work

space. This can be especially annoying if the office setup consists of
cubicles as sound travels easily. Respect your co-workers’ right to work
in a professional environment. If you must hold meetings or gatherings,
go to the cafeteria or some other place away from the work area.
2. Maintain sound grooming and hygiene habits. Demonstrate

professionalism in your dress and grooming. Avoid excessive amount of
colognes and perfumes.
3. Don’t overdo call forwarding. Sometimes you must be away from

your work space. Company policy may require that you forward your
calls. Do not overdo forwarding your calls. Your co-workers may be
inconvenienced and resentful if you do.
4. Avoid unloading personal problems. Everyone has personal

problems now and then. Do not bring personal problems to the
workplace and burden co-workers with them. If you have personal
problems and need assistance, go to your supervisor or team leader or
human resources department and ask for some suggestions. If you get
a reputation for often having personal problems—and bringing them to
the workplace—your career could suffer.
5. Avoid office politics and gossip. Your purpose in the workplace is to

serve the customer and do your job. If you have time to spread gossip
and network often with others, you should approach your supervisor or
team leader about the job opportunities in which you can learn new
skills. This can increase your effectiveness and marketability in the
workplace.
6. Pitch in to help. If you have spare time and your co-workers need
assistance with a project, volunteer to help out. They may do the same
at some point in the future when you are feeling overwhelmed with a
project or assignment.
7. Be truthful. One of the fastest ways for you to suffer a damaged

relationship, or lose the trust and confidence of your co-workers and
customers is to be caught in a lie. Regard your word as your bond.
! !78
Activity I
9. How can internal customers improve upon a business?

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2.10 3 Ways to Prevent, Identify and Engage Unhappy

Customers on Social Media
!
With the explosion of digital channels, online reputation management as
well as high quality customer service is more critical than ever. Customer
complaints online spread like wildfire from one social network to the next.
When someone feels as though they have been wronged by a brand they
care about, they will go out of their way to share their negative feelings
with as many people possible. Like it or not, social media has given your
customers a massive megaphone with which to amplify their level of
satisfaction about your brand.
No matter how great your customer service is, complaints are bound to
happen, especially in the ecommerce landscape. It is how a brand chooses
to handle negative situations that can win or lose potential customers
watching from the social sidelines.
Protecting your brand reputation takes planning. Your teams must be

armed to address complaints in a timely, convenient fashion.
! !79
Here are three ways you can prevent, identify and engage unhappy
customers:
1. Prevent Complaints: Analyze Consumer Behaviour
By pinpointing dissatisfied customers before they complain, you can

resolve issues before they even happen. The same way brands can collect
intelligent insights on high-impact shoppers, brands can assess behaviours
of those most likely to complain offsite and guide service resources to
address issues onsite.
a. With intelligent, predictive behavioural targeting, brands can monitor.

b. Who is hovering on a complaint form or customer service page.
c. Interaction records to become aware of a site visitor who is more apt
to complain.
d. Consumers who may be having navigation difficulties.
e. Those who are seeking support.
With intelligent engagement, you can target those visitors in crisis and
resolve their issues before they get upset and go elsewhere to vent their
frustrations.
2. Identify Situations that Require Your Attention: Listen
Consumers are talking about you in forums, social channels, blogs, review
sites, and complaint bureaus. Do you know what they are saying? It is
found that more than half of marketers (60%) engaged in social listening.
By implementing a robust social listening tool, you can track conversations

happening in real-time and understand the recurring issues that lead to
customer complaints. For instance, if your brand requires consumers to call
an 800-number to get customer service and hold times are frequently very
long, you can be sure that angry consumers are talking about this issue
across the internet.
Listening to what consumers are already saying is key so you can engage
and then put the necessary steps in place that will lead to a change in the
conversation. Forrester even said that social listening is a good indicator of
brand health. Ignoring social conversation can be dangerous; you’ll miss
out on opportunities to build better customers relationships.
! !80
One big brand example is Wendy’s, according to a recent article

from Econsultancy. Through social listening, the fast food chain found that
customers were weary of menu options that didn’t include nutritional
information. Shortly after, they released an app for that. Problem solved,
thanks to social feedback.
3. Engage: The Quickest Path to Resolution
According to Edison Research, 42% of those attempting to engage brands

on social expect a response within just 60 minutes. If someone takes their
dissatisfaction and posts it on a public site for all to view, chances are they
are pretty angry and they want an immediate response. Receiving no
response, or worse, seeing their post deleted, will only further incite the
customer—they’ll never come back to you. As unpleasant as it can be to
handle an unhappy customer in a public forum, ignoring the situation only
leads to more trouble.
Facing the problem head-on quickly with empathy and authenticity is your
best bet. And to get your customer talking to you directly is usually the
fastest path to a resolution. As seeing more and more of our customers
! !81
using invitations to chat with customer service right in their social

channels, for example, in tweets and Facebook posts.
This is effective on several fronts:
• Gives the unsatisfied customer immediate access to someone who can

resolve the issue.
• Shows the community that brand is listening and reacting which

translates to good customer care.
• Takes the conversation between you and the customer to a private space.
So, the issue, which often includes sensitive account or payment details,
can be appropriately handled.
How a brand handles complaint can turn a negative to a positive. I am sure

you, like me, have had a negative shopping experience that after being
expertly handled made you respect the brand MORE in the end. Giving
your customers immediate access to customer service teams wherever
they interact with your brand: in-store, on your website, on social and even
on mobile is a great start to keeping your brand reputation intact.
Generate positive social media buzz: To balance out any negative

commentary, focus on proactively creating positive conversation on your
social pages. Social identity has great influence over your brand image
online. Your social customers are likely also highly impactful customers:
“Customers who engage with companies over social media spend 20% to
40% more money with those companies than other customers.”
To create positive chatter on your social networks, find creative ways to

encourage social activity among happy customers.
For example, send targeted messages to customers (Tweet your purchase!)

following a positive engagement, i.e., live chat customer assistance,
completed transaction, etc.
Put the social in social media: Engage your network with interesting
conversation. Ask them questions tailored to your audience and industry.
! !82
Always make social sharing buttons available on original content pieces,

like blog posts or case studies.
Hold social contests that invite customer engagement and offer discounts
or coupons to the winning customer.
Customers look to each other for honest, unbiased brand feedback. So, bad
social exposure is a lot like bad press, but worse. These complaints are
taken seriously by other prospective consumers; according to Research:
“Seventy per cent of consumers trust brand recommendations from
friends, but only ten per cent trust advertising.”
Bottom line: It will impact your bottom line. Protect and promote your
brand reputation on social by strategically seeking and engaging social
complainers.
2.11 The Problem-Solving Process
Before you being to solve a customer’s problem, consider the fact that he
or she may not really want you to “solve the problem.” In some cases, a
person simply wants to vent frustration or be heard. This is where the
empathetic listening you have read about will come in handy. In many
cases, your customer will often have a solution in mind when he or she
calls or comes in. Your role may be to simply listen and offer to facilitate
the implementation of the suggested solution.
Once you decide to solve the problem, follow the six proven steps to
problem-solving are:
Step 1: Identify the Problem
Before you can decide on a course of action, you must first know the
nature and scope of the problem you are facing. Often, a customer may
not know how to explain his or her problem well, especially if he or she
speaks English as a second language or has a communication-related
disability. In such cases, it is up to you to do a little detective work and ask
questions or review available information.
! !83
Begin your journey into problem solving by apologizing for any

inconvenience you or your organisation has caused. The customer probably
wants someone to be responsible. A simple “I’m sorry you were
inconvenienced. How may I assist you?” coupled with some of the other
techniques covered in this book can go a long way toward mending the
relationship. Take responsibility for the problem, even if you didn’t actually
cause it. Remember that, in the customer’s eyes, you represent the
organisation.
Therefore, you are “chosen” to be responsible. Don’t point fingers at other

employees, policies, or procedures. It is also important to let the customer
know that you are sincerely regretful that the problem has occurred and
will do whatever possible to quickly and effectively solve it.
Ask Questions
Ask specific questions so that you can gather the information you need to
help identify and solve a customer’s problem. The only way to get the
information you want is to ask the right questions. You might use a variety
of question types. Here are some examples.
(i) Open-ended questions. Open-ended questions are good for defining

issues, clarifying, gathering information, and getting involvement.
When asking open-ended questions, phrase them in a manner that allows

the customer to respond as he or she feels necessary. You are not making
a decision or forcing a response, as you can do with other types of
questions; you are providing a vehicle for sharing information. Help focus
the customer’s response by asking specific open-ended questions. Note the
difference between the sample questions that follow:
Non-specific: “How do you like this new product?”
Specific: “What uses can you see for this new product?”
Although the first question may yield a useful response, you have not
asked for a specific, focused piece of information. On the other hand, the
second question will get the same bit of information but will also lead the
customer to think of specific applications. You have thereby created a need
! !84
(in the customer’s mind) and she or he may now buy your product or
service.
ii. Closed-ended questions. Closed-ended questions are sometimes

valuable for getting a quick response, gaining minimal involvement,
controlling the conversation, verifying information, and clarifying or
confirming points. For example:
• Mr. Mani, didn’t you say that your son would be the primary user of this
product? (yes or no)
• Mrs. Sharma, how many times have you used our services? (a specific
number)
• Ms. Maria, do you prefer the blue or yellow one? (a choice between two
items)
An important aspect of asking questions is to find out the customer’s true

concerns and solve his or her problems. For example, a customer may call
and say that he or she wants to return a television set because it does not
work. By asking questions, you may be able to help the person solve the
problem without the added expense of shipping or having a service
technician call on the customer.
You may ask for background information about the television set and then
ask some specific questions about the problem. Questions such as the
following might be appropriate:
• What model is it?

• What, exactly, is wrong?
• Does it have an antenna attached?
• Is there a remote control?
• Have you checked to see that the power cord is firmly attached?
• Have you tried using a different electrical outlet?
• Have you checked to make sure that the power strip is turned on?
! !85
Step 2: Compile and Analyse the Data
To be able to effectively determine a course of action, you need as much

information as possible and a thorough understanding of what you are
dealing with. To get that data requires active listening and a little
investigative work. You may need to collect information from a variety of
sources, such as sales receipts, correspondence, the customer, public
records, the manufacturer, and files.
In gathering data, you should also do a quick assessment of how serious

the problem is. You may hear about one instance of a defective product, or
you may hear about a pattern of inefficient service.
Once you have collected information through questioning and from other
sources, spend some time reviewing what you have found. If time permits
and you think it necessary or helpful (e.g., the customer is not present or
on the telephone), ask for the opinions of others (e.g., co-workers, team
leader or supervisor, technical experts). Ultimately, what you are trying to
do is determine the choices available to you that will help satisfy the
customer and solve the problems.
Step 3: Identify Alternatives
Let customers know that you are willing to work with them to find an
acceptable solution to the problem. Tell them what you can do, gain their
agreement, and then set about taking action.
Since you are new to the situation when a customer notifies you of a
problem or their dissatisfaction, you have an objective perspective. Use
this perspective as a basis on which to offer suggestions or viewpoints that
the customer may not see or has overlooked. Also, make sure that you
consider various possibilities and alternatives when thinking about potential
solutions. Look out for the best interests of your customer and your
organisation. To do this, be willing to listen to the customer’s suggestions
and to think creatively. Perhaps you will come up with ideas other than the
ones that you and your organisation typically use. Don’t sacrifice customer
satisfaction for convenience. If necessary, seek approval from higher
authority to use creative solutions (e.g., to make a special purchase of an
alternative item for the customer, or to give a refund even though the time
frame for refunds has expired).
! !86
Step 4: Evaluate Alternatives
Once you have collected all the facts, examine your alternatives or options.
Be careful not to let cost be the deciding factor. A little extra time and
money spent to solve a problem could save a customer and prevent
recurring problems. Consider the following factors in this evaluation
process:
A. What is the most efficient way to solve this problem?

B. Which are the most effective options for solving this problem?
C. Which options are the most cost-effective?
D. Will the options being considered solve the problem and satisfy the
customer?
Step 5: Make a Decision
Based on the factors in step 4, and any others you wish to use in your
evaluation process, make a decision on what your course of action will be.
To do this, ask the customer “Which option would you prefer?” This simple
question puts the customer into the decision-making position and makes
the customer feel empowered. The customer chooses. If the request is
reasonable and practical, proceed and solve the problem. If not, negotiate
a different alternative.
Step 6: Monitor the Results
Once you make a decision, monitor the impact or results. Do not assume
your customer is satisfied, especially if any negotiation occurred between
the two of you. You can monitor the situation with a follow-up call, asking if
he or she needs anything else when you see him or her, or sending a
written follow-up (e.g., thank-you letter with query concerning satisfaction,
service survey, or e-mail).
If you determine that your customer is not satisfied or additional needs are
present, go back to step 1 and start over.
! !87
Activity J
10. How do you think prior information of customers helps in handling

difficult customers?
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2.12 Summary
This chapter contributes to our understanding of emotions in service

encounters and contributes to the ongoing debate and discussion in service
research about the role of emotions in this context. With some customer
service problems, your customer might remain calm and reasonable no
matter how upset they might actually be. In other situations, no matter
how trivial the problem, your customer will be difficult, demanding, angry,
rude, and even potentially violent. Short of hanging up or calling security,
there are certain fundamental yet important steps you can take to deal
with difficult customers.
• An attitude of calm detachment can help you deal with difficult

customers.
• A little empathy and an apology are often the best tools to defuse an
upset customer.
• When dealing with angry customers, employ active listening skills, and
assure them you’re on their side.
• Don’t get caught up in a customer’s personal attacks.
• Turn the interaction to a focus on fixing an issue, empowering the

customer to help seek suitable solutions.
• Exceed the customer’s expectations.
! !88
Case Study 1
A passenger on a flight with a major airline was getting dripped on by

moisture leaking from overhead vents. He reported the incident to the
stewardess who pointed out that all the vents in the last 2 rows had the
same problem. The passenger asked the stewardess if she would report the
incident, and she said it wasn’t necessary as the airline already knew about
it and that the same condensation problem existed with the entire fleet.
She told the passenger that putting in another report wouldn’t make any
difference or get the problem fixed any more quickly.
The customer’s reaction: The customer was annoyed by this response and
also concerned about the mechanical quality and safety of every plane in
the airline, especially the one he was in.
1. What was inappropriate about the way the stewardess responded?
2. How should the stewardess have responded?
Case Study 2
A customer purchased a new mobile phone from a reputable cell phone

provider. Several months later, the phone started to malfunction and the
customer sent the phone back to the company for service. The company
stated that they would not replace the phone because it showed signs of
corrosion on the battery.
The customers reaction: The customer said that the phone had not been
exposed to water, and subsequent calls to customer service were met with
the ridiculous excuse that the corrosion was the result of normal exposure
to air and that the company still would not replace it or fix the problem free
of charge.
1. What was inappropriate about the way the phone company responded?
2. How should the phone company have responded?
! !89
Study Questions
1. What causes customers to become dissatisfied?
2. What tactics can you use to deal with angry customers?
3. What can you do to assist indecisive people in coming to a decision?
4. Why might some customers feel they have to demand things from
others?
5. How can you effectively deal with rude or inconsiderate customers?
6. What are some steps to help regain control of a conversation with a

talkative customer without causing offense?
7. What strategies can you use to build strong relationships with co-
workers?
8. List the strategies for effective problem solving.
9. If you summarise this chapter, what according to you are the common
factors in handling difficult customers?
! !90
1. How does solving difficult customer situations benefit your company?

a. It will generate repeat business
b. The difficult customer won’t bother you again
c. You will get a promotion
d. All employees will get promotions
2. Sunita works at a hotel registration desk. When a customer was

checking in tonight, Sunita reminded him that checkout time would be
11 a.m. “No its not!” he exclaimed. "It’s always 11:30!" Sunita’s
customer is:
a. Suspicious
b. Leave me alone
c. Impatient
d. Argumentative
3. Richard works the cash register at a retailer store. The store is

unusually busy today, and Richard’s lines has grown long. A woman at
the back of the line remarks loudly, "This is absolutely ridiculous!"
Richard’s customer is?
Options
a. Domineering/superior
b. Impatient
c. Argumentative
d. Leave me alone
4. Aparna works at a fancy gift shop. Many of the items in the shop are
expensive items, and Aparna is very knowledgeable about them. Today,
a man comes in looking for a gift for his wife. Aparna offers to help, but
he just grunts at her and turns his back. Aparna’s customer is:
a. Impatient
b. Insulting
c. Leave me alone
d. Argumentative
! !91
5. Arjun works in his small town's only video store. He is on a first name
basis with most of the customers who come in. Meena is a difficult
customer. Sometimes she is really friendly, and other times she snaps at
Arjun. She is an __________ customer.
a. Irritable/moody
b. Suspicious
c. Slow/methodical
d. Dishonest
Answers:
1. (a), 2. (d), 3. (b), 4. (c), 5. (a)
! !92
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !93
THE JOURNEY TOWARD GREATER CUSTOMER CENTRICITY
Chapter 3
The Journey Toward Greater Customer
Centricity
Objectives
• Evolving consumer dynamics

• Consumer demands and expectations
• Influencing persistency and retention
• Insurers are not meeting customers’ expectations
• Core principles for redefining customer relationships
• Becoming more customer-focused
• Customer-centric models
• Data for competitive advantage: advanced segmentation and data
analytics
• Harnessing the power of digital as part of an integrated channel strategy
• Customer-centric innovation
• A significant cultural shift
• Develop a culture of innovation
• Practical steps to customer centricity
Structure:
3.1 Evolving Consumer Dynamics

3.2 Core Principles for Redefining Customer Relationships
3.3 Protecting the Core: becoming more Customer-focused
3.4 Customer-centric Innovation
3.5 Practical steps on the Journey
3.6 Summary
! !94
Introduction
Advances in technology and communication, combined with the explosive

growth in data and information, have given rise to a more empowered
global consumer. Recent economic and political events highlight the need
for companies to understand how consumers view the world and the most
important attributes for their purchasing decisions.
The journey to customer centricity will not be an easy endeavor. In building

a strong foundation for the future, firms will need to focus on a new set of
core principles to redefine relationships. There will be many challenges in
developing the critical new capabilities that align objectives, targets,
rewards and recognition with customer needs..
3.1 Evolving Consumer Dynamics
(i) Consumer Demands and Expectations
Although technology is changing the way customers engage with

companies, a survey indicates that personal interaction is still highly
regarded. Interactive Marketing refers to the evolving trend in marketing
whereby marketing has moved from a transaction-based effort to a
conversation. The complex nature of products and customers’ need for
advice mean that some level of personal interaction will remain an
important component of overall channel strategy. (Figure 3.1) 
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!
Figure 3.1
Customers prefer products to be simpler and more transparent, so it is

easier to make informed choices. In an industry where margins are coming
under increasing pressure, companies need to choose where they invest
across the value chain to avoid adding extra cost while still paying for
services customers may prefer to do themselves.
These changes are forcing a dramatic change in the business operating

model, as companies need to focus on where their sales channels add
value to the end-customer. This will be helped by greater transparency in
the sales process and in product design. Expectations for consumers are
anticipations of future relationships between utility value and exchange
value, and expectations for producers are anticipations of future
relationships between time value and exchange value. Once played out,
expectations become price levels. The relationship looks like this: (Figure
3.2):
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!
Figure 3.2: Customer Relationships
Overall, customers are looking for value to be clearly demonstrated,

reflecting a balance of price, product features and service tailored to their
needs. They prefer to buy more products from companies they trust. Once
they have made their choice and established a relationship with a product,
they expect the provider’s products and services to meet their expectations
— and through their channel of choice.
The Chicken Maharaja Mac: Even companies with big brands need to tailor
for specific markets. Coca-Cola in Mexico has a different formulation from
that sold in the USA. McDonald’s signature dish in India is the Chicken
Maharaja Mac rather than the beef based Big Mac popular in most other
markets. McDonald’s look at value from the customer’s perspective. If you
don’t, you run the risk of having no customer, no brand and no market.
Customers have local and specific tastes and preferences.
To gain a market share in the US, Honda had one of its product champions
spend weeks driving around the US in order to find out what real
customers wanted, not what the design office thought they should. Softer
suspensions, twin cup holders and other features were some of the
consequences, as well as significant increases in market share.
! !97
Activity A
1. What is the customer looking for while purchasing a product?

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(ii) Influencing Persistency and Retention
Recognizing the value of the customer relationship is vital — at the point of

initial sale and over the customer lifetime. The most powerful and
underused marketing tool available today is segmentation: the ability to
identify high-opportunity customer groups within your marketplace.
Customer segmentation models, which identify those who have the highest
propensity to purchase, can improve customer satisfaction, compared to
traditional unfocused “product push” cross-sell efforts.
Companies also have an opportunity to influence persistency and support

retention through improved engagement with existing customers. This
must be backed by flexibly designed products that respond to changing
customer needs and financial incentives to reward customer loyalty — over
the customer life cycle rather than just at the point of lapse.
But the key to improving persistency is removing the reasons why

customers consider leaving in the first place. Use of predictive models can
target customers based on likelihood of lapse and the value of retention,
but “test and learn” approaches are essential to determine which
interventions are most effective.
Customers are willing to build long-term relationships with their providers

and purchase multiple products. However, companies must improve the
effectiveness of their communications, as well as recognise and reward the
value of the relationships.
! !98
Activity B
2. How can companies retain customers on a long term?

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(iii) Companies are Not Meeting Customers’ Expectations
Customer surveys indicate four dimensions where companies are failing to

meet customers’ expectations: service quality, rewarding loyalty,
communication and product transparency.
Consumers have a strong sense that companies could do more to earn

their trust. They tend to judge companies against other consumer
industries, expecting comparable standards of service and rewards for
loyalty. Yet, according to experience, companies typically benchmark
themselves against their peers in the industry. That’s a big disconnect.
Companies need to continually evolve customer propositions to meet
changing needs and expectations, particularly by improving information
and transparency, and they need to look outside the industry to do this
effectively.
The need for clarity and transparency is also driven by regulators

protecting consumer interests more than ever before.
Activity C
3. How can companies gain the trust of their customers?

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! !99
3.2 Core principles for Redefining Customer Relationships
In this fast-changing environment, companies need to focus on a new set

of core principles to redefine relationships with customers and transform
business models. To achieve this new strategic paradigm — and the first
step on the journey to customer- centricity — companies need to take the
following steps:
Protect business against disintermediation: Companies unable to

understand or deliver against current and future consumer needs and
preferences face the prospect of losing the connection with or being
pushed further away from the end-customer. They need to make sure they
retain a strong influence on how customers view their products and
services, regardless of overall channel strategy.
Redefine customer relationships: Companies need to better understand

the true needs of their customers in order to redefine the products and
services they offer and the ways in which they interact and serve them.
They need to know their customers better than ever and use the
information and knowledge as a source of competitive advantage.
Increase productivity to gain a competitive advantage: Historically,

productivity improvements were viewed as a response to adverse market
conditions. Businesses will only get successful outcomes through having a
competitive advantage and being seen to be better than the competition by
the customers. Companies need to create and maintain a competitive
advantage by increasing their productivity at a faster rate than competitors
do. Productivity improvement should be integral to a business strategy. Key
drivers for increasing productivity are investment in more productive
technologies, innovation, skills and seizing new opportunities. Firms
typically curtail spending in times of shrinking revenue or increasing cost
pressures. However, those companies who are able to view productivity
enhancements with the dual lens of improving the expense position while
growing the top line will achieve a competitive advantage. As consumer
expectations for better levels of customer service grow, they will need to
navigate the challenges imposed by large-scale organisations.
! !100
Diversify sources of revenue: Firms need to diversify to sustain stable

top-line growth and earning fluctuations. This also affects customer
centricity, as it recognises that product performance and consumer needs
shift with market conditions and life events.
Collaborate with new partners across the value chain: The shift from
pushing products to delivering solutions often requires firms to develop
new capabilities or provide products outside the current portfolio. In
addition, the adoption of new technologies (web services, etc.) is opening
opportunities to outsource non-strategic functions to improve the efficiency
and effectiveness of business functions across the value chain. Successful
companies will be those that develop capabilities to identify and manage
strategic business partnerships.
In managing its partnerships with vendors, Bharti Airtel uses a joint

governing structure that encourages people at different levels of the
organisations to communicate and address problems as they arise (for
example, restoring service after a severe storm). In some cases, such
interactions have led the company and its partners to redraw the scope of
their collaborations (for example, assign responsibility for building and
maintaining the cell towers to a new company), something that would be
more difficult to do in a more traditional partnership. With flexible
contracts, the companies can adapt to shifts in the competitive
environment and implementation challenges. The incentive system rewards
vendors for efficient network management. By sharing information, Bharti
Airtel and its telecom equipment providers are incentivised to develop
processes that advance learning, innovation and mutual trust.
By focusing on these core principles, companies can build a strong

foundation for the future while improving top-line growth and profitability
over the near term. To truly succeed, they must embrace and embed the
concept of innovation within their organisations. Future industry winners
will be nimble and able to respond quickly and effectively to changing
market conditions, new consumer demands and emerging regulations.
! !101
Activity D
4. How can a company ensure its customers do not lose interest in their
products?
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3.3 Protecting the Core: Becoming more Customer-focused
Businesses are increasingly adopting customer-focused business processes

to gain a competitive advantage. Especially prevalent in industries where
product offerings and price no longer provide sufficient differentiation, this
new focus offers a myriad of benefits. Customer experience is the
battleground, and you can’t win with a culture that doesn’t truly embrace
the concept. Talking to customers at regular intervals is not simply about
monitoring progress; it is a core part of becoming a business that listens to
its customers. If you don’t listen to them, you cannot possibly be focused
on them. Listening is only the start. You must act upon what they tell you.
Following up an interaction with a survey is a great start, but if your
customer tells you they had a poor experience, then you must do
something about it.
With these core strategies in place, the focus can shift to operational issues
that will enable change. Companies can drive growth in revenue and profit
by improving their businesses, attracting customers and strengthening
relationships. However, implementation is not easy, particularly where
traditional firms have extensive legacy systems and operations. The
challenge is how to transition from existing product and traditional
distribution models to those that deliver what customers want, as well as
how to develop the critical new capabilities to enable this transformation.
There are three essential steps along the journey to customer-centricity.

Firms need to focus on customer-centric operating models, advanced
segmentation and data analytics, and harnessing digital to better engage
with customers at a lower cost. (Figure 3.3)
In 1983, IBM had $ 8 billion in losses and was close to bankruptcy.

Gerstner felt IBM had become too rigid and unable to change or adapt, and
he set about changing the culture to one of teamwork, creativity and
innovation. Gerstner fostered cooperation among employees and made the
! !102
company more customer-focused. He did this by making tough decisions,

sticking with them and modeling the behaviour he wanted to see.
Activity E
5. Why is interaction with customers given so much of an importance?

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Figure 3.3: Customer Focus 
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(a) Customer-centric Models
Once a customer-centric system is put in place, it is imperative to

collaboratively work with other stakeholders whether it be business
partners, suppliers, customers or employees. The primary goals are to
implement a business innovation model and eliminate the practices that
hinder the creation of innovative systems. The understanding is that by
eliminating silos created by multiple processes, communication barriers
that contribute to lower levels of business productivity, and changing
practices that stifle creativity innovation can become a core team process.
There are, however, important implications to introducing such an approach

across the organization. These challenges therefore require organisations
to leverage the right technological and strategic tools successfully manage
larger, more distributed teams, and more interactions, while at the same
time allowing for increased participation with customers. A customer-
centric organization builds an operating model around a deep
understanding of its customers, people, processes and what they value and
the contribution each makes to the profitability of the company. (Figure
3.4).
i. Delivering a positive and seamless customer experience at every

touchpoint across the customer life cycle
ii. Maintaining an active dialogue with customers (and acting on feedback)
iii. Fostering a culture that places the customer at the heart of the
decision-making process.
! !104
!
Figure 3.4: Customers, People, Processes
AEGON, an international life insurance, pension and investment company,

Religare, a global financial services group and Bennett, Coleman and
Company, India’s largest media house, have come together to launch
AEGON Religare Life Insurance Company Limited (ARLI). This venture is
dedicated to build a profitable customer-centric business with scale,
provide a work environment that fosters excellence and innovation. This
joint venture will adopt a local approach with the power of global expertise.
ARLI launched its pan-India operations in July, 2008 following a multi-

channel distribution strategy with a vision to help people plan their life
better. The fulfillment of this vision is based upon having a complete
product suite, providing customised advice and enhancing the overall
customer experience.
! !105
ARLI has launched a suite of products that are focused on providing the
customer with the means to meeting their long-term financial goals. At the
same time product development has been founded on the tenet of
providing the customer with great value.
Steps to Building a Customer-centric Business Model
How do best-in-class companies and their investors overcome obstacles

that hamper growth? The most successful performers identify underserved
and unmet customer needs, then work to fulfill them better than their
competitors.
This article shares 5 critical steps in building a customer-centric strategy to

propel productivity, sales, and profits.
1. Identify your most valuable customers.
Not every customer is a valuable customer. In fact, research has found that
a company’s top 25% of customers will create 89% of revenues, while the
next 25% will generate 7%, followed by the two bottom 25th percentiles at
3% and 1% respectively. This nearly aligns with the Pareto Principle, which
describes the unequal distribution of result against effort.
The statistics clearly show that treating all customers the same way is the
wrong strategy. If 25% of your company’s resources are spent serving
customers who account for only 1% of your revenue, it is a loss by any
description.
2. Talk to these customers.
Your best customers will have a deep understanding of what makes you
great and what makes you frustrating to work with. Look at them to
understand what you do well and where improvements are needed. What
are your customers’ needs? How do they decide to buy one company’s
products or services over others?
Rational and emotional elements alike factor into a customer/company

relationship.
! !106
3. Build a clear, objective customer journey map.
This map will show the steps of a typical customer takes when coming into
contact with your company, e.g., using your product, contacting customer
service, etc.
To build this map, ask some questions like:
a. Where, when, and how do customers touch your business, your

products, and your services?
b. When do they start their relationship — and with what tools?
c. How available is information to them and where are there disconnects?
d. How many different times do they have to call to confirm an order or

check on a delivery?
e. Why are customer service and technical support associates so

overwhelmed by requests or not responding to customers in a timely
fashion?
f. What exactly is timely in the eyes of your customer?
g. What innovations do customers most want?
h. Are there quality enhancements needed?
i. Are there incremental cost reductions needed in order to compete?
j. If so, where in the journey can costs be pulled to adequately support

that need?
Like all process mapping, customer journey mapping identifies

inefficiencies and redundancies, with the ultimate goal of increasing the
lifetime value of a customer over time.
! !107
4. Understand your company’s strategic value for customers.
Customers frequently buy from best-in-class companies because they want

to be best-in-class themselves. No one wants to buy an inferior product,
yet too often customers believe they are forced to settle for one. Good
enough is not good enough anymore in today’s environment of choice,
superiority, and exposure. Customers expect companies to contribute to
their business success.
For example, in the case of a manufacturing company,
a. Whether your sales staff can provide insight to your team on how to
improve your processes or products?
b. Do they know how to talk about industry trends and business

opportunities, or are they just taking orders?
5. Build a shared vision
Placing away a strategic plan for your quarterly board meetings is no

longer enough. The best strategic plans should be understood by everyone
in your organisation and iterated on every day. Everyone involved should
understand the team’s direction, and most importantly, the reasoning
behind. This is the key to developing a customer-centric mindset and
building an organisation that not only meet but exceed expectations far
into the future.
The Journey towards Greater Customer-centricity
Accurate customer information is the lifeblood of the customer experience

and your customers knows this. They have exchanged valuable personal
information with organisation. So, they expect a flawless service across
channels with your company. So, isn't it a waste that because of legacy
systems, silos and inaccurate or poor quality data, there are some
customers that “exist” on your system, but you will never get to “see”
them, let alone interact with them?.
So how does one start with creating a customer-centric organisation? Do

you define it as being Omni-channel, putting the customer at the center of
the organisation and crafting ‘emotive’ experiences from the center out? Or
! !108
do you start with an internal mindset change and hire behavioural and
cultural consultants to wave a magic wand and create a happy place where
unicorns fart rainbows, and all customers want to do business with you
(because all service staff and customer-facing agents are happy and
pleasant), even though they know nothing about you.
We know that reaching dreamland, customer-centricity, is a challenge. You

need to think logically and practically about how to start but the point is
this, just start.
Challenge 1: The way companies have grown and evolved, you have silos
of data. The call centre is over there with their platforms and the website
guys are over there with their analytics and round the corner you have the
guys sending out statements and bills. It is intense because everything is
disparate and everyone struggles to co-ordinate communication with the
customer between those channels. The result? An incomplete view of the
customer, with different departments often having different “views” on the
same customer. *sigh*
Challenge 2: So, now, you need to get all the data into one format and
system where you can do something with it. You need to have it available
at the click of a button and have it displayed in front of you where you can
work with it to understand it.
Fact: You do not have to make your existing systems obsolete – you need
to make them work harder for you.
Challenge 3: Will you ever get the data just right on your own to create
one-on-one engagement? The simple answer is “No”, because data grows
exponentially and evolves and is ever-expanding and is freaking
everywhere. Do not fool yourself into thinking you can get on top of this.
Solution: Engage with the customer in the right moment via the right
channel at the right time – and half your battle is already won.
Challenge 4: Did you know we share 50% of our DNA with bananas?
Insights should not present you with interesting facts, rather information
that can be acted upon to give you a competitive advantage and drive your
business forward. So, for your company, ask yourself – can you act on this
! !109
insight? More importantly, can you influence customer behaviour based on

what the insight tells you?
These challenges exist in many enterprises and are not exclusive to a

specific industry or sector. Achieving customer-centricity is less about
implementing a grand vision than about building positive rapport and
cadence with each individual customer today, tomorrow, next week, next
month and next year. Yes, being customer-centric is a strategic imperative
but how agile we can be moving forward when it becomes clear that tactics
need to change.
Customer Experience towards Customer-centricity
Every interaction with a consumer is a chance for a brand to surprise and

delight—or a missed opportunity to do so. The promise of data-driven
marketing is that brands will be able to ensure, each touchpoint is part of a
cohesive and customized omnichannel experience. But marketers still have
work to do to enshrine a customer - centered approach to the brand
experience.
a. Marketers are making improvements to the customer experience a

priority, on traditional as well as digital channels. And they expect better
business outcomes from their efforts.
b. The store experience is a significant focus for retailers, which are

looking to leverage digital tools and technologies to make in-store
shopping more personalised and relevant.
c. Digital experiences, meanwhile, are also becoming more store-focused,

as brands recognize the realities of a nonlinear, omnichannel customer
journey.
d. Consumers are not necessarily thinking about the customer experience

as such—but they do expect to be able to get what they want quickly
and easily regardless of channel, and they do not want brands to
disappoint them.
e. Better understanding of customer journeys—as well as the ability to

record all interactions and touch points with a given customer in one
location—can help marketers deliver real-time, customised brand
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experiences. But marketers have a long way to go to wrangle the data

and make it happen.
Activity F
6. How can companies overcome challenges to become customer-centric?

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(b) Big Data for Competitive Advantage: Advanced Segmentation

and Data Analytics
Big data analytics is the process of examining large amounts of data of a

variety of types (big data) to uncover hidden patterns, unknown
correlations and other useful information. Such information can provide
competitive advantages over rival organisations and result in business
benefits, such as more effective marketing and increased revenue. The use
of Big Data is becoming a crucial way for leading companies to outperform
their peers. In most industries, established competitors and new entrants
alike will leverage data-driven strategies to innovate, compete, and capture
value. Much of modern economic activity simply could not take place
without them. Adopters of Big Data are using data from sensors embedded
in products from children’s toys to industrial goods to determine how these
products are actually used in the real world. Many of these will be
companies that sit in the middle of large information flows where data
about products and services, buyers and suppliers, consumer preferences
and intent can be captured and analysed. Such knowledge then informs the
creation of new service offerings and the design of future products.
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Data analytics has become critical to designing an effective customer

experience. Data analytics and predictive modeling capabilities can also be
applied in other ways within an organisation:
1. Big Data can unlock significant value by making information

transparent.
2. Some leading companies are using their ability to collect and analyse
Big Data to conduct controlled experiments to make better management
decisions.
3. Big Data allows segmentation of customers and therefore much more

precisely tailored products or services.
4. Sophisticated analytics can substantially improve decision-making,

minimise risks, and unearth valuable insights that would otherwise
remain hidden.
5. Big Data can be used to develop the next generation of products and
services. For instance, manufacturers are using data obtained from
sensors embedded in products to create innovative after-sales service
offerings such as proactive maintenance to avoid failures in new
products.
Consumers can also reap highly significant benefits. Smart routing using
real-time traffic information, which is one of the most heavily-used
applications of personal-location data. As the penetration of smartphones
increases, and free navigation applications are included in these devices,
the use of smart routing is likely to grow. By 2020, more than 70 per cent
of mobile phones are expected to have a GPS capability, up from 20 per
cent in 2010.
The healthcare system would create benefits not just for the various
industry players but for patients, who would have broader, clearer access
to a wider variety of healthcare information, making them more informed.
Patients would be able to compare not only the prices of drugs, treatments,
and physicians, but also their relative effectiveness, enabling them to
choose more effective, better-targeted medicines, potentially even
customised to their personal genetic and molecular make-up.
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Samsung uses it to power the content recommendation engine on its smart

TVs. US-based Progressive Insurance relies on it to capture driving
behaviour and determine customer risk profiles. Bharti Airtel depends on it
to help create more than 5,000 targeted campaigns a day to increase
monetisation.
Activity G
7. How can access to Big Data benefit the customers?

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(c) Harnessing the Power of Digital as Part of an Integrated

Channel Strategy
In order to strategically and effectively market via the myriad of available

channels, companies must gain a comprehensive view of customers – who
they are, what they respond to and how they prefer to communicate.
Digital marketing applies technologies or platforms such as websites, e-
mail, apps (classic and mobile) and social networks. By harnessing the
value of variable data, marketers can develop highly targeted one-to-one
communications with customers while effectively spending marketing
dollars and tracking results. Impactful targeted marketing requires:
i. Gathering key customer data and channel preferences from prospective

and current customers
ii. Leveraging variable data to create customised and segmented

communications
iii. Creating and executing true multi-channel campaigns with consistency

among print, web, mobile and social
iv. Effectively tracking the success of each channel
Most consumers want access to a mix of online and personal contact

throughout the product life cycle. Digital is a critical enabler to delivering
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the experience customers want. Effective integrated marketing today

requires:
a. Finding the right balance of communication

b. Identifying ways customers want to be contacted
c. Ensuring that all messages are efficiently tied together to create the
strongest impression of a brand
d. Maximising the investment in each individual program
Call centers will also continue to play a critical role through the life cycle,
and must be adapted within the business to respond to evolving trends and
drive greater value at a lower cost.
Activity H
8. Why data is considered valuable to companies?

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3.4 Customer-centric Innovation
Customer-centric innovation revolves around customers and their

needs. The process starts with insights on customer needs with the goal of
designing a new product or service that delivers on these needs in a way
that is intuitive and accessible to customers. To genuinely leapfrog the
competition and generate significant growth, a new culture of innovation is
required, along with a significant change in approach to strategic decision
making. (Figure 3.5)
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!
Figure 3.5: Customer Centric Innovation
Bank of America (BoA) decided to adopt a customer-centric approach in

order to entice mothers to open savings accounts. Researchers from BoA
and a partnering design firm followed mothers across the US and observed
their daily routines. This observational study revealed that many mothers
would round up their financial transactions, and that they had trouble
saving money.
Based on these insights, the firm developed the “keep the change”
account, which rounds up to the nearest dollar on all purchases made with
a Bank of America debit card and transfers the difference into a savings
account.
Launched in this service attracted 2.5 million customers in its first year,
opening more than one million new savings accounts for BoA.
! !115
I. Significant Cultural Shift
For many companies, this represents a substantive and significant cultural

shift. The risk-averse nature of most firms is a key promoter to innovative
thinking. To achieve success in managing for innovation, companies must
acknowledge that innovation is a process. Further, to be successful, a
method must be identified to manage that process and the people
involved. Integrating the right set of people skills into a proven process
results in effective innovation. The required change in culture must be
driven from the top down.
Senior management must instill and clearly communicate a corporate

strategy focused on customer-centric innovation and recognise and reward
efforts to deliver this. Collaboration and empowerment of employees to
spot customer improvements and act upon them must become the new
norm, as well as physical spaces such as innovation centers to help develop
and nurture ideas.
Companies face a choice between innovation and transformation; between

the next new incrementally better product versus long-term survival and
prosperity. Companies that focus their strategy only on innovation typically
entwine themselves in complex and granular decision processes. But a new
breed of enterprise is emerging, one that combines innovation and
transformation in a process of discovery. These companies excel at
maintaining multiple focal points in a strategic vision designed to maintain
their market power over time.
Philips, formerly a leader in consumer electronics, is creating lifestyle

experiences that combine hardware, software, services and connectivity
and in the process transforming how it secures revenues and interacts with
customers.
Activity I
9. What are the core fundamentals of innovation to tackle competition?

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Develop a Culture of Innovation
Protecting the core is about getting the basics right, becoming more
customer-centric and, where appropriate, adopting the leading practices
that competitors or other industries have demonstrated. However, this
relies on largely existing competencies and business models and could be a
catch-up strategy. Only genuine customer-centric innovation that is
embedded into the organization will produce significant growth and deliver
competitive advantage.
3.5 Practical Steps On The Journey
Define: Define your target customers and their needs.
Generate: Generate customer engagement across their life cycle — this is

vital to building loyalty.
Take: Take a realistic look at your propositions (solutions, not products) —

what will it take to deliver what customers want at a price they want to pay
and still make money?
I n v o l v e : I n v o l v e d i s t r i b u t o r s a n d , t o g e t h e r, b u i l d s t r o n g e r
partnerships.The journey to customer-centricity will not be easy. These
practical steps will help you understand the process and guide you along
the way.
Learn: Learn to be adaptive — use detailed customer insight to test, learn

and act quickly, accelerating the process with prototypes.
Start: Start to build a culture that puts the customer at the center and
aligns objectives, targets, rewards and recognition with customer needs.
Focus: Focus on some key levers and build momentum throughout the
organisation.
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3.6 Summary
Advances in technology and communication, combined with the explosive

growth in data and information, have given rise to a more empowered
global consumer. Recent economic and political events highlight the need
for companies to understand how consumers view the world and the most
important attributes for their purchasing decisions.
Many companies are not keeping pace with changing market and consumer
dynamics and are far behind other industries in meeting customer
expectations. To succeed in this fast-changing environment and achieve
sustainable top-line growth, companies need to focus on redefining
customer relationships, transforming business models to embrace data and
digital and introducing an innovative culture in support of strategic
decision-making.
Achieving customer-centricity is less about implementing a grand vision

than about building cadence today, next week, next month and next year.
But the time has come when the journey is a strategic necessity, and all
companies need to be clear about where they stand and what steps lay
ahead for them.
Study Questions
1. Why personal interaction is given so much importance in marketing?
2. What are customer expectations in relevance to value and trust?
3. How can companies reward their customers because of their loyalty?
4. What is the criteria for companies to make changes in their products?
5. “Increasing productivity will gain competitive advantage to companies.”

Explain.
6. What is the purpose of companies forging partnerships with

stakeholders?
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7. What strategies companies should adopt to differentiate with other

companies?
8. What are the reason’s “Big Data” is considered the next best thing in
future of data analytics?
1. Conversation is a form of _________ in marketing.

a. Strategy
b. Interaction
c. Meeting
d. Transaction
2. Customers look for value and its components are _________.

(i) Price
(ii) Features
(iii) Market share
(iv) Tailored needs
a. (i), (ii), (iii)

b. (i), (iii), (ii)
c. (ii), (iii), (iv)
d. (i), (ii), (iv)
3. Companies can forge relationships with customers by _________.

(i) Interacting with vendors
(ii) Changing according to their needs
(iii) Rewarding their loyalty
(iv) Offering products of value
a. (i), (ii), (iii)

b. (i), (iii), (iv)
c. (ii), (iii), (iv)
d. (i), (ii), (iv)
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4. The four dimensions of customer expectations are _________.

a. Quality, rewarding loyalty, communication and cheaper products
b. Quality, quantity, rewarding loyalty, and communication
c. Quality, rewarding loyalty, communication and product transparency
d. Quality, variety, connectivity and availability
5. Companies can expect growth and maintain market leadership only if

they _________.
a. Innovate and have creative ideas
b. Explore alternatives and create a master plan
c. Interact with customers
d. Combine innovation with transformation
Answers:
1. (b), 2. (a), (b) and (d), 3. (a), (b) and (c), 4. (c), 5. (d)  
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REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
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DESIGNING THE CUSTOMER-CENTRIC ENTERPRISES
Chapter 4
Designing The Customer-centric Enterprises
Objectives
• Designing the Customer-centric Organisation

• Maximising customer experience
• Exceeding Expectations of Customers
• From Product-centric to Customer-centric
• Consequences of not transforming into a Customer-centric Organisation
• Success Factors to Becoming a Customer-centric Organisation
• Delivering the Company to the Customer: Product-centric company vs.
customer-centric company
Structure:
4.1 Designing the Customer-centric Organisation

4.2 Three Steps to Designing a Customer-centric Organisation
4.3 Structure the Organisation by Customer Segments So as to Maximise
the Customer Experience
4.4 Organisation Structure and Customer-centricity
4.5 Beyond Parity to Exceeding Expectations – The New Organisational
Target
4.6 From Product-centric to Customer-centric – Making the Leap
4.7 Consequences of Not Transforming into a Customer-centric
Organisation
4.8 Success Factors to Becoming a Customer-centric Organisation
4.9 What are the Advantages and Disadvantages for Every Company
Becoming a Customer-focused Business?
4.10 Deliver the Company to the Customer
4.11 Characteristics of Successful Customer-centric Enterprise
4.12 Summary
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4.1 Designing the Customer-Centric Organisation
Designing the Customer-centric Organisation offers today’s business

leaders a comprehensive customer-centric organisational model that clearly
shows how to put in place an infrastructure that is organised around the
demands of the customer. (Figure 4.1) Different customers want to do
business differently, and being profitable today means having the
capabilities that allow for flexibility. It means forming long-term
relationships with the most valuable customers, interacting with these
customers across multiple points of contact and integrating the results of
these contacts into a consistent company position for the customer. It
means learning from the contacts to customise the company’s offerings for
different customer segments, learning about new customer needs and
expanding the company’s offering to meet them and also using knowledge
of customers to package products and services into solutions that create
value for the customers.
For example, Air India allows the clients to select from a menu of over 20
different types of meals at the time of booking.
The market leader in Dish-wash category VIM has been modified with the
polycot bar, a patented technology which provides plastic coating on five
sides of the bar. This directly addressed a long-standing consumer concern
in the dish-wash area — the problem of soggy bars and wastage thereof.
Though it was a very small innovation but it addressed the crowd of all
women’s facing the problems of soggy bars.
Asian Paints started offering Samplers (200 ml paint packs) which can be
used to sample shades on the wall. It made customers able to try different
colors on their walls. Similarly, small sachets of Hair Shampoos increased
the sales of the shampoos as the affordability increased.
Aloo Tikki Burger by McDonald’s and highway menu like Lassi, Idli and
Dosa by Barista Lavazza are some of the examples of increasing
importance of customer-centric innovations.
Project Shakti by HUL and e-Choupal of ITC were again the customer-
centric innovations made in order to increase the penetration in rural
markets of India.
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Many firms are reluctant or unwilling to make the organisational changes

necessary to build a customer-centric capability; the preference thus far
has been to keep it simple and create simple, autonomous business units
that control their resources and can be accountable for their performance.
In other words, keep it simple for the management.
But that kind of simplicity means making it difficult for the customer. It is
then up to the customer or some third party to do the integrating and
capture the value of serving the customer. By implementing a customer-
centric capability, the company can now keep it simple for the customer,
eliminating third-party solutions and redirecting that erratic cash flow.
Firms hesitate to create a more profitable organisation by building
customer-centricity because of combination of two factors.
One is an underestimation of the changes needed to implement customer-

centric systems, such as customer relationship management (CRM)
software. Management cannot simply insert a CRM system into a product-
centric organisation and expect to capitalise on customer relationships.
Early returns show that half of all CRM implementations fail to achieve the
expected results, and one in five actually damages customer relationships.
Organisations are complex human systems into which new technology
must be painstakingly introduced.
The second factor that limits the time and energy invested by management
is the belief that they are already customer-centric. For the past ten or
fifteen years, these firms have been working hard to become “close to the
customer” or “customer-focused.” While acknowledging that this work has
been necessary and useful, it does not make the company customer-
centric. To be customer-centric, a firm must literally organise around the
customer.
Activity A
1.How can companies form long-term relationships with their customers?

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!
Figure 4.1: Designing the Customer-centric Organisation
Activity B
2. Why is it necessary to design different customer offerings for different

customers?
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4.2 Three Steps to Designing a Customer-Centric

Organisation
Today, marketing professionals are under a ton of pressure to understand

and improve customer experience. Brands and marketers alike realise that
paying attention to what you say in your ads, marketing collateral, and
social media campaigns is no longer enough:
You also need to deliver experiences that people want... But how?
When companies consider design as a core strategic function, they have a

much higher valuation over time: Design-driven companies show 10-year
returns of 219% over the Standard & Poor's 500 index, the Design
Management Institute has found. Yet, although strategic design is being
practiced, and successfully at that, at some organisations, many others are
baffled by the challenge and struggle to get started.
The typical organisation is composed of any number of departments, each

charged with its own specific initiative. Often, a department is able to
perfect its specific piece of the puzzle—at the expense of a seamless end-
to-end customer experience.
For example, a telecom's initiative to reduce call volume might end up

reducing the amount of incoming calls... at the expense of driving more
people into the store to get help. Or a bank might invest heavily in a new
website for opening new accounts, only to realise that people default to
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going into the branch because they have set up questions or concerns
regarding the security of their personal data.
From the various experiences, the only way for an organisation to avoid
such problems and to be successful, is to adopt the mindset of their
customers. Or, better yet, to integrate the customer in the design of an
optimal customer journey. It is a methodology called co-design.
The Power of Co-design
Once you realise that you have been designing your customer experience
all wrong by simply following traditional business practices that prioritise
efficiency and scale over the satisfaction of the end-user, it is time to set
things straight. But how?
Change is notoriously difficult and asking your entire organisation to

modify the way they think and work is not going to be met with a
resounding “yes!"
However, it is possible... and the following three steps will help you
get on your way.
Step 1: Build a framework that is focused on understanding the

customer experience from the customer’s point of view
Before people can change their behaviour, they need to understand how
their current actions are affecting the rest of the business—and, most
important, the end-user. The best way to do that is to create an experience
map.
The goal of an experience map is to enable your employees to view things

through the eyes of the customer, not their particular department or
function. Because only the customer sees the complexity of your entire
business.
In most organisations, each department is focused on doing a great job.

They are all committed to deliver on their plans and meeting their
individual KPIs.
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a. But do they understand how their role fits into the larger customer
journey?
b. Is the work of the billing department aligned with the customer service
people receive during set-up as a new customer?
c. Are marketing communications highlighting the information that is most

important to the service?
d. Does everyone truly understand the customer's highs and lows?
An experience map can help departments, teams, and individual

employees see beyond their own contributions to deliver even greater
value. It is a universal tool that cuts across department, particular
terminology, acronyms, and nuances. It provides clarity about where each
person fits in the process and helps unite all stakeholders around the
actual experience of their customers.
Step 2: Create a service blueprint to identify the future state of

your business
If the experience map is the current state, the service blueprint is the
future state that provides direction on what the customer experience needs
to look like once all the right touchpoints are in place. The service blueprint
is a "shared artifact" that unites the departments and keeps people aligned
on the journey of creating the optimal experience for the end-user.
Let's go back to the catering business. We used a Service Blueprint to show

changes along the journey to key customer touchpoints, such as an
improved Web portal for placing food orders. The service blueprint would
also identify critical "back of house" changes, such as the order
management system viewed by employees and the standard operating
principles that the team would use for delivery and set-up. Contextualising
these new touchpoints within a service blueprint helps teams understand
how all of their individual contributions build toward a seamless end-to-end
customer experience.
It is important for people to feel a part of the creation of the service

blueprint. Authorship creates a sense of ownership. If they are involved in
creating it, they will understand why it is happening, the initiatives will be
! !128
more practical, and they will feel more committed to keeping it alive. And
you need everyone invested to succeed.
Step 3: Establish a new set of metrics
Along with the creation of an experience map and service blueprint, you
need to set up a new measurement process to help keep everyone
accountable. The goal is to look at not just the output of one group in
isolation but all the relevant customer data, collectively. So, for example,
you might choose to develop a dashboard that pulls together metrics from
departments, giving you a comprehensive view of how your organisation is
performing. Also, it is important to measure as you go. Let real-time tools
help you access your progress and make adjustments immediately.
It is one thing to say you are a customer-oriented organisation, but it is

another thing to actually act like one. By staying on top of your metrics,
you can make sure that change is really occurring and you can understand
where to prioritise efforts down the road.
Stay the Course
It takes time to retune your business and change the way you think about
your customer. But an experience map, a service blueprint, co-design, and
collaborative ways of working can make it happen. These shared artifacts
help connect people together and make working as a cohesive, customer-
and employee-oriented organisation the norm.
Your customers are more discerning than ever, and they have an ever-
expanding set of options. If your customers have a seamless and delightful
experience with a company in a different industry, they are going to expect
yours to match or exceed that experience which the company provides,
whether or not it is a competitor of yours.
The only way to compete to win for the long-term is to sustain your focus
on creating the ultimate customer journey and you need the decision-
makers, the frontline workers, and your customers working together to
reimagine what your service offering can be in order to win.
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4.3 Structure The Organisation By Customer Segments So

As To Maximise The Customer Experience
Getting started on a customer-centric program will require developing key

customer experience principles that must be adhered to in order to provide
customers a personalised experience. The first principle must deal with
getting the right customer to the right channel to deliver the most relevant
and meaningful experience. When presented with a choice of access points,
customers tend to pick one at random, call a number, and end up in the
wrong place with an agent (call center) who knows nothing about them or
their problem. They then find themselves passed along and redirected
through a chain of agents, often ending up having to call again on a
different number to get their problem resolved. This results in a
disappointing and frustrating experience for the customer that damages
loyalty and makes inefficient use of the company’s resources.
Big Bazaar has set up Customer Advisory Boards (CABs) as a measure for
receiving valuable customer feedback. Through CABs, the management
aims to get closer to customers and give them a platform to voice their
opinions about the stores. CABs consist of 8-10 influential people of the
community like local doctors and lawyers who hold meetings and collect
feedback from consumers. The feedback is then assessed and implemented
by management to develop better customer relationships.
Activity C
3. How can a negative experience by the customer harm the reputation of

a company?
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With this framework, the company can align its CRM efforts with
developing those capabilities and fulfilling the promise of operationalising
the customer experience principles (Figure 4.2). 
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!
Figure 4.2: Design Capabilities. Needs Translate into Capabilities
A company usually will need to take six steps to create the most value
from customer relationships.
While the precise mix of activities and necessary resources at each stage
will vary from company to company, the six steps themselves do not. They
are:
1. Establish a customer-centric understanding of segments and their

evolving needs.
2. Build on this foundation to create an understanding of each customer

interaction with the company throughout a customer’s life cycle by
adhering to the customer experience principles.
3. Identify the implications for the four CRM functional domains—sales,

marketing, customer service, and reporting and analytics—to support
customers’ needs and interactions.
! !131
4. Catalogue and prioritise gaps in the current strategy, organisational

structure, process capabilities, and enabling technologies.
5. Develop a road map for addressing any gaps, as well as the change
management components required to support these efforts.
6. Execute phased initiatives identified in the road map.
All stakeholders must accept the six steps, thereby enabling a customer-
focused, problem-solving approach. If done, this will allow for greater
collaboration among product, marketing, sales and customer care, service
assurance, and field force management. Significant implications for
organisational structure and culture are often encountered, especially
where the different functions of sales, marketing, and product—contained
in their silos—are accustomed to operating with a high degree of
autonomy. In all cases where the environment has become one of rapid
collaboration across functions, a better customer experience will be
realised
Activity D
4. In what manner can stakeholders make a difference to a customer’s

experience?
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4.4 Organisation Structure and Customer-Centricity
There is a changing dynamic in the life sciences industry as companies

move to more fully implement which is a truly customer-centric structure.
These reorganisations will alter the way in which brand teams function and
produce consumer marketing campaigns. Those who do not evolve into the
new landscape will be left behind the curve.
The difference in being customer-centric vs. customer-focused
Sometimes, it is hard to tell the difference between customer-focused and

customer-centric thinking. Many companies argue that because they design
their products and services around the wants conveyed by specific
customer segments, they are customer-centric organisations.
However, when you peer into their internal processes, KPIs and other
operating metrics, a different reality often emerges. What you discover
when you look under the hood is that many companies mistake their
customer-focused culture for a customer-centric one.
(i) Customer-focused companies care about WANTS.

(ii) Customer-centric companies care about NEEDS.
Because they are focused on delivering on customer wants, a customer-

focused company’s processes are often designed to accomplish little more
than deliver a widget that scratches a customer itch while driving greater
margin contribution and increased market share in a particular segment.
Their customer interactions are targeted on selling more stuff.
Managers in these kinds of companies understand the costs associated with

producing, marketing, and delivering a widget to their customer but they
do not always understand the value of the customer relationship beyond a
measure of revenue. This inside-out perspective is the hallmark of a
customer-focused organisation.
! !133
Being customer-focused is not necessarily a bad thing. It is just that

organisations that are able to look at the world from the outside-in are
more likely to build deeper, longer lasting, and more profitable customer
partnerships.
Reaching a state of customer-centric nirvana goes beyond delivering what

your customer wants. It requires that you get deep into understanding
their fundamental needs as part of your relationship management efforts.
Organisations that are aligned around their customers seek to understand
the world through their eyes. Companies that strive for, and achieve this
level of engagement, see greater results and bring more innovative
products and services to the market.
It can be difficult for companies and their teams to make the transition to a
customer-centric operating model because it can often challenge deeply
held beliefs about how business is done and what constitutes success. But
trust me, it is worth the effort.
So, how do we become more customer-centric? In order to become a truly

customer-centric organisation, we should focus on five core elements of
organisational design.
Strategy
Strategy represents the overall commitment to develop solutions that solve

a customer's need and focus on the profitable, loyal customers.
! !134
1. Structure
Structure refers to the organisational concept that incorporates customer

segments, customer teams, and customer profit and loss.
2. People
There are several layers to this onion:
a. Personnel approach: Power resides with the people who know the
most about the customer and are rewarded accordingly.
b. Mental model: Focus on convergent, instead of divergent thinking.

Ask, “What combination of products is best for this customer?"
instead of, “How much product can I sell to this customer?”
c. Sales bias: The bias should be toward the buyers side of the
transaction; everyone in the company should always be an advocate
for the customer.
d. Culture: A company’s culture should be a relationship culture, which

constantly searches for more customer needs to satisfy.
3. Process
Process incorporates all the things a company does to make its products
and manage its relationships.
4. Rewards
Rewards are the measures that influence motivation, including customer

satisfaction, share of customer, lifetime value, and customer equity.
Putting Theory into Practice
For a playbook on how to successfully implement these five elements, we

need look into further and how companies prosper in good times and bad
by immersing themselves in the lives of their customers. It demonstrates
that rather than force-feeding their offerings on customers, customer-
centric firms work from the outside-in to identify current and potential
! !135
customer problems and then provide seamlessly integrated products and

services that address them.
The various elements of customer-centricity is the reorganisation efforts of

Best Buy. The account demonstrates that customer-centric organisations
rely on internal teams to manage the process, but they also depend on
customer participation, even when they are unaware of their involvement.
4.5 Beyond Parity to Exceeding Expectations – The New

Organisational Target
Meeting customer expectations is no longer a recipe for long-term success

in an age where customer-centric organisations deliver experiences that
exceed customer expectations. Many companies even have difficulty
understanding the meaning of the customer experience. At its most basic,
the customer experience is defined as the complete value proposition
delivered to customer across all touch-points and interactions. This would
incorporate everything from the web experience to sales meetings, product
demos, product usage, help desk, customer service, legal documents,
invoice and every medium or touch-point through which companies interact
with the customer and create an experience.
Companies that deliver experiences that merely meet expectations will, in

short order, face the prospect of “a simple commodity” experience, and
eventually non-existence. Alternatively, companies that seek to
differentiate their experiences do so to deliver unique value that will delight
customers and keep them coming back for more. In their attempt to
exceed their customers’ expectations, these organisations pursue the “wow
factor” that will make the customers’ eyes light up in surprise and
appreciation. This wow factor creates memorable experiences and leads to
more frequent and passionate customer engagement with the brand.
West Jet Airlines love their guests and pride themselves on showing how
much they truly care. In early August 2013, West Jet’s Team sat down and
began to brainstorm what ‘giving’ looked like at its best. They wanted to do
something big, exciting and fresh to demonstrate their commitment to
delighting the customer. With the help of 175 West Jet volunteers, three
airports and Santa himself; they made a Christmas miracle happen for
more than 250 guests on two Calgary-bound flights.
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West Jet staff installed a booth at Pearson airport and Hamilton

International Airport where passengers heading to Calgary were asked to
share their Christmas wish with a ‘virtual’ Santa. Requests ranged in
lavishness from “socks and apparel” to a “really big TV.”
What passengers didn’t know was that their requests were being recorded
and that presents would be waiting for them upon arrival! The video went
on to show West Jet staff literally running from store to store to ensure
everyone on the flight got what they asked for before a wrapping frenzy
ensued.
These presents were then delivered one by one down the baggage carousel
to spell bound and amazed passengers. These individual gift boxes
contained their specially-requested Christmas gifts.
The faces of the passengers as their gifts arrived via the chute really said it
all – bringing a tear to the eye of watchers by and those who have since
watched it on YouTube. It is especially touching to see a young boy look
amazed to receive an Android Tablet, and another young family being
given a big screen TV that they could only have dreamt of.
All the West Jet people who helped source, sort and deliver the gifts were
volunteers, they were not on regular working hours, yet the brand ‘wow’d
them enough to want to go above and beyond the call of duty.
Activity E
5. Why do companies have to look beyond delivering customer

expectations?
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4.6. From Product-Centric to Customer-Centric – Making

the Leap
Despite their best intentions, many product-centric companies have been

unable to successfully transform into customer-centric organisations.
Research of successful and unsuccessful organisations highlight what is
among the greatest challenges facing attempts to become customer-centric
– the “inherent conflict.” In customer-centric organisations, the two
gravitational forces affecting business operations are how to (1) increase
customer’s experience satisfaction and (2) simultaneously lower costs.
To lower costs while increasing experience satisfaction, companies must

increase the relevance of their customer experiences. The “inherent
conflict” lies between these two ecosystems. For product-centric
companies, lowering costs often equates with lowering the quality of the
customer experience – leading to customer demands for lower prices. Past
experiences confirm that product-centric companies often accelerate their
own “simple or basic commodities” by failing to understand the customer
ecosystem, and opting to make business decisions based upon their
gravitational forces rather than those of their customers.
Closing the experience gap between customer-facing and back-office

functions is not merely a philosophical discussion but represents a pressing
operational challenge. What many organisations fail to recognise is that
these two approaches cannot coexist without damaging the customer
relationship. Since employees in back-office functions act as experience
enablers where their actions enable their counterparts in customer-facing
functions to deliver high quality experiences to customers, it is compulsory
upon organizations to ensure that both the back and customer-facing
functions work collaboratively to ensure the consistency and quality of the
experience. However, until back- office functions develop a performance
platform that allows them to treat each customer individually, the
organisation will operate on a product-centric model leading sales and
marketing personnel to make promises that they will be unable to fulfill
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Activity F
6. In what manner can a customer-facing and a back-office employee co-

exist?
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4.7 Consequences of not transforming into a Customer-

Centric organisation
Customer management capability, in general, remains fairly static year on

year. This indicates that although many organisations have recognised the
need to become customer-centric they are failing to execute in a
meaningful and sustainable way. They are failing to re-orient the
organisation around a true customer-centric mindset. The failure to adopt
customer-centric business models and treating customers through a one-
size-fits-all (OSFA) prism will suffer a number of adverse consequences
because of:
1. Wasted Resources – Treating customers through a one-size-fits-all

model leads companies to unnecessarily waste valuable resources.
Organisations frequently fall into the trap of treating profitable and
unprofitable customers identically, and do not allocate or prioritise
limited resources according to customer value.
2. Sales Misalignment – Under a product-centric business model-sales

personnel pursue orders and respond to customer requests in a
disjointed fashion. Instead of pursuing additional business and
concentrating on their most profitable customers, they treat all
customers similarly and consequently, fail to retain the current volume
of business and generate new business from new and existing
customers.
3. Disappointed Customers – As customers increasingly seek

personalised experiences, they will ultimately reject a one-size-fits-all
value proposition. This disappointment will not be relegated to customer
satisfaction metrics in surveys but will manifest itself through decreases
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in the size and frequency of purchases, higher attrition, negative word-

of-mouth and increased demands for discounts.
4. Unproductive Working Environment – The lack of coordination

between customer-facing and non-customer-facing business functions
often results in organisations constantly operating in “crisis mode”
characterised by a chaotic, frenzied and jaded environments adversely
affecting customers and employees alike. This chaos not only waste
limited resources, but demoralises employees who are trying to perform
their jobs effectively and help customers.
5. Decreased Loyalty – One-size-fits-all treatment of customers

ultimately fulfills the needs of only a small portion of customers. Many
companies fail to recognise that there is no such thing as an “average”
customer. Each customer is different and has unique needs that need to
be addressed, or else they will seek a competitive alternative that better
fulfills their needs.
Bank of America recently found out the hard way that customers don’t
like price increases without a perceived increase in value. Charging a
customer for something they used to get for free is an emotionally
charged issue. It is a violation of expectations and Bank of America
ultimately had to reverse its decision to start charging a monthly fee on
debit cards.
Activity G
7. What do you understand by the term “one-size-fits-all” in customer-

centricity?
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4.8 Success Factors to Becoming a customer-centric

organisation
Successfully evolving into a customer-centric enterprise requires that

organisations incorporate several important elements into their customer
strategies. Organisations must develop and implement detailed and
substantive plans to usher in a customer-centric environment that is so
important for long-term success. The primary elements that organisations
need to adopt include the following:
1. Employee Skills: It is imperative that all employees, including those in

the back office, possess the skills to deliver an experience that fulfills
the organisation’s brand promise. Internalizing the customer’s mindset
and learning appropriate communication skills must be a prerequisite for
every employee, particularly those in customer-facing roles.
2. Information: Customer information needs to be unified and shared

with all employees across the entire organisation. Consolidated and
correlated views of information about the customer from sales, service
and engineering made available to each department enables more
insightful operations. Customers are better served in this manner, better
products are created, and more are sold.
3. Measurements: Operational measurements (e.g., average handle time

in a contact center) are important to identify underlying operational
challenges, they should never serve to reflect the successes or failures
of a given business function. Metrics that reflect customer behaviour
and that are common to specific functions (e.g., number of log-ins,
marketing click-through rate, customer service sell conversion rates
etc.) are ideal to measure the true success of organisational functions.
4. Financial Metrics: Understanding the costs associated with delivering

different types of customer experiences and the overall economies of
customer experience is crucial if employees are going to make the right
decisions with customers. In the absence of such information,
employees may be reluctant to offer incentives or discounts to
customers since they would be unable to justify such decisions to their
superiors. For example, an employee would be more than happy to
waive a small fee if he knows that acceding to the customer’s request to
! !141
escalate his request to a manager will cost the company more money
than the fee he is being asked to waive.
5. Education: True customer-centric focus will be a new discipline for

many employees in an organisation which has, hitherto, focused almost
exclusively on products and services. For this reason, companies need
to develop and deliver a customer education program to all employees,
regardless of level. Employees need thorough and extensive education
covering the definition of customer experience, desired customer
memories, customer profiles and the manner in which employees are to
deliver the experience to ensure success.
6. Line of Sight: The final and most important element to ensuring

customer strategy success is creating individual employee line of sight
to the desired customer experience. After hiring individuals with the
right skills, providing them with requisite customer information,
establishing appropriate metrics and measurements and delivering
customer-focused education, each employee needs to have a clear line
of sight regarding how they impact the customer experience and how
they will apply all of the aforementioned elements to their daily roles
and interactions to deliver the desired experience.
In India, GE Healthcare, offered medical technology such as CT Scan

developed for more established economies, an approach that limited its
market share to 10 per cent. GE was simply pricing itself out of the
market. To address this problem, the company began designing products
specifically to meet the needs and price point of Indian health care
providers.
GE designed an electrocardiography machine priced at $500―a fraction of

the $20,000 price tag in developed markets. After the product’s launch in
India, GE executives identified new markets in the developed world that
the low-cost version could serve profitably. Such a truly global approach is
now seen as essential to the company’s future.
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Activity H
9. How can company employees make best use of customer information?

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4.9 What Are the Advantages and Disadvantages for Every

Company Becoming a Customer-Focused Business?
Most businesses leverage industry trends, innovative ideas and customer

and business needs to create products and services customers are willing
to purchase and refer to their friends and family. While there are many
factors and stakeholders to consider when running a small business, some
owners lean towards operating customer-focused businesses, which
operate based on customers’ needs and demands.
There are a variety of advantages and disadvantages for every company

adopting a customer-focused business approach.
Advantages:
1. Build Loyalty: Running a customer-focused business helps

organisations build a loyal customer base. Customers are more willing
to purchase from companies that they feel consider their needs when
they create products and services. Customers also are frequent patrons
to businesses that place a high value on training their staffs to
emphasise customer service.
2. Increase Referrals: The more loyal customers are to a business, the

more likely they are to refer the products or services to friends, family
and business associates. Referrals are advantageous to businesses as
they cut down on advertising expenses. Customers who come to
businesses through referrals also generally are pre-qualified, which
makes it easier to turn them from prospective customers to buyers.
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3. Celebrated for Customer Service: Customer service becomes a part

of your company's brand when you run a customer-focused business.
When customers hear the name of your business, they automatically
associate it with knowledgeable and friendly sales professionals and
companies dedicated to ensuring customers’ needs are met.
Disadvantages:
1. Lack of Innovation: Customer-focused businesses operate solely on

customers' needs and wants, which can have a negative impact on a
company's creativity. When companies are customer-focused, they may
resist coming up with ideas to improve products or create new products.
So, they begin to lack innovation. While customers may know what they
want, companies should use research and development to come up with
ideas customers may not think of on their own when surveyed about
their needs.
2. Ever-changing Customer Needs: Customers' needs are ever-

changing, which means your customer-focused business needs to have
the resources, such as financing, staffing and time, to constantly keep
up with customer demands. This may be problematic for small business,
as it can be expensive and lead to employee burnout.
3. May Become Self-serving: The purpose of running a customer-

focused business is to truly focus on creating products and services that
are in your customers' best interest. This includes ensuring that you
provide customer service that helps educate your customers and lead
them to sales. Customer-focused businesses can become self-serving,
causing businesses to indulge in their needs and wants, such as
focusing solely on profit, with thoughts of the customer trailing far
behind. To be truly customer-focused, each strategy and idea you
execute should put the customer first.
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4.10 Deliver the Company to the Customer
Organizing around the customer requires three capabilities, and all are
intended to deliver the company to the customer. To organise around the
customer effectively, the company must:
A. Create a customer-centric capability: Product-centric

company vs. customer-centric company
B. Perfect a lateral networking capability
C. The organisation as competitive advantage
A. Customer-centric Capability
In order to create and customise solutions and appear as one organisation

on a customer-friendly web site, the company needs to be customer-
centric. This capability is often presented as a contrast to a product-centric
capability. (Figure 4.3) Customer -centricity v/s Product-centricity.
A product-centric company is one that tries to find as many uses and

customers as possible for its product. There is nothing wrong with this
model when customers want to choose the best product and do the
integrating themselves. But when customers want solutions and a friendly
website, a customer-centric capability is also needed.
A customer-centric company is based on economies of scope and on

turning that scope into solutions that are valuable to the customer. The
customer-centric company becomes an expert in the customer’s business.
It helps the customer become more effective or more competitive. Perhaps
the most telling feature of a customer-centric company is that it is on the
side of the buyer in the buyer-seller exchange.
In order to stay on the customer’s side, Amazon.com does not accept

advertising from sellers. On its new e-Services website, the United Bank of
Switzerland will offer competitive products, even those of Credit Suisse a
rival bank. Thus, a customer-centric company will recommend the best
product, even if it is a competitor’s product, in order to earn the trust of
the customer.
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!
Figure 4.3: Customer-centricity vs. Product-centricity
By using the graph to contrast customer-centricity and product-centricity,

the difference between these two competitive strategies is now obvious:
1. A product-centric competitor focuses on one product at a time and tries

to sell that product to as many customers as possible.
2. A customer-centric competitor focuses on one customer at a time and

tries to sell that customer as many products as possible.
The chart below is a simple comparison of the two approaches: 
! !146
Activity I
10.What according to you is a better company? Product-centric or

customer-centric? Why?
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B. Lateral Networking Capability
In order to create multi-product solutions for global customers, a company

must work through lateral networks. A simple company with a few local
customers selling a single product can work through a functional hierarchy.
But a company with multiple product lines in multiple countries using
multiple functions must work less through hierarchy and more through
networks. Indeed, a company needs a network for each strategically
important dimension.
Some companies like General Electric have organised around global

product lines called Business Units. They have created country and
functional networks to coordinate across product lines. Other companies
like Nestlé have organised around country and regional profit centers. They
have created product (called Strategic Business Units) and functional
networks to coordinate across the geographical structure. The rise in
importance of the customer dimension has created a need for a global
customer network that crosses product lines, countries and functions.
The organisation-design decision is based on matching the right kind of

network with the strategic importance of the customer dimension; that is,
there are different kinds of networks. Some are informal while others are
formal with varying degrees of strength.
The implication is that the designers should start at the top of the list, and
proceed down until a network is found which matches the requirements for
coordinating the customer dimension for their business.
List of Networks:
1. Informal or voluntary networks

2. Formal teams
3. Coordinator for the network
4. Matrix across the other dimensions
5. Separate customer line organisation
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1. Informal or Voluntary Networks: Informal or voluntary networks

form naturally in all organisations. Nestlé is an example of a company
where informal networks have formed around global customers. Unlike
P&G, Nestlé has not strategically focused on cross-border customers
such as Carrefour or Wal-Mart. However, country managers and country
account managers for Wal-Mart routinely exchange information and
ideas about Wal-Mart on an informal basis. The account manager in the
country of the global customer’s headquarters maintains a database
about that customer and issues e-mails and updates about the
company. Anyone dealing with the customer can add information and
ideas. But while the communication has been formalized, the
coordination is still informal. Each country treats the information as an
input, and then acts in the best interest of its product lines and country.
2. Formal Teams: Formal teams are the next level of strength that can be
applied to a customer network. This step is usually taken when a
customer desires more than informal coordination. For example, global
or key account teams are formed by appointing all the sales and
account representatives serving a customer to one account team for
that customer. These representatives from all product lines and all
countries exchange information, much like Nestlé’s informal networks.
But they also meet regularly, prepare an account plan, and agree upon
customer-specific goals.
The customer teams can be strengthened and assume more activities

when customers want partnerships along the supply chain. Wal-Mart and
P&G are an example. P&G initially formed a team of its salespeople
representing all the products that P&G provided to Wal-Mart. The team
was expanded to include manufacturing, distribution, marketing,
information technology and finance personnel. This team of about 80
people from various functions from all product lines worked to
synchronise the product and order flow from P&G’s factories to Wal-
Mart’s warehouses. Its goal was to minimise inventories and cut cycle
times. Today, as Wal-Mart expands globally, this team consists of 450
people from different functions, product lines and countries.
3. Network Coordinator: The next step in making the global customer

dimension more powerful is to create a coordinator for key accounts.
The coordinator performs two important, new functions. First, the
coordinator becomes the global customer’s voice on the management
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team. These teams usually consist of managers of product lines,

geographies and functions. The coordinator gets the leadership to think
in terms of a portfolio of customers, customer priorities and customer-
centricity. Customer teams can also appeal to the coordinator in
resolving conflicts.
The second task of the coordinator is to build and manage the

infrastructure to support customer teams. The coordinator would
assume the role of managing customer information systems and
communications across customer teams. S/he usually creates training
programs for management and team members on the role and operation
of key accounts. Another key addition to the infrastructure is a global
customer accounting system that leads to customer profits and losses.
Customer profitability is a key measure in setting customer priorities.
4. Matrix Organisation: The next step for enhancing the power base of
the global customer dimension is to form customer-or-customer
segment-dedicated units within countries and product lines and then
report to the customer coordinator. The assumption is that the customer
dimension has attained a strategic importance equal to the countries
and/or business units. This importance is expressed by making the
customer organisation an equal partner in the decision-making process.
In countries where the company may not control 100 per cent of the
equity, joint ventures to serve multinational clients are often created
between the parent company and the local subsidiary.
5. Separate Customer Organisation: A final step is creating a separate

customer-facing structure. Companies have business processes that are
oriented toward making the business operate efficiently and others that
result in the delivery of a product or service to a customer. The former
include business-facing activities such as planning and budgeting, while
the latter take place in customer-facing departments such as sales and
marketing. Businesses may have completely separate departments for
these different kinds of activities or there may be some overlap,
especially in smaller organisations. Companies can improve their
performance by making sure that even business-facing processes are
responsive to customer demands.
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Activity J
11.How can a company coordinator improve upon customer service?

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C. The Organisation as Competitive Advantage
Competitive advantage is the extent to which an organisation is able to

create a defensible position over its competitors. It comprises capabilities
that allow an organisation to differentiate itself from its competitors and is
an outcome of critical management decisions. The theory has been quite
consistent in identifying price/cost, quality, delivery, and flexibility as
important competitive capabilities. Today’s customer won’t hesitate to walk
away from an established company relationship that doesn’t meet their
needs. This holds true for nearly all industries today, and is no longer
limited to those serving consumers.
Today’s marketers face the challenge of understanding, delivering value,

and creating lasting relationships with highly-empowered customers.
Leaders of the most successful companies regard getting close to
customers as a top priority for success in the twenty-first century. In turn,
CEOs are looking for their organisations to gain deeper customer insight in
order to engage customers as individuals.
Companies no longer drive the process. Instead, buyers forge their own
way, using an ever-expanding number of channels to discover, research,
review, and compare products and services. Often, to the surprise of
businesses, these buyers are only reaching out to sales people when
they’re ready to make a purchase.
The company’s ability to deliver value to global customers depends on the

organisation’s ability to assemble and implement a customer-centric
dimension across the existing business unit, country and functional
organisations. Delivering value to today’s customer means managing the
four dimensions of the organisation. These dimensions are: (1) the type of
solution, (2) the scale and scope of solutions, (3) the degree of integration
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of products constituting a solution, and (4) the percentage of total revenue

deriving from solutions.
1. Type of Solution: There are two types of solutions, vertical and

horizontal solutions, the former being industry-specific and the latter
generic, across several customer categories. By way of illustration, Sun
Microsystems develops and delivers a horizontal solution in the form of
a human resources portal that can be accessed across different
industries, while IBM, by contrast, is involved in the development of
such industry-specific vertical solutions as e-Agency, which puts the
agency network of an insurance company on the Internet. Vertical
solutions thus require a more customer-centered organisation than do
horizontal solutions (Refer Figure 4.3)
2. Scale and Scope of Solutions: The strategic factor having the

greatest organisational impact is the scale and scope of the solution.
Scale and scope refer to the number of products and the number of
different kinds of products that are combined into a solution. For
example, a small-scale and scope solution would be a local area network
for a work group. A dozen desktop computers, a shared printer and disk
storage could all be linked by an Ethernet cable and form a network.
3. Degree of Integration: A third dimension is the degree of integration

between the components that comprise a solution. An example of larger
scale but also limited integration can be found at ServiceMaster an
administrative services management company. They try to provide as
many simple services as possible. They provide one-stop shopping for
security, catering, janitorial, parking lot management, building
maintenance and many other similar services. But each is a relatively
independent service that could be provided by an independent service
company.
4. Revenues: The last strategic dimension is the percentage of total

revenues that comes from solutions. If, like Motorola, solutions
contribute 10% or less, the firm can simply add a solutions unit whose
task is to integrate the firm’s products into solutions. When the
percentage gets higher, like at IBM, the company has sufficient volume
to specialize the solutions units that serve different customer segments.
Instead of one solutions unit, IBM has about twelve units, each
specializing in a customer segment.
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The creation of a four-dimensional organisation runs counter to most

current mindsets. Today, the preferred way is to “keep it simple”—create
simple, autonomous business units which control their resources and which
can be accountable for their performance.
Organisations should be designed to do business in the way that the

customer wants to do business. And how do customers want to do
business? They want solutions that are seamlessly integrated across the
products of multiple business units and countries. But achieving this
integration is difficult, and keeping it simple for the customer makes it
difficult for management. But mastering that difficulty becomes a real
source of competitive advantage. Most companies cannot easily integrate
their profit centers with servicing a customer. And since many customers
see value in this integration, competitive advantage comes from creating
this value that others cannot match. Mastering the difficulty of managing
the four dimensions is just such an advantage.
When most people say, “keep it simple,” they mean keep it simple for
management. That kind of simplicity, then, means making it difficult for the
customer. It is then up to the customer or some third party to do the
integrating and capture the value of serving the customer.
Activity K
12. How can companies gain a competitive advantage over others with
integration?
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4.11 Characteristics of Successful Customer-Centric

Enterprise
There are many of the unique characteristics that a good customer-centric

enterprise (CCE) must have but to know that it is not something that we
can exhaust the list. We talk more on what you have to look for in order to
identify an organisation that has resolved to do business from customers’
perspective.
1. Determination: One unique thing about an organisation has resolved

to do business from customers’ perspective is that they are determined
to add value to their customers. They also try to find ways to delight
their customers by making sure that they give customers more than
what they bargained for. This always go a long in making sure that they
raised exit barrier for customers.
2. Focused: Another unique feature of a determined CCE is that they

always focus on long-term business result. They are more concerned
about satisfying their customers and getting the result later. That is
why, a true customer-centric enterprise will never compete on price.
They believe that if they are able to add values to the customer now,
customers will pay back by remaining loyal to the organisation.
3. Communication: One other striking feature of a true customer -centric

enterprise is that they are committed to effective communication both
within and outside the organisation. The front offices are concerned with
building relationship with customers and transferring this hidden
information to the back office who in turn use it to make business
decisions.
4. Metrics: Another important feature of CCEs is that they adopt metrics

to measure their progress. Whenever any organisation is been
introduced into the organisation or customers, it is the duty of CCEs to
measure how they are performing in order to know if anything need to
be changed in the organisation or the order for it to work better.
5. Training: This is another feature that stands a Customer-centric

Enterprise out. They believe in investing in their employees who they
see as the main asset of the organisation. They believe that investing in
their employees will help them to build successful relationship with their
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customers which will help them to increase customer relationship on the

long run.
6. Stakeholder Identification: Stakeholders are people or groups that

have business interest in your organisation. CCEs always try to
recognise stakeholders within and outside the enterprise. This might
include their competition as well as individuals who have all the
characteristics that they are looking for in a customer.
Example: A Lost Plush Toy in the Ritz-Carlton
A family had a wonderful vacation in the Ritz-Carlton. Upon returning,

they discovered that Joshie had gone missing. Joshie was a plush giraffe;
their son’s favourite toy. As every good father would do, he told his son
that the plush toy had decided to enjoy a few extra days of vacation.
Luckily, the hotel called the father that night to tell him the giraffe was
found. The father explained them his little lie, and asked if they could
take a photo with the plush toy as prove to his son. If possible, with
sunglasses and in a chair, to make his story more believable. The Ritz-
Carlton immediately agreed to this plan, but decided to take it a bit
further.
The day after, an employee was sent on a mission with the giraffe: to
photograph him in all kinds of situations. The result was a hilarious
documentary of Joshie driving around in a golf car, lying on the massage
table, and chilling with other plush toys.
The reactions from the crowd were highly positive, while the costs to
make this happen were of course very little. Even a luxurious hotel as the
Ritz-Carlton can improve their image strongly by doing something
creative as this.
!
! !155
4.12 Summary
Designing the customer-centric organisation offers a comprehensive

customer-centric organisational model to business. To be customer-centric,
a firm must literally organise around the demands of the customer. An
organisation should provide a personalised experience to its customer. A
negative experience by the customer may harm the reputation of a
company. An organisation should adopt several important factors such as
employee skills, information, measurements, financial merits, education
and light of sight to become a customer-centric organisation.
Study Questions
1. What are the principles to be followed for personalised customer

experience?
2. What are the requirements for collaboration between an organisation

and its stakeholders?
3. How can a company rise over customer expectations?
4. How did West Jet Airlines make a difference to its customers?
5. “Overcoming challenges is a major aspect of a company desiring to be

customer-centric” Explain.
6. Write a short note on demerits of a non-customer-centric organisation.
7. According to your perception, how can a company deliver value to its

customers?
8. Differentiate between customer-centricity and product-centricity.
9. What are the functions of a network coordinator?
10.How do leaders transform their company to become successful?
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1. Companies hesitate to make changes to become customer-centric

because they would like to _________.
a. Keep it simple for the customer
b. Keep it simple for the management
c. Control damage within the organisation
d. Limit its investment in a CRM activity
2. Company can tackle problem solving by _________.

a. By implementing a CRM software
b. By operating in an autonomous manner
c. By developing key customer experience principles
d. By collaborating amongst its stakeholders
3. Customers will keep coming back for more only if _________.

(i) Companies deliver common experiences
(ii) Companies meet simple expectations
(iii) Companies deliver unique value
(iv) Companies that will delight them
a. (i) and (ii)
b. (ii) and (iii)
c. (iii) and (iv)
d. (i) and (iv)
4. Companies can become customer-centric only if _________.

a. Employees possess the skill to deliver brand promises
b. Customer information is shared among employees
c. Employees take the right decisions related to customers
d. Employees remain focused to deliver experiences
5. Companies maintain a competitive advantage over competitors by

delivering value in regards to _________.
a. Price and quality
b. Low delivery and low flexibility
c. Relationship that does not meet their requirements
d. No customer insight whatsoever
! !157
Answers:
1. (b), 2. (d), 3. (c) and (d), 4. (a), (b), (c), (d), 5. (a)
! !158
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !159
THE OUTSIDE-IN ORGANISATION
Chapter 5
The Outside- In Organisation
Objectives
• The Outside-in Concept

• Institutional barriers to developing an outside-in orientation
• The “Inside-in” Marketing
• The “Outside-in” Marketing: Answer to Problems
• Difference between Inside-in and Outside-in Marketing
• Outside-in: Fight Unclear Strategies
• Employee Contribution
Structure:
5.1 The Outside-in Strategy

5.2 How Do We Stay Focused on the Customer?
5.3 The “Outside-in” Marketing
5.4 Institutional Barriers to Developing an Outside-in Orientation
5.5 The “Inside-out” Marketing
5.6 Difference between “Inside-in” and “Outside-in” Marketing
5.7 Outside-In vs. Inside-out Thinking
5.8 Outside-in: Fight Unclear Strategies
5.9 Employee Contribution
5.10 Summary
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Introduction
The Outside-in Organisation is about bad news and good news.
The bad news is that few managers actually run their companies from the
outside in, starting with customers and prospective customers and making
sure that all their strategies and actions are chosen and implemented from
a strong customer perspective.
The good news is that the outside-in discipline, a common sense yet
revolutionary approach can turn the bad news into opportunity. If your
rivals get it wrong by taking an inside-out perspective, you can gain a
competitive edge by transforming your company into an outside-in
organisation, using the insights, principles and actions.
5.1 The Outside-In Strategy
Companies that consistently create value, “approach strategy from the

outside-in rather than from inside out. They start with the market when
they design their strategy, not the other way around.” These companies
also use market insights to make demand-driven decisions based on
customer need, and they develop organizational cultures which “focus
every part of the organisation on achieving, sustaining, and profiting from
customer value.”
Generating economic profits over the long-term involves strategies that are
built and renewed through a customer value lens, and illuminated by deep
market insights. These outside-in strategies are achieved through four
customer value imperatives:
1. Be a customer value leader.

2. Innovate new value for customers.
3. Capitalise on the customers as an asset.
4. Capitalise on the brand as an asset.
1. Be a customer value leader: Customer value leaders outperform their

rivals by delivering superior value to a distinct segment of the market
with a business model tightly fitted to its purpose. When we look at
most markets, we see the formation of three distinct customer
segments:
! !161
a. performance value buyers, who seek a product that meets their

demanding requirements for quality, fashion or functionality;
b. price value buyers, who simply want the best price for an adequate
level of performance or service; and
c. relational value buyers, who put a premium on total solutions that

meet their needs beyond product attributes, including service,
financing, technical assistance and so on.
The brilliance of customer value leaders lies, in part, in their humility. They
understand that they cannot be all things to all customer segments. These
companies make the hard choice of which segment to target, offer a value
proposition that is distinct from those offered by their competitors and
deliver this value often underperforming in other segments that they do
not select..
Activity A
1.What is the basic purpose of devising an outside-in strategy?

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2. Innovate new value for customers: While necessary, it is not

sufficient for firms to only win the battle for current customers’ needs.
Thus, the second customer value imperative is to drive growth by
innovating new value for current customers and attracting new
customers. If companies want to maximise profits over the long term,
they have to be not only a customer value leader today, but a customer
value innovator for tomorrow. This incessant push for innovation should
be fueled by superior market insights into how customers are changing
and what competitors are doing. As a result, customer value innovators
are able to anticipate where markets are going and preempt challengers
who are trying to match or leapfrog them.
! !162
Customer value innovation is not restricted to technology advances. It

requires a full-spectrum view of innovation, including new markets, product
features, pricing models, business models, and supply chains and so on.
Customer value innovators see opportunities for growth along every
dimension of a competitive strategy. They pursue new geographies and
new customer segments, create new and enriched customer experiences,
rethink the profile of features in ways that competitors can’t match, and
reconfigure the way they create and capture value. Customer value
innovators also see that profits are maximised through a good mix of
incremental innovations that yield low returns at lower risk, augmented by
more ambitious undertakings into adjacent markets.
Fabindia draws its strength from close financial and operational ties to 17
community-owned companies which form the supplier base for its
handcrafted products. Through these tie-ups, Fabindia is able to deliver
high quality products and make artisans a part of the wealth it helps
create, aligning incentives with entities beyond the formal boundaries of
Fabindia as a company.
Tata Consultancy Services (TCS) has created an “extended co-innovation

network” which constitutes, apart from employees, Tata group companies,
academic institutions and other strategic partners. This network has helped
TCS create numerous marketable innovations.
Gyan Shala, a one of its kind budget private school in India, has innovated
significantly in its core process: pedagogy. It creates detailed teaching
manuals with step-by-step instructions for each minute of each day,
including answers to probable questions that students may have. Gyan
Shala's model is demonstrating the impact of core process innovation in
even the perennially challenging arena of education.
Activity B
2. How can companies provide value to old customers as well as new?

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! !163
3. Capitalise on the customers as an asset: Companies that master

this imperative have found a way to turn customer value into valuable
customers. For these customer asset managers, customers produce
profits by purchasing more in a category, purchasing across categories,
purchasing new products, responding faster to company marketing
activities, defecting less to the competition, investing in the relationship
and promoting the company more by word-of-mouth and word-of-
mouse. These behaviours influence the level, speed and volatility of
company cash flows. These profit effects are why managing customers
should be viewed as managing an important asset of the company,
despite the fact that customers are not owned and are not on the
balance sheet.
Bharti Tele-Ventures is one of India’s leading private sector telecom

operators. Initially, when Bharti started operations, the whole system
was run manually. “At that point of time only 40% of our customer
issues were getting resolved-this has now gone up to about 90%
percent," reveals Amrita Gangotra, Vice President of Information
Technology. One of the primary things that Bharti has done is
segmentation of customers, which has helped in providing customers
more value for their money.
Apple Computer has taken the position that customers are assets and
have developed them to the point where they can introduce a new
product, such as the iPad and almost guarantee huge sales. Customers
of Apple respond to Apple product announcements with little hesitation
because they believe that Apple products deliver high quality.
Activity C
3. Why are customers treated as assets of a company?

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4. Capitalise on the brand as an asset: Brands can also be valuable

assets for companies. A strong brand makes a credible promise to
reliably deliver a meaningful benefit. GE’s “bring good things to life,”
Apple’s “think different,” and Volvo’s “safety” lay claim to value
propositions that attract customers, reduce perceived risk and simplify
the choice process. Strong brands don’t automatically follow from strong
value propositions, however. Brand asset managers devote sustained
attention to three issues: building the brand by adopting a long-run
investment perspective, protecting the brand against competitive
attacks and then optimising the brand asset’s value by leveraging it
prudently.
Activity D
4.What gives credibility to a brand?

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5.2 How Do We Stay Focused On The Customer?
So how do we keep the focus on this outside-in approach?
Here are 10 tips.
1. Understand customers and what they are trying to do.
2. Use that understanding to develop products for the customers, products

that solve their problems and help them do what they are trying to do.
3. Listen to customers at all key touchpoints.
4. Close the loop with customers on their feedback.
5. Act on what you hear.
6. Share the feedback and ensure it is used throughout the organisation to

make decisions and to design the best experience for your customers.
! !165
7. Do right by the customer; ask “Is this decision what’s best for the
customer?”
8. Reduce customer effort rather than making the experience convoluted

and confusing.
9. Save a seat in the room (a la Jeff Bezos’ empty chair) for the customer/
customer’s voice.
10.Talk about customers and what they are saying.
The hard part, if you are re-doing your website, or creating a new site for
your new business, is the research and thinking that goes behind the
scenes, not the code to make the site appear.
Let’s be honest, writing the HTML and CSS is nothing compared to getting
the right messages on your site and connecting well, developing trust with
your site visitors.
4 Reasons to Focus on External Factors to Expand Your Business
To devise the best internal growth strategy, it is vital to seek outside

opinions.
Want to tap into real business growth? Ask not what you can do for your
company, but what your company can do for its customers.
Forgive the formula, but in a world of increasing change, it is a crucial

advice. After all, keeping your focus trained on what is going on beyond
your company’s borders could mean the difference between just chugging
along to steaming past the competition.
Fast-growth companies and also those that want to be; absolutely must
take an external, or “outside-in,” view to running their business.
! !166
Here are four broad benefits of looking outward:
1. Anticipation: Outside-in thinking naturally asks questions about how

the outside world is changing, and unleashes creative thinking about the
implications. The payoff comes from seeing opportunities and threats
sooner. You will be less vulnerable to surprise attacks by competitors,
and new products will be more successful. The early mover invariably
has an edge over the reactive responses of later entrants that have
fewer degrees of freedom.
2. Adaptation: When everyone in the company is attuned to the customer

experience and its pain points, there is more likely to be a wide-ranging
and ongoing search for pain relief. Are deliveries either too early or too
late for the customer? Are customer service reps watching the clock and
leaving callers frustrated? This is the essence of continuous
improvement, or Kaizen approaches, and, as Toyota showed, this is a
powerful way to grow.
3. Alignment: When outside-in thinking is embedded in the organisation,

there are fewer turf battles and more collaboration; resources are used
more productively. Customers applaud, because they benefit from clear
accountability for their welfare. They are not left in limbo while
navigating among your silos. Everyone in your company shares the
same information. So, you can readily identify the most valuable
customers to nurture and retain, all of which helps you grow.
4. Alliances: The more your organisation is focused outside, the more

opportunities you will spot to partner with suppliers, large customers,
and even rivals. To do well in a highly networked world, you need to co-
create with partners and jointly shape an ecosystem in which all of you
can grow. If your partners do well, so will you and vice versa.
The benefits from anticipation, adaptation, alignment, and alliances are

hard to realise fully in practice. They can easily be subverted by
complacency and short-run performance pressures that put inside-out
thinking in control.
! !167
It takes vigilant market-driven leaders to keep making the case that your
customer’s interest be put first and next the well-being of your strategic
partners. None of that will happen unless your organization really starts to
think outside-in.
5.2 The “Outside-in” Marketing
In essence "outside-in" marketing starts with the customer first. All

definitions of marketing talk about satisfying customer needs but why do
so many organisations not use this as the starting point or have all the
right customer intentions but then lose the focus?
Marketing facilitates the exchange process between company and

customer. Value starts with the customer and works back into the company
so it is vital to change from product-focused "inside-out" thinking to
customer-focused “outside-in” thinking. (Figure 5.1)
With the digital age, the power really does rest with the customer so it is
no longer producers selling stuff to buyers, it is buyers identifying what
they need and who they want to buy that from. More than that it is about
customers determining what type of communication they want and from
whom — the growth of permission marketing* is a testament to this trend.
Permission marketing is an approach to selling goods and services in which

a prospect explicitly agrees in advance to receive marketing information.
Opt-in e-mail, where Internet users sign up in advance for information
about certain product categories, is a good example of permission
marketing. Advocates of permission marketing argue that it is effective
because the prospect is more receptive to a message that has been
requested in advance and more cost-efficient because the prospect is
already identified and targeted. In a world of information overload,
automated telemarketing, and spam, most people welcome the idea of
permission marketing.
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!
Figure 5.1: Outside-in Marketing Concept
An outside-in perspective means that companies aim to creatively deliver

something of value to customers, rather than focus simply on products and
sales. Most companies with an inside-out perspective become attached to
what they produce and sell and to their own organisations. In contrast, the
outside-in perspective starts with the marketplace and delves deeply into
the problems and questions customers are facing in their lives. It then
looks for creative ways to combine its own capabilities with those of its
suppliers and partners to address some of those problems. The goal is to
bring value to customers in ways that are beneficial for them while also
creating additional value for the company itself.
Activity E
5.Why is permission marketing considered effective?

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5.4 Institutional Barriers To Developing An Outside-In

Orientation
Developing an outside-in orientation is difficult to achieve because it

requires both insight and action. Gaining real insights into customers’
needs demands more of companies than those arising from typical market
research. The questions you ask of customers must be more profound and
open-ended, with an intent not only to discover how your customers
engage with your products or services, but also to understand some of the
broader parameters of the constraints they are facing in their own lives.
Collating and making sense of all that you learn about your customers is
just the starting point. And in some instances, firms may be ahead of those
needs and driving them. From here, firms have to make a creative leap to
discover the unique combination of products and services that may address
those needs. No customer gave Steve Jobs and Apple the design for the
iPhone or the iPad. Rather, they came about from intense listening
combined with a creative leap within their and their partners' potential to
tackle customers' perceived needs.
Companies seeking to become more customer-centric have the biggest gap

between awareness and action. Even if an organisation and its employees
became consummate listeners and tried to make sense of what they were
hearing, they were often immobilised to do much with their insights. Why?
With more research, the more it became apparent that the problem had to
do with internal silos. Most organisations today are still typically built
around product and geography, and do not have a clear line of sight to the
customer. These silos not only create proverbial blind spots for firms, but
also impede coordinated action toward addressing what may be identified
as central for their customers.
Best Buy, the largest dedicated consumer electronics retailer in the United
States, provides a good example of a company that developed an outside-
in orientation by tackling its own internal silos. Best Buy came to
understand that true customer-centricity cannot be achieved by simply
listening to customers about their experiences with Best Buy; the company
had to commit to owning the customers’ problems and working creatively
to solve them.
! !170
Faced with increased price competition from retailers like Wal-mart as well
as online retailers like Amazon, Best Buy began with a comprehensive
segmentation of its customers. As part of this initiative, the company
realised that although 55% of its customers were women, most of these
women did not enjoy their shopping experience at Best Buy. This was a
store designed by men for men! Not only did the store layout not adapt to
the buying behaviour of many women, but also the store support staff
were not always oriented to providing help in ways women wanted to be
helped. For example, while women were interested in learning about the
functionality and interoperability of various pieces of electronics, they
would instead be bombarded with technical specifications. Furthermore,
most women sought installation help from store staff but were turned
away.
Best Buy responded by re-engineering the design of its stores and training
some of its staff who could help women traverse their stores. In addition,
Best Buy acquired Geek Squad to broaden its footprint into installation of
equipment. The company applied the same concerted effort toward serving
other valuable customer segments it had discovered, including small
business owners and music aficionados.
Activity F
6.Why outside-in orientation is considered difficult to implement?

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Four distinct stages through which companies may evolve are:
Level 1: Companies at level 1 are very product-focused and have an “if I

build it, they will buy it” mindset. The focus is on technological excellence
with some diffuse understanding of customers who may buy the product.
Level 2: Companies at level 2 have a basic understanding of their

customers, typically coming from some market research and segmentation
studies. Many firms get lulled into complacency at this stage. They start
talking about customers and distinct segments and believe that this alone
! !171
is an indicator that they have now made the shift toward an outside-in
perspective. Frequently such firms still remain fundamentally oriented
toward pushing products, albeit in a more refined and targeted way. Their
market research starts to permeate their sales efforts but does not have
much of an impact on their product development and other upstream
activities.
Level 3: The move from level 2 to level 3 is a major shift in both mindset
and actions. The focus here migrates from selling products toward solving
customer problems. In so doing, firms become adept at comprehending
what their customers’ deep-rooted issues are and look for ways to position
themselves to address those issues. In trying to go from insight to action,
these firms seek to build bridges across them wherever necessary. They
shift their culture so that some of these ideas begin to permeate and shape
the behaviours and actions of their employees.
Level 4: At level 4, firms become unsure about whether they produce all
the inputs they provide to their customers and, akin to a general contractor
in construction, look for ways to assemble the appropriate pieces that may
go into tackling customers’ challenges. A level 4 firm is more attached to
producing solutions to customers’ problems than it is to the products and
services it offers. This intellectual, structural, and emotional transition
means that the company is no longer concerned whether the inputs it uses
to solve customers’ problems are its own or assembled through a network
of partners.
Activity G
7. How do companies move on from pushing products to solving customer

problems?
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5.4. The “Inside-Out” Marketing
Inside-out strategies involve identifying a firm’s capabilities and then

creating and selling offerings that use these capabilities in ways other firms
cannot match. (Figure 5.2) Once they’ve produced these offerings, firms
then engage their marketing staff to find customers who will buy the
offerings.
An inside-out strategy works well in fairly well-developed markets where

the customers’ needs and wants slowly change. Organisations that adopt
an inside-out strategy need to examine their strengths and weaknesses by
asking, what are we good at making and selling? Once these strengths are
identified, the organisation makes these products and uses heavy
marketing to convince users to buy them.
While an inside-out strategy generally works well, it may fail if

organisations become so internally focused that they overestimate what
they’re good at, underestimate the offerings of their rivals or miss changes
in the external market. The assertion by inside-out strategists is that a
company achieves greater efficiencies and adapt more quickly to changing
circumstances.
Take RIM and Nokia. Both organisations were so focused on improving the
functionality of their phones that they failed to see the changing needs of
their customers and to respond to new offerings by their main rivals,
Samsung, HTC and Apple.
Financial brands are most commonly built from the inside-out. Why? In
some cases, an organisation simply has supreme confidence in their vision,
or they are comfortable moving forward without research. Often in these
instances, they feel like they know their industry or market so well that
they don’t need any research because it would only confirm what they
already know.
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!
Figure 5.2: The “Inside-out” Marketing
Activity H
8.What are the reasons inside-out strategy fail?

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5.6 Difference between “Inside-Out” and “Outside-in”

Marketing
Inside-out Marketing Outside-in Marketing
Strategic Imperatives Customer Management Strategy
Broad, long-term routes to achieving The management of the exchange or

objectives – often not focused on co-creation of value between you and
customers or prospects your customer. Value starts with the
customer
Product portfolio Customer portfolio
Sets of products produced by an Sets of customers you serve who buy

organisation your products or use your service
Product life cycle Customer life cycle
The stages of development that a The stages of development of your

typical product goes through from customer both in terms of loyalty but
introduction to withdrawal also in terms of changing needs and
wants through life
Product metrics Customer metrics
Measures of product and market Measures of share of your customer

shares and share of their wallet
Best practice Innovation and differentiation
Copy and follow Create a point-of-difference and lead
Improve company returns Improve customer returns
Focus on company metrics, often the Without a top line, there is no bottom
bottom line line — get the customer bit right and
the financial benefits will follow
Design product Design customer experience
Concentration on product and Focus on what’s in it for your customer,

packaging design how will they buy it, use it, repair it,
dispose of it?
Carry out transactions Co-create with customers
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Focus on one-off transactions. Produce Develop products and services with

and sell your customers. Co-create value
Communication Dialogue
Broad focus and one way Encourage and obtain feedback via
relevant one-to-one communication
Supply chain Alliances and partners
Focus on managing the supply chain Who can help affect and enhance your
often to drive out cost customer’s experience Who should you
work with for the common good of
your customers?
Channel Management Situational touchpoints
Managing the process of how the Concentrating on each and every

product gets to market occasion your customer comes into
contact with you
Cost to produce Cost to serve
Product cost focus Understanding the costs, but more

importantly, the benefits of improved
customer service
Stand-alone Integration
Too many business activities and Joined up thinking, seamless

functions disconnected connections throughout the
organisation all with a customer focus
Internal communication Staff collaboration
As with consumer communications, an Staff are actively involved, encouraged

inside-out focus is on just delivering and rewarded to improve customer
information to staff focus and experience
Features Benefits
Promote product and service features Explain how your customer will benefit
! !176
5.7 Outside-In vs. Inside-Out Thinking
In the world of customer experience, what is the difference between

outside-in and inside-out?
Inside-out thinking means your focus is on processes, systems, tools, and

products that are designed and implemented based on internal thinking
and intuition. The customer’s needs, jobs, and perspectives do not play a
part in this type of thinking; they are not taken into consideration. You
make decisions because you think it is what is best for the business – not
for customers. Or you think you know what is best for customers.
On the other hand, outside-in thinking means that you look at your
business from the customer’s perspective, and subsequently, design
processes, tools, and products and make decisions based on what is best
for the customer and what meets the customer’s needs. You make
decisions because you know it is what is best for your customers. Why?
Because you listen to them, and you understand them and the jobs they
are trying to do.
It might be inside-out thinking when there is a conscious decision to make

process, policy, people, systems, or other changes that:
a. do not improve the customer experience at the same time

b. are about maximising shareholder returns, not about benefits for the
customers
c. improve internal efficiencies but to the detriment of customer
interactions
d. are cost-cutting measures that also negatively impact the customer
experience
e. might be the wrong process, policy, people, or systems to change
By contrast, outside-in thinking flips each of those points on its head and
looks like this. There is a conscious decision to make process, policy,
people, systems, or other changes that:
i. improve the customer experience at the same time

ii. are about maximising benefits for the customer
iii. improve internal efficiencies known to be pain points when executing
customer interactions
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iv. are cost-cutting measures that significantly improve the customer

experience
v. are the right process, policy, people, or systems because you have
listened to customer feedback and know how customers are affected
It is clear that outside-in thinking is the way to go. It leads to a number of

things, none of which you will get by making decisions that are not based
on what is best for your customers:
1. Reduced complaints
2. Increased satisfaction
3. Increased referrals
4. Increased repeat purchases
5. Improved ease of doing business
6. Fewer lost customers
These then translate to reduced costs and increased revenue for the
business.
How can we ensure that we are operating in an outside-in manner?
Here are some tips.
a. Understand customers and what they are trying to do.
b. Use that understanding to develop products for the customer,

products that solve their problems and help them do what they are
trying to do.
c. Listen to customers at all key touchpoints.
d. Close the loop with customers on their feedback.
e. Act on what you hear.
f. Share the feedback and ensure it is used throughout the organisation

to make decisions and to design the best experience for your
customers.
! !178
g. Do right by the customer; ask “Is this decision what's best for the
customer?”
h. Reduce customer effort rather than making the experience

convoluted and confusing.
i. Save a seat in the room for the customer/customer’s voice.
j. Map customer journeys and ensure all employees – frontline and

back office have a clear line of sight to how they impact the customer
experience
k. Talk about customers and what they are saying
The customer and his voice need to be incorporated into all decisions,
design, and development. Weave the customer throughout your
organisation’s DNA and watch what happens.
Inside-out versus Outside-in – What’s the Better Strategy?
• The Inside-out approach is guided by the belief that the inner

strengths and capabilities of the organisation will produce a sustainable
future.
• The Outside-in approach is instead guided by the belief that customer

value creation is the key to success.
As a passionate Customer Insight Strategist, tend to prefer the Outside-in

approach to business looking at your customers’ latent/hidden needs and
translate them into solutions that will serve them.
A. An Inside-out Approach to Business
This approach starts with what one first possesses before looking at
anything else. It raises questions such as what one’s organization has in
terms of core competencies, talent, resources, customer relationships and
distribution networks and how these could be leveraged.
! !179
Typically, an inside-out organisation asks itself questions such as the

following:
1. How have we progressed or regressed over the last few years?
2. What are we good at? What do we love to do? What are we

passionate about? What do we represent? WHY, WHY, WHY and WHY
(as you need to understand what beliefs lie underneath to really
grasp the company’s essentials)
3. How do we leverage our strengths and compensate or eliminate our

weaknesses?
Research has shown that very few organizations know why they do
what they do.
Why does the organisation exist? Why should the CEO get out of bed in the
morning? But until an organisation identifies its central belief and message,
they will most likely continue to communicate in a mediocre way.
If anyone asked you to name one of the most innovative and ingenious
technology companies of the last ten years, chances are, Apple would be
one of the first to come to mind. No one can argue with the power that
Apple has to get millions of people standing in line for hours in the bitter
cold just to buy a phone.
Apple uses the (Inside-Out) “Golden Circle” Marketing method.
Traditional marketing methods start with “what” then followed by the

“how”and ending with the “why”.
The Golden Circle Marketing process used by Apple starts with “Why”: the
central belief of why the organisation or movement exists. The
development of such a powerful core belief system is what attracts the cult
following. Once Apple was able to establish this powerful central message,
they were able to sell more than just computers.
! !180
!
Different studies have shown that 40-90 per cent of innovations
fail. Studies have also shown that innovation processes involving
customers, especially lead users, are more likely to succeed in the
marketplace since they just have better and more creative ideas than
internal product developers.
B. An Outside-in Approach to Business
! !181
In the outside-in company, as opposed to inside-out one, the keyword is

need, not product. Their people think expansively. They are totally
immersed in the minds of their customers, looking for ways to expand
demand. Their business plans and value propositions derive from the
marketplace, based on the knowledge gathered at ground level. Often, the
needs they define have not yet been identified by the customers
themselves.
!
A sustainable growth strategy of an outside-in company “starts with
understanding the difference between what you make and what people
need” – which often turns out not to be the same thing. Tapping your
resources of energy and imagination, you look at your company from the
perspective of your once and future customers, exploring what’s going on
in the real world.
Having stepped outside of your business, then work backward to ask

questions about your business to find out how you can pursue the market
opportunities identified.
Typically, an outside-in organisation questions itself on the following:
1) Where are the growth markets available for our business?

2) How can we tap into an opportunity that is available?
3) What are the trends and how should we meet them?
4) How can we better serve the needs of the market?
! !182
With its focus on the external world, such an organisation is less mindful of
its limitations compared to the first. Some companies have succeeded in
achieving the outside-in perspective and have achieved success as a
result.
Some companies that had once been outside-in successes later failed to
maintain good outside-in habits and faltered:
Maintaining an outside-in perspective seems to be especially difficult for

successful companies. A reason for it can be that they use too many
conventional and traditional consumer research methodologies, e.g.,
surveys and interviews that deliver conventional information with not
enough rigor and context. So, they miss out on the “wow” insights around
trends and hidden/latent customer needs.
Next to that, Insight activation is as important as Insight generation and if

a company does not spend enough time in activation insights, i.e., sharing
and acting on customer/market understanding gained from research. In
marketing, R&D and innovation platforms, it will fail to respond to market
opportunities and threats.
So what is the better strategy? In the first place, the real world is not that
simple. Most organisations will fall somewhere in between the inside-out
and outside-in thinking.
! !183
While outward facing functions like marketing, sales, business

development, and customer experience management would need to adopt
outside-in thinking, management roles like HR, finance, planning and
operations would need to consider both inside-out and outside-in
strategies.
!
The best organisations skillfully employ both approaches. They are mindful
of where their strengths and gaps are while using their organisational
“radars” to detect opportunities or threats. Such organisations know that
the most effective business strategies need to consider both internal
practicalities and external shifts loosely coupled. 
! !184
Case Study: Taking an Outside-in Approach
Business Challenge Solution
One of the world’s leading consumer The company brought in the RBL
goods companies had recently Group to facilitate a two-day HR
restructured its HR organisation. While Strategy session to help the HR
internal customer satisfaction was Leadership Team adopt an Outside-in
generally positive regarding the HR approach. The goal of the workshop
leadership team’s performance, it was was to create strategic alignment for
clear that silos were prevalent within the team in order to ensure that HR
the HR team that created challenges priorities were executed effectively in
with prioritisation, role clarity, the service of top business goals. 
customer “ownership”, and poor  
systems. They started by asking the workshop
participants two questions: (i) Who is
your customer, and (ii) What are the
top priorities facing this group in the
next 3-5 years? Initial responses
focused largely on internal customers,
systems, and programs and neglected
to consider the impact of HR on
creating value for external
stakeholders. 
 
To help the HRLT adopt an Outside-in
approach, RBL changed the questions:
What are the top priorities for your
stakeholders in the next 3-5 years and
what are the top 2-3 organisational
capabilities required to deliver those
expectations? By looking through the
lens of external stakeholders, the HRLT
was able to expand their focus and
improve their communication with
other parts of the company.
! !185
Results
Focusing on stakeholder priorities and organisational capability helped

the HRLT eliminate siloed behaviour and create a priority sheet that
focused on items such as reducing time to enter new markets, improving
operational productivity, and growing innovation capability. The Outside-in
approach also helped HR generate more credibility as a strategic partner
by not merely reflecting business strategy, but by helping inform and
drive that strategy.
!
5.8 Outside-in: Fight Unclear Strategies
Far too often companies do not spend enough time thinking about business
decisions from a perspective other than their own. Instead, companies
continue to make business decisions using an approach that is more or less
based on their internal knowledge and instincts…an inside-out approach.
The result of this inside-out approach leads companies to losing touch with
their customers, stagnating value propositions, and underperforming
against financial expectations.
Without the proper processes to mitigate these inherent human traits,

organisations will generally gravitate towards maintaining their traditional
Inside-out approach to business decision-making. The result often leads to
poor understanding of how the outside world values the companies’
products and services.
Managers need and benefit from a logical model to guide execution

decisions and actions. Without guidelines, execution becomes a tangle.
Without guidance, individuals do the things they think are important, often
resulting in uncoordinated, divergent, even conflicting decisions and
actions. Without the benefit of a logical approach, execution suffers or fails
because managers don’t know what steps to take and when to take them.
Having a model or roadmap positively effects execution success; not
having one leads to execution failure and frustration. Figure 5.3 shows that
the choice of structure is vital to the implementation of strategy.
! !186
!
Figure 5.3
To accomplish this transition, companies must evaluate their decision-

making processes to ensure consistent and effective decision-making
across the organisation. Why? Because significant scientific evidence
suggest that despite most individuals’ best intentions, their decisions
largely reflect internal viewpoints and biased perspectives on customers’
needs. In practice, the decision-making process is heavily influenced by the
assumptions and biases of the decision-makers as opposed to the
customer’s perspective.
To achieve strategic objectives, an organisation must develop short-term

measurable objectives that relate logically to strategy and how the
organisation plans to compete. Key issues, elements, and needs of strategy
must be translated into objectives, action plans, and “scorecards” and this
translation is an integral and vital part of the execution process.
By understanding these biases and taking an aggressive outside-in

approach, there is an opportunity to create a competitive advantage and
drive profitable growth. The risk of perpetuating an ill-conceived over
! !187
confidence in our ability to create and capture value in our exchanges with
customers and suppliers can be significantly reduced
Activity I
9.What is the role of a manager in the implementation of the strategy?

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Case Study: Pepsi versus Coke
To highlight the importance of an Outside-in approach, consider the classic

example of Pepsi’s attempts to challenge the dominant position of Coke
during the 1970s. Though these events are over 30 years old, they
continue to provide timeless lessons of how to think about your customers.
Furthermore, while most retailers have applied the lessons from Pepsi’s
experience competing with Coca-Cola, industrial companies still have not
grasped the power of these findings and their ability to transform their
ability to deliver value to customers. At the time, Pepsi executives were
certain that Coca-Cola’s distinctive, hourglass shaped bottle was Coke’s
most important competitive advantage.
Trying to compete with Coke’s bottle, Pepsi spent millions of dollars and
many years studying new bottle designs, but the company’s efforts never
achieved the recognition of the Coke bottle. In dealing with this John
Sculley, better known as the former chairman of Apple Computer and
Pepsi’s Vice President by asking what the customer really wanted. In
addition, Sculley realised that the company did not know enough about the
consumers to identify what they really wanted, and therefore it could not
conduct its marketing decision process properly. So before he even tried to
assign the bottle question to a new task force, Sculley launched a test to
study how families actually consumed Pepsi and other soft drinks in their
homes. As a result of the study, Pepsi discovered what all marketers now
recognise as a key fact about snack foods—however much you can
persuade people to buy, that’s how much they’ll consume.
! !188
This helped Sculley determine that Pepsi needed to design packages that
made it easier for people to get more soft drinks into the home. Pepsi
began a new intelligence gathering stage, decided to launch a new group of
larger packages, and established new systems to learn from feedback in
the stores to refine the packaging strategy still further.
The results of Pepsi’s changes were dramatic: Coca-Cola couldn’t convert

its famed hourglass silhouette bottle into a larger container. Pepsi’s market
share not only expanded dramatically, it drove the long unassailable Coke
bottle into extinction in the US market.
5.9 Employee Contribution
The role of employees is absolutely critical as companies strive for an

outside-in perspective. If the organisation does not have people who can
explore, comprehend, and meet its customers' needs, the pursuit of
customer-centricity is doomed from the start. A key distinction for
managers to focus on is the one between coordination and cooperation.
Coordination—the ability to work together—involves the alignment of

“hard” phenomena: activities, processes, and information. Most companies
begin with this and simply assume that mandating shared tasks and
information exchange will suffice. It does to a degree but can be severely
limiting in how much firms can achieve. At best, they are able to respond
in a somewhat coordinated fashion when customers come to them. What
they don’t get is proactive development of new ideas that can be taken to
the market before the market comes to them. To achieve this loftier goal,
you need the second half of collaboration, which is cooperation.
Cooperation—the willingness to work together—involves the alignment of

“soft” phenomena: goals, attitudes, and behaviours, people-related issues.
Most companies focus on coordination among silos and pay insufficient
attention to encouraging employees to cooperate. And when they do
consider cooperation, they rely too heavily on incentives alone as the
solution. Those who get it right recognize that changing behaviour requires
a multipronged effort that ultimately shifts the culture of the organisation.
Vishal Retail is planning to start a performance-based remuneration

process in its back-end operations, whereby employees will get higher
perks and salaries based on their performance. “Though we can’t do much
! !189
about labour cost at front-end operations, we are considering performance-

based remuneration at the back-end. We are encouraging our people to
work harder so that they bring in more efficiency into the system.”
Koutons Retail has increased the performance target for its employees to
deliver more. “We have motivated our employees to give that extra 25% in
the quality and quantity of work they do,”
 
– D.P.S. Kohli, Chairman, Koutons Retail India Ltd.
Activity J
10. Why is so much of an importance given to employees in customer-

centricity?
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5.10 Summary
The outside-in organisation is about bad news and good news. The outside-
in strategies are achieved through four customer value imperatives namely,
be a customer value leader, innovate new value for customers, capitalise
on the customers as an asset and capitalise on the brand as an asset.
Inside-out strategies involve identifying a firm’s capabilities and then
creating and selling offerings that use these capabilities in ways other
firms cannot match.
! !190
Study Questions
1. How can companies tackle competition to become leaders?
2. How does innovation make a difference as a business strategy?
3. Illustrate an example of any organisation you know to practice “outside-

in” concept.
4. A transition from inside-out to outside-in is considered not easy. Why?
5. In what way can managers improvise the traditional approach of

companies they work for?
6. “Cooperation and coordination can get the best out of the employees.”
Explain.
1. To be a value leader in an outside-in strategy means meeting the

demands of _________.
(i) Buyers who want quality products
(ii) Buyers who want the best prices
(iii) Buyers who are looking to impress their competitors
(iv) Buyers who are looking for something “extra” as product
offerings
a. (i), (ii) and (iii)
b. (i), (iii) and (iv)
c. (i), (ii) and (iv)
d. (i), (iii) and (iv)
2. Customers derive value out of _________.

a. Innovation
b. Profits
c. Competition
d. Partners
! !191
3. A company considers customers invaluable if they _________.

(i) Purchase more
(ii) Respond to marketing activities
(iii) Change over to competition
(iv) Promote their company by word of mouth
a. (i), (ii), (iii) and (iv)

b. (i), (ii) and (iii)
c. (ii), (iii) and (iv)
d. (i), (ii) and (iv)
4. _________ marketing is which the prospect agrees to receive marketing

inputs in advance.
a. Automated
b. Spam
c. Phishing
d. Permission
5. Companies become more customer-centric by _________.

(i) Listening to their customers
(ii) Following constraints due to their market research
(iii) Gaining insights into customer needs
(iv) Collating or making changes as per their market research
a. (i), (ii), (iii) and (iv)

c. (i), (ii) and (iv)
d. (ii), (iii) and (iv)
Answers:
1. (c), 2. (a), 3.(c), 4. (d), 5. (b).
! !192
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !193
OUTSIDE-IN PRODUCT DECISIONS
Chapter 6
Outside-In Product Decisions
Objectives
• Customer expectations, needs and perceptions are what count

• Customer perceptions of benefits
• Customers see augmented products
• Augmentation brings both risks and opportunities
• Focus on augmentation that customers will value
• Customers may also need follow-on products
• Relationship buyers and transaction buyers
Structure:
6.1 Customer Expectations, Needs and Perceptions are What Count

6.2 5 Ways Companies Make Product Decisions
6.3 Customer Perceptions of Benefits (in Relation to Value and Costs)
6.4 Customers See Augmented Products
6.5 Augmentation Brings Both Risks and Opportunities
6.6 Focus on Customer Service Augmentation that Customers Will Value
6.7 Customers May Also Need Follow-on Products
6.8 Relationship Buyers and Transaction Buyers
6.9 Summary
! !194
Introduction
Understanding your customers is perhaps the best way to improve your

chances of making good product decisions. Knowing what makes people
tick enhances your product intuition—your internalized view of how great
products should be built. And, honing this intuition enables you to make
better decisions, faster because you are utilizing first-hand internalized
knowledge of your customers and products instead of outside systems or
ways of thinking.
6.1 Customer Expectations, Needs and Perceptions Are

What Count
Customer’s Perceived Benefits – Customer’s Perceived Costs = Perceived

Customer Value. Many marketing researchers have maintained that
detailed analyses of consumption behaviour are the fundamental basis for
creating superior customer value for consumers.
The products and services that a company has to offer are generally
organised around its customers’ needs, in addition to the level of expertise
and production capabilities of the firm. (Figure 6.1) Creating a strategy for
product development is an important and often multifaceted segment of
running a successful enterprise, and it brings together a range of different
principles, such as research and development, marketing, engineering,
design, materials, and manufacturing.. 
! !195
!
Figure 6.1: Company Product and Services Organised around the
Customer
In most cases, a product development strategy will depend on two main

goals: keeping the new product or product line within the company’s
overall objectives and marketing philosophy, and developing a system for
assessing the performance of an existing product. For evaluating the
success of an existing product, factors such as sales, customer response,
profits, competition, and market acceptance are usually involved.
Product development is usually based upon these criteria, and putting

together a strategy helps to determine which products need to be modified,
continued, or discontinued. In addition, development analysis can set
guidelines for new products to be introduced. When working on product
development, it can be helpful to remember that a product is often more
than just a tangible good, but also a set of technical, economic, legal, and
personal relations between the consumer and the seller. Elements such as
price, product specifications, purchasing contracts, and a customer’s
personal interpretation of a company’s brand and reputation are all
significant influences on a product’s overall performance.
! !196
Activity A
1. What care should companies take while developing a product?

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Case Study: Customer Expectations Of Virgin Trains
Virgin Trains is a brand that has had the major challenge of bringing the UK
rail industry into the twentieth century. The company is responsible for
linking towns and cities across the length and breadth of the country with
over 35 million passenger journeys each year. It has therefore undertaken
a significant level of marketing research to identify what people expect
from train travel. Many passengers have now had the experience of
travelling on airlines or on overseas railways and as a result their
expectations from long-distance train travel have increased. The research
has highlighted the significant and highly diverse expectations that
customers have of train travel. No longer is a seat and access to toilets and
basic refreshments acceptable; passengers now expect – demand even – a
choice of on-board meals, health-conscious snacks, reading material and
entertainment. Business, and increasingly leisure, travelers also want
access to the Internet and e-mails through on-board wireless Internet, and
the opportunity to use and charge their laptop and mobile. This clearly
demonstrates that customer expectations of service performance do not
remain constant. Organisations need to be aware of how these
expectations are changing and adapt their service offering accordingly.
6.2 5 Ways Companies Make Product Decisions
Companies that develop, market, and sell products and solutions make
strategic and ongoing tactical decisions. They decide what features to
include in their products, what messages they will use to communicate the
value of their products, what marketing tactics they will use, what
prospective customers they will target, and many day-to-day choices.
Whether or not these decisions are deliberate or ad hoc, most companies
use some combination of the following ways of making product decisions.
! !197
1. Customer Wants
Product decisions based on feature requests, focus groups, and what

prospects and customers say they want.
!
Companies are selling products to make money by creating happy
customers. With the “customer wants” model of making product decisions,
you reach out to prospective and existing customers, since they are the
ones who will ultimately be buying your product. If you are able to deliver
what prospects want, they are much more likely to buy your product.
To gain insight into what they want, companies listen to what prospects say
during sales and customer support calls, tally up feature requests, monitor
support and discussion forums, and conduct focus groups and surveys. A
conversation with a customer might include explicitly asking her what she
thinks of a particular feature idea, or she might offer her own feature
ideas.
Pros:
a. Incorporates direct feedback from prospects and customers rather

than speculation from inside the company about what they may
want.
b. Can lead to prospects becoming customers once you have

implemented the requested features.
Cons:
a. Customers are experts on their own situations and challenges but do
not know what they want. So, you end up implementing features that
do not provide value.
! !198
b. Research shows that customers’ hypothetical predictions about what

they would buy are not reliable.
2. Deal Driven
Product decisions driven by the next big deal in the sales pipeline.
The ultimate measure of a successful product is how much money it

makes. At any particular time, sales may be working on a deal that could
bring in a large amount of revenue for the company. The prospect in such a
deal often has particular needs that the product could address with some
additional development. In the deal-driven approach to product decisions,
the needs of prospects in these major deals drive the product decisions and
priorities.
Pros:
a. Increases the likelihood that revenue-producing deals will convert.
b. Ties product decisions and priorities to revenue potential.
Cons:
a. Leads to scattered, incoherent value propositions for the product.
b. Causes abrupt swings in product direction, eroding the morale of the

product team.
! !199
3. Intuition
Product decisions based on common sense and what is cool.
Disruptive and innovative products often come from visionaries who

incorporate cool technologies and have an intuitive sense for what
consumers want. Executives and members of the product team are
themselves consumers and thus have their own personal opinions about
the most effective ways to market and sell a product.
Developers on top of the newest technologies see how they can apply the
technologies to implement innovative product features. Since everyone in
the company is a potential user of the product, they all peal in on what the
best design and user interface is. In many organizations, these sorts of
intuitions drive product decisions.
Pros:
a. Anticipates needs that prospects do not yet realise they have.
b. Leverages internal knowledge and avoids expensive market research.
Cons:
a. Effective marketing often defies common sense. Despite the fact that we
are all consumers, most members of the product team probably have
not studied marketing principles.
b. Personal preferences and intuition often do not reflect those of the

target market.
! !200
4. Industry Experience
Product decisions based on prior industry experience and accumulated

wisdom.
Some companies rely on employees with prior experience in a domain or

industry to guide product decisions. Experience provides wisdom about a
market and what works and does not work in an industry. Based on
industry background, such as knowledge of the competitive landscape,
customer needs, and existing technologies and practices, members of the
product team make judgments about what features to include in the
product and how to market and sell it.
Pros:
a. Reduces or eliminates the learning curve for understanding the

customers, technology, competition, and needs in an industry.
b. Brings industry connections and relationships that sales and

development can leverage.
Cons:
a. May inhibit innovation and outside-the-box thinking. Most companies

emphasising industry experience in their hiring practices do not, as a
general rule, innovate well.
b. Provides no guidance for tackling risks and unknowns outside the prior
industry experience.
! !201
5. Left Brain
Product decisions based on analyses such as Kano and A/B testing and
documented as detailed product specifications.
To take the intuition and guesswork out of making product decisions, team
members with a left-brained bent employ a variety of rigorous approaches
and analytical tools to determine and document product priorities and
marketing tactics.
For example, a member of the team may maintain a spreadsheet with

candidate market problems to solve, or with all the proposed
enhancements to the product, and rate them on various criteria. They base
product decisions on the items with the highest ratings.
Some more sophisticated product managers analyse customer preferences

using Kano analysis, rating features in terms of the extent to which they
evoke surprise and delight, satisfaction, dissatisfaction, indifference, or an
erosion of overall perceived value.
In some cases, business analysts, product managers, or product owners

will then compose detailed product specifications. Often, the individuals
with analytical instincts will go far beyond writing epics and the basic user
stories, and will delve into interaction design.
For determining the most effective marketing tactics, the team may use A/
B tests and other data, seeing which ones work best in practice.
Pros:
a. Brings transparency and rigour into the process of making product

decisions.
b. Distills disparate data into actionable information.
Cons:
a. Can lead to products with incoherent and scattered value propositions.
b. Ignores timeless marketing principles.
! !202
Biased to product decisions with available data and to tactical alternatives

that are easiest to measure.
The Consumer Decision Journey
Aligning marketing with the consumer decision journey.
Developing a deep knowledge of how consumers make decisions is the first

step. For most marketers, the difficult part is focusing strategies and
spending on the most influential touchpoints.
In some cases, the marketing effort’s direction must change, perhaps from
focusing brand advertising on the initial consideration phase to developing
Internet properties that help consumers gain a better understanding of the
brand when they actively evaluate it.
Other marketers may need to retool their loyalty programs by focusing on

active rather than passive loyalists or to spend money on in-store activities
or word-of-mouth programs. The increasing complexity of the consumer
decision journey will force virtually all companies to adopt new ways of
! !203
measuring consumer attitudes, brand performance, and the effectiveness

of marketing expenditures across the whole process.
Without such a realignment of spending, marketers face two risks:
(i) They could waste money: At a time when revenue growth is critical
and funding tight, advertising and other investments will be less effective
because consumers are not getting the right information at the right time.
(ii) Marketers could seem out of touch: For instance, by trying to push
products on customers rather than providing them with the information,
support, and experience they want to reach decisions themselves.
Five kinds of activities can help marketers address the new realities of the
consumer decision journey.
1. Prioritise objectives and spending
In the past, most marketers consciously chose to focus on either end of the
marketing funnel building awareness or generating loyalty among current
customers. Our research reveals a need to be much more specific about
the touchpoints used to influence consumers as they move through initial
consideration to active evaluation to closure. By looking just at the
traditional marketing funnel’s front or back end, companies could miss
exciting opportunities not only to focus investments on the most important
points of the decision journey but also to target the right customers.
In the skin care industry, for example, we found that some brands are
much stronger in the initial consideration phase than in active evaluation or
closure. For them, our research suggests a need to shift focus from overall
brand positioning, already powerful enough to ensure that they get
considered to efforts that make consumers act or to investments in
packaging and in-store activities targeted at the moment of purchase.
! !204
2. Tailor messaging
For some companies, new messaging is required to win in whatever part of

the consumer journey offers the greatest revenue opportunity. A general
message cutting across all stages may have to be replaced by one
addressing weaknesses at a specific point, such as initial consideration or
active evaluation.
Take the automotive industry. A number of brands in it could grow if

consumers took them into consideration. Hyundai, the South Korean car
manufacturer, tackled precisely this problem by adopting a marketing
campaign built around protecting consumers financially by allowing them to
return their vehicles if they lose their jobs. This provocative message, tied
to something very real for Americans, became a major factor in helping
Hyundai break into the initial-consideration set of many new consumers. In
a poor automotive market, the company’s market share is growing.
3. Invest in consumer-driven marketing
To look beyond funnel-inspired push marketing, companies must invest in

vehicles that let marketers interact with consumers as they learn about
brands. The epicenter of consumer-driven marketing is the Internet, crucial
during the active-evaluation phase as consumers seek information,
reviews, and recommendations.
Strong performance at this point in the decision journey requires a mindset

shift from buying media to developing properties that attract consumers:
digital assets such as websites about products, programs to foster word-of-
mouth, and systems that customise advertising by viewing the context and
the consumer.
Broadband connectivity, for example, lets marketers provide rich

applications to consumers learning about products. Simple, dynamic tools
that help consumers decide which products make sense for them are now
essential elements of an online arsenal. American Express’s card finder and
Ford’s car configurator, for example, rapidly and visually sort options with
each click, making life easier for consumers at every stage of the decision
journey.
! !205
Marketers can influence online word-of-mouth by using tools that spot

online conversations about brands, analyse what is being said, and allow
marketers to post their own comments.
Finally, content management systems and online targeting engines let

marketers create hundreds of variations on an advertisement, taking into
account the context where it appears, the past behaviour of viewers, and a
real-time inventory of what an organisation needs to promote.
For instance, many airlines manage and relentlessly optimise thousands of

combinations of offers, prices, creative content, and formats to ensure that
potential travellers see the most relevant opportunities. Digital marketing
has long promised this kind of targeting. Now, we finally have the tools to
make it more accurate and to manage it cost-effectively.
4. Win the in-store battle
Our research found that one consequence of the new world of marketing
complexity is that more consumers hold off their final purchase decision
until they are in a store. Merchandising and packaging have therefore
become very important selling factors, a point that is not widely
understood.
Consumers want to look at a product in action and are highly influenced by

the visual dimension: up to 40 per cent of them change their minds
because of something they see, learn, or do at this point—say, packaging,
placement, or interactions with salespeople.
In skin care, for example, some brands that are fairly unlikely to be in a
consumer’s initial-consideration set nonetheless win at the point of
purchase with attractive packages and on-shelf messaging. Such elements
have now become essential selling tools because consumers of these
products are still in play when they enter a store.
That is also true in some consumer electronics segments, which explains

those impressive rows of high-definition TVs in stores.
Sometimes, it takes a combination of approaches; great packaging, a

favourable shelf position, forceful fixtures, informative signage to attract
consumers who enter a store with a strong attachment to their initial-
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consideration set. Our research shows that in-store touchpoints provide

a significant opportunity for other brands.
5. Integrating all customer-facing activities
In many companies, different parts of the organisation undertake specific

customer-facing activities including informational websites, PR, and loyalty
programs. Funding is opaque. A number of executives are responsible for
each element, and they do not coordinate their work or even communicate.
These activities must be integrated and given appropriate leadership.
The necessary changes are profound. A comprehensive view of all

customer-facing activities is as important for business unit heads as for
CEOs and chief marketing officers. But the full scope of the consumer
decision journey goes beyond the traditional role of CMOs, who in many
companies focus on brand building, advertisements, and perhaps market
research. These responsibilities are not going away. What is now required
of CMOs is a broader role that realigns marketing with the current realities
of consumer decision making, intensifies efforts to shape the public profiles
of companies, and builds new marketing capabilities.
Consider the range of skills needed to manage the customer experience in

the automotive-insurance industry, in which some companies have many
passive loyalists who can be pried away by rivals.
Increasing the percentage of active loyalists requires not only integrating

customer-facing activities into the marketing organisation but also more
subtle forms of organisational cooperation. These include identifying active
loyalists through customer research, as well as understanding what drives
that loyalty and how to harness it with word-of-mouth programs.
Companies need an integrated, organisation-wide “voice of the customer,”
with skills from advertising to public relations, product development,
market research, and data management. It is hard but necessary to unify
these activities, and the CMO is the natural candidate to do so.
Marketers have long been aware of profound changes in the way

consumers research and buy products. Yet a failure to change the focus of
marketing to match that evolution has undermined the core goal of
reaching customers at the moments that most influence their purchases.
The shift in consumer decision making means that marketers need to
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adjust their spending and to view the change not as a loss of power over
consumers but as an opportunity to be in the right place at the right time,
giving them the information and support they need to make the right
decisions.
Example: Deliver better products—with the help of your

customers.
In an interview with Adweek, Lisa Utzscheider, Yahoo’s new chief revenue

officer, says improving its products for its customers is a priority.
“I’d like to focus on our customers and try to be as customer-centric as

we can,” she says. “Customers, for my organisation, are advertisers and
agencies. [My first priority is] to instill an approach that we can really try
to listen to what the advertiser needs and deliver great ad products and
great experiences for them so that they are able to make great
connections with Yahoo’s consumers.”
Utzschneider says analytics is a critical piece of this approach, as she

aims to use “80 per cent data and 20 per cent gut” when making
business decisions.
Yahoo is in the midst of a turnaround, but some of its recent

announcements show that listening to customers is already having an
impact. The company recently announced a slew of new innovative
features for advertisers, giving its customers more visibility into ad
viewability and ad fraud.
!
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6.3 Customer Perceptions Of Benefits (In Relation To Value

And Costs)
The Customer Perceived Value of a product is the difference between the

prospective customer’s evaluation of all the benefits and all the costs of an
offering, in comparison to the perceived alternatives.
When perceived value equals perceived cost, you have ‘fair value’. (Figure
6.2)
Formally, it may be conceptualized as the relationship between the

consumer’s perceived benefits in relation to the perceived costs of
receiving these benefits. It is often expressed as the equation:
Value = Benefits – Cost
The customers get benefits and assume costs. Value is thus subjective
(i.e., a function of consumers’ estimation) and relational (i.e., both benefits
and cost must be positive values). You can deliver great products and
services, but it’s the customer’s perception that determines the value
delivered. If your customers are unhappy, they will eventually leave and
find solutions of higher value. They don’t leave because of high cost. They
leave because of low value. The focus is on increasing customer value by
increasing the perceived benefits and reducing the irritation factor costs.
The irritation factor costs include slow response time, inconveniences and
frustrating customer service attitudes and processes.
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!
Figure 6.2: Perceived Value Equals Perceived Cost, You Have ‘Fair Value’.
Let's take an example of Nike (to understand customer expectations); Nike

comes up with special line of shoes called ‘Air Jordan’ for the professional
NBA players with commercials of Michael Jordan shooting an ‘impossible’
goal. In addition, Nike releases a limited edition of Air Jordan for which it
charges a high amount compared to other products. In the end, all the
hype about the line of Air Jordan and its limited edition are customer
perceived value.
To understand cultural expectations, let’s take an example of Pizzas sold in

Japan and United States. The pizza in Japan might be topped with fish
rather than chicken or mutton, as pizza might be in the United States; the
value in the marketplace varies from place to place as well as from market
to market.
For a firm to deliver value to its customers, they must consider what is
known as the "total market offering." This includes the reputation of the
organisation, staff representation, product benefits, and technological
characteristics as compared to competitors’ market offerings and prices.
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Value can thus be defined as the relationship of a firm’s market offerings to

those of its competitors.
Very often, managers conduct customer value analysis to reveal the

company’s strengths and weaknesses as compared to other competitors.
The steps of which are as follows:
i. To identify the major attributes and benefits that customers value for
choosing a product and vendor.
ii. Assessment of the quantitative importance of the different attributes

and benefits.
iii. Assessment of the company’s and competitors’ performance on each

attribute and benefits.
iv. Examining how customer in the particular segment rated company

against major competitor on each attribute.
v. Monitor customer perceived value over time.
Activity B
2. How does the customer derive value from a product?

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6.4 Customers See Augmented Products
Consumers can evaluate a product along several levels. Its basic

characteristics are inherent to the generic version of the product and are
defined as the fundamental advantages it can offer to a customer. Generic
products can be made distinct by adding value through extra features, such
as quality or performance enhancements. The final level of consumer
perception involves augmented properties. The augmented product is the
basic product plus all the attributes that augment it. Augmented Product
offer additional consumer benefits and services.
• Warranty
• Customer training
The new competition is not between what companies produce in their

factories, but between what they add to their factory output in the form of
packaging, services, advertising, customer advice, financing, delivery
arrangements, warehousing and other things that people value. (Figure
6.3)
Example: Sony Camcorder:
a. Core – The ability to take video pictures conveniently.
b. Actual – Sony Handy-cam (brand name), packaged, convenient design

so you can hold it, play back features etc. that provide the desired
benefits, high quality etc.
c. Augmented – receive more than just the camcorder. Give buyers a

warranty on parts and workmanship, free lessons on how to use the
camcorder, quick repair service when needed and toll free telephone
number when needed.
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!
Figure 6.3: Augmentation of a Product
Marketers must first identify the core consumer needs (develop core
product), then design the actual product and find ways to augment it in
order to create the bundle of benefits that will best satisfy the customer.
For example, the core benefit for people going on vacation is often nothing
but the flight and hotel accommodation; the expected product is a safe
flight and a pleasant stay in a clean and noise-free hotel; the augmented
product is a product that exceeds customer expectations including for
example in-flight catering, transport to and from the hotel, friendly service
from the hotel and the tour operator, and a welcome basket with chocolate
and a bottle of wine.
In terms of competition with other products and companies, consumers

greatly value these added benefits when making a purchasing decision,
making it important for manufacturers to understand the notion of a “total
package” when marketing to their customers. For example, when
manufacturing automotive parts, a high-performing product will provide
the customer base with basic benefits, while adding spare parts, technical
assistance, and skill training will offer enhanced properties to create a total
package with increased appeal to consumers.
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Activity C
3. In what way can products be augmented to increase their value?

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6.5 Augmentation Brings Both Risks and Opportunities
Models of service quality distinguishes between the technical quality of the

service and its functional quality. The technical quality refers to what the
customer receives (including reliability) and is a dimension of the service
product, whereas functional quality is how it is received, which is an
element of service augmentation. For example, if an ATM machine is not
working this is a breakdown of the service product (technical quality), but
if customers find the ATM difficult to use, this is considered a breakdown in
service augmentation (functional quality).
The impact of communication also needs to be considered. Word-of-mouth

communication, reputation, and image are all important parts of
communication received by customers (and potential customers). These
elements can be thought of as “enhancing” the augmented service offering.
The elements of communication are considered as integral parts of service
augmentation as they can have a direct effect on the service experience.
Word-of-mouth communication at the time of consumption (from other
customers and also staff) can change a customer’s perception of the
service received. (Figure 6.4)
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!
Figure 6.4: Impact of Communication
Market researchers stress the importance of corporate image as part of the

service augmentation, and it has long been recognised that in service
sectors the consumer may be less aware of specific products and more
aware of the institutions marketing them. The company can be thought of
as the ultimate product. Perceived service quality is directly influenced by
communication, and corporate image can act as a filtering device. It should
be noted that service augmentation is not an added extra but an integral
part of the total offering.
Unlike tangible products, where the physical product can be sold without
any elements of augmentation, the service product cannot exist without
service augmentation, in one form or another. This is because the service is
not created until the customer interacts with the service organization, its
systems, and/or staff. For example, an ATM service is only produced when
a customer inserts the ATM card. It is the precise form of augmentation
and how it is carried out that helps to differentiate a particular service
provider from its competitors.
In new tangible products, product advantage has been identified as the

number one success factor. In services, although the service product is
important, it is not the key success factor. Of more importance for new
services is the perceived quality of the interaction with the customer. This
suggests that service augmentation is a crucial area in service success.
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Activity D
4.What are the attributes associated with service augmentation?

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6.6 Focus on Customer Service Augmentation That

Customers Will Value
Companies augment their products to increase revenues, and may create

additional streams of revenue in the process, depending on the types of
products and services they offer. (Table 6.1) Consumers may preferentially
select an augmented product when they have an option, which puts
demand on manufacturers to continue adding innovations to their products
to capture and hold consumer attention.
Consumers weighing a choice between two similar options may pick the
one with more apparent benefits, like the laptop that comes with a case
and a year’s support plan. It is also possible to get consumers to pay more
through the use of an augmented product, because the consumer could
feel like the extra features make it a better deal. Consumers view these
options as value adders, and can interact with the product and the
marketing much differently depending on the level of features available.
Example a camera, the core product would be the ability to take a high
quality picture conveniently, quickly and in a variety of circumstances. This
solves the main problem for the buyer. The actual product bought by the
customer also includes attributes such as brand, style and colour. The
augmented product would include customer service and warranty in
addition to the other features.
Marketing departments work with product development teams to decide on

how to develop new products, and what kinds of features to offer. The
team may have suggestions for additions they feel could add to the value.
The focus here is on augmented value generated by a company’s product
or service as perceived by the customer or the fulfilment of customer goals
and desires by company products and/or services.
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To be able to tower over the competition, production companies focus on

factors which consumers attach extra value to such as extreme packaging,
surprising advertisements, customer-oriented service and affordable
payment terms. This is not just about satisfying the customers and
exceeding their expectations but also about surprising them. So when you
buy a car, part of the augmented product would be the warranty, the
customer service support offered by the car’s manufacture, and any after-
sales service.
Table 6.1. Augmented product value.

Product or Core Product Actual Product Augmented
Service or Brand Product
Ford Focus Freedom to travel A motor car Ford finance
Spanish Holiday Relaxation Two weeks in a Holiday insurance

resort
Budget/No Frills Gets you from A to An airline journey Food bought

Airline, e.g., B cheaply during your flight
EasyJet or Ryan
air
Chelsea Football Excitement and Sporting event Personalised shirts

Club leisure and other
merchandise
Nike Association with Shoes and other Nike online allows

the best in sports clothing you to personalise
your trainers
Hiranandani Leisure and Goods for gardens Hiranandani

Garden Centers relaxation gardening club
Activity E
5. How can augmentation of products have an impact on revenues?

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Planning the Augmented Service
Planning the best augmented customer service strategy can be complex. To

apply customer service effectively, a firm must first develop an overall
service strategy and then plan individual services. Augmented customer
services are extra elements, a firm could serve its target market without
such services; yet, using them enhances its competitive standing.
Examples are delivery for a supermarket, an extra warranty for an auto
dealer, and gift wrapping for a toy store. Each firm needs to learn which
customer services are expected and which are augmented for its situation.
Expected customer services for one firm, such as delivery, may be
augmented for another.
In case of a retailer, an upscale retailer would offer more customer services

than a discounter because people expect the upscale retailer to have a
wider range of customer services as part of its basic strategy. Performance
would also be different. Customers of an upscale retailer may expect
elaborate gift wrapping, valet parking, a restaurant, and a ladies’ room
attendant, whereas discount shoppers may expect cardboard gift boxes,
self-service parking, a lunch counter, and an unattended ladies’ room.
Customer service categories are the same; performance is not.
Should there be a choice of augmented customer services?
Some firms let customers select from various levels of augmented

customer service; others provide only one level. A retailer may honour
several credit cards or only its own. Trade-ins may be allowed on some
items or all. Warranties may have optional extensions or fixed lengths. A
firm may offer one-, three-, and six-month payment plans or insist on
immediate payment.
Should augmented customer services be free?
Two factors cause retailers to charge for some customer services: (1)
Delivery, gift wrapping, and some other customer services are labor-
intensive. (2) People are more apt to be home for a delivery or service call
if a fee is imposed. Without a fee, a retailer may have to attempt a delivery
twice. In settling on a free or fee-based strategy, a firm must determine
which customer services are expected (these are often free) and which are
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augmented (these may be offered for a fee), monitor competitors and

profit margins, and study the target market. In setting fees, a retailer must
also decide if its goal is to break even or to make a profit on certain
customer services.
How can a retailer measure the benefits of providing augmented

customer services against their costs?
The purpose of customer services is to enhance the shopping experience in

a manner that attracts and retains shoppers—while maximising sales and
profits.
Thus, augmented customer services should not be offered unless they raise
total sales and profits. A retailer should plan augmented customer services
based on its experience, competitors’ actions, and customer comments;
and when the costs of providing these customer services increase, higher
prices should be passed on to the consumer.
How can augmented customer services be terminated?
Once a customer service strategy is set, shoppers are likely to react

negatively to any augmented customer service reduction. Nonetheless,
some costly augmented customer services may have to be dropped. In that
case, the best approach is to be forthright by explaining why the customer
services are being terminated and how customers will benefit via lower
prices. Sometimes a firm may use a middle ground, charging for previously
free customer services (such as clothing alterations) to allow those who
want the services to still receive them.
Activity F
6.What could be the hazards of an unplanned augmented service?

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6.7 Customers May Also Need Follow-on Products
Augmentations comprise offer enhancements such as after-sales services,

advice, and customised services, all of which would require interactions
between channel partners. A supplier may be able to add value to its
products even after the sale through building dependencies and bonds.
Addiction is not always negative. The value proposition of products and the
manner in which they are sold and used can be so compelling that many
consumers willingly repeat the experience again and again, essentially
becoming addicted to a brand. People with iPhones, for example, would
likely go through intense withdrawal if they were deprived of their Apple
devices without notice.
To boost customer loyalty, or move customers to go to great lengths to

repeat purchase behaviour, can be seen as creating a form of product
addiction of the positive kind. Companies can go beyond customer
satisfaction, and even beyond loyalty, to develop intense bonds between
their products and consumers.
6.8 Relationship Buyers and Transaction Buyers
The relationship marketing theory revolves around three aspects. The first
aspect is financial incentives, in which the customer receives rewards or
discounts in exchange for their repeated business. The second aspect is
social bonding between the company and the customer. The third aspect is
structural interaction. The relationship marketing importance resides in the
strong bonding between the company and the customers which result in
long-term relationship that allows the business owner to plan, stock and
provide products wanted repeatedly by the loyal customers.
Relationship Buyers consider today’s transaction as one in a series of

many. They do not enjoy playing the “shopping game.” They don’t enjoy
comparison shopping or negotiating. They are looking for a Business
Partner or Trusted Advisory who is an expert that they can trust. Once they
find someone they trust, they are loyal and tend to be the best repeat
customers. While relational buyers consider the money, they also realise
that their time is better spent doing something other than shopping
around. Because of their “I win and you win” orientation, they are honest,
open and pleasant to deal with.
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In fact, these type of business buyers regard the product as moderately

important and are knowledgeable about the competitive offerings. They
prefer some discount and a modest amount of services and would go for a
supplier as long as the price is not far out of line.
How can you hang on to relationship buyers?
a. Know who they are. Keep track of them in a database. Let your
employees at every branch, or on the telephone, know who your gold
customers are. Be sure they are treated as gold.
b. Communicate with them. Find special ways to build a relationship

with them. Thank them for their business.
c. Use your best customer service people with them. Some banks
segment their customers by profitability. When the phone rings from a
profitable customer, their automatic call distributor uses automatic
number identification technology to shift these calls to a specially
selected “gold” customer service team.
d. Build equity in the process. Provide rewards for volume business and
for length of service. Make it expensive to leave.
e. Don’t stress price. If your neighbour helps you carry a heavy item of
furniture upstairs in your house, you would never think of offering him
money. You will supply a beer or a cup of coffee and conversation. This
is what your relationship buyers want. They want to be treated like a
good neighbour—a good friend.
Toyota Motor Corporation is a perfect example of how a company can be

extremely successful when forming strong alliance relationships with their
suppliers. The Japanese term keiretsu, meaning a network of businesses
that own stake in one another as a means of mutual security, is something
that Toyota lives and breathes on a daily basis. Toyota realised the
importance of supplier relationship when they first started and they have
maintained a keiretsu still to this day.
The key to Toyota’s success “is the practice of dedicating supplier assets to
the customer”. Toyota does this in several ways including locating plants
near the customers, sending its own engineers to work at the customer’s
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site, and investing in customized physical assets. Because Toyota and the
customer are sharing information and technology, they both benefit.
Information is power and when shared, companies can grow together and
become more efficient in time. They continually improve this way.
Transactional buyers are concerned about today’s purchase. They do a

lot of research investigating the product they are considering buying and
consider himself or herself a product expert. They are not concerned about
service, trust or relationship. They are concerned primarily about price and
terms. They have all the catalogs and know all the competitors’ prices.
They can afford to wait. They take pride in getting the best deal. They
enjoy negotiating and trying to extract as many concessions out of the
salesperson as possible. They see what they are doing as a game. A game
where they win and the salesperson loses. They will “milk” the salesperson
for free information, technical data, etc. Because of their “I win you lose”
approach, they have no loyalty. They are a salesperson’s worst nightmare.
Transaction buyers give you very little profit. Since they only buy
discounted items, the margin on their sales is much lower than the margin
on relationship buyer’s sales.
When the products are on sale, they attract a small additional group of
transaction buyers. When their competitors’ products are on sale, this
same group jumps ship to take advantage of the discounts. In a few days,
they move on when they hear of another price advantage somewhere else.
Wal-Mart is an incredibly powerful company. The sole purpose of their

business is to bring consumers the lowest possible prices on products. In
order to do this, Wal-Mart continues to put obscene amounts of pressure
on all their suppliers, forcing them to lower their prices every year. They
are strictly price-focused. If suppliers don’t lower their prices to meet Wal-
Mart’s price, then they will simply get another supplier, and stop doing
business with you. Wal-Mart may go to a competitor and have them match
the price or they make take the business overseas and import it. Wal-Mart
will do whatever it takes to get the lowest price for the consumer, even at
the expense of the supplier.
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Activity G
7. How can transaction buyers be converted to relationship buyers?

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6.9 Summary
The product and services that a company has to offer are generally
organised around its customer needs in addition to the level of expertise
and production capabilities of the firm. Creating a strategy for product
development is an important and often multifacted segment of running a
successful enterprise and it brings together a range of different principles
such as research and development marketing, engineering, design
materials and manufacturing. A customer can derive value from a product
when the firms offer ‘total market offering’ to its customers which includes
reputation of the organisation, staff representation, product benefits and
technological characteristics as compared to the competitors’ market
offerings and prices.
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Study Questions
1. When a consumer shops at an upscale furniture store, what factors

determine whether the consumer feels that he or she got a fair value?
2. How does the perception of value differ when a consumer shops at a

discount retail store?
3. What are the expected and augmented value chain elements for each of
these retailers?
(a)Roadside diner.
(b)Resort hotel.
(c)Local bank.
4. Why should a retailer devote special attention to its core customers?

How should it do so?
5. How would you measure the level of customer satisfaction with your
college’s bookstore?
6. What are the unique aspects of service retailing?
7. What are the pros and cons of ATMs? As a retailer, would you want an
ATM in your store? Why or why not?
8. What will be your perception of the term “value for money”?
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1. The best illustration of an augmented product category or feature would

be the:
(a)Brand name
(b)Packaging
(c)Warranty
(d)Design
2. A _________ is anything that can be offered to a market to satisfy a

want or need, including physical goods, services, experiences, events,
persons, places, properties, organisations, information, and ideas.
(a)function
(b)product
(c)benefit
(d)process
3. A customer judges a product offering by three basic elements: product

features and quality, services mix and quality, and _________.
(a)performance
(b)utility
(c)tangibility
(d)price
4. When companies search for new ways to satisfy customers and

distinguish their offering from others, they look at the _________
product, which encompasses all the possible augmentations and
transformations of the product
(a)consumption
(b)expected
(c)potential
(d)augmented
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5. The way the user performs the tasks of getting and using products and
related services is the user's total _________.
(a)consumption system
(b)consumable system
(c)consistent use system
(d)augmented system
6. Marketers must see themselves as benefit providers. For example, when

a shopper purchases new shoes, he/she expects the shoes to cover his/
her feet and allow him/her to walk unobstructed. This is an example of
what level in the consumer-value hierarchy?
(a)pure tangible good

(b)basic product
(c)augmented product
(d)potential product
7. How a consumer shops for organic foods and how he or she uses and
disposes of the product is part of the consumers’ _________ that is
important for marketers to consider.
(a)value proposition
(b)consumption system
(c)value system
(d)quality perception
8. Which of the following are tangible goods that normally survive many
uses?
(a)generic goods
(b)durable goods
(c)core benefits
(d)convenience goods
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9. Because _________ are purchased frequently, marketers should make

them available in many locations, charge only a small markup, and
advertise heavily to induce trial and build preference.
(a)non-durable goods
(b)durable goods
(c)services
(d)unsought goods
10.What types of goods are purchased frequently, immediately, and with

minimum effort by the consumers?
(a)specialty goods
(b)shopping goods
(c)convenience goods
(d)durable goods
Answers:
1. (c), 2. (b), 3. (d), 4. (c), 5. (a), 6. (b), 7. (b), 8. (b), 9. (a), 10. (c).
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REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !228
OUTSIDE-IN VALUE-BASED PRICING
Chapter 7
Outside-in Value - Based pricing
Objectives
• How much should you charge for your product or service?

• Pricing approaches: seller’s cost or customer’s value
• Why value-based pricing
• The power of value pricing
• Building of perceived value
• When building value through differentiation
• Role of Price and Product in the Marketing Strategy
• Most dangerous pricing strategy
• A few more insights about costs
Structure:
7.1 How Much Should You (the Company) Charge for Your Product or
Service?
7.2 Pricing Approaches: Seller’s Cost or Customer’s Benefit
7.3 Why Value-based Pricing?
7.4 The Pros and Cons of Value-based Pricing
7.5 The Power of Value Pricing
7.6 Building of Perceived Value (Determination of Economic Value)
7.7 Building Value through Differentiation
7.8 Role of Price and Product in the Marketplace Strategy
7.9 The Most Dangerous Pricing Strategy (Market Penetration Strategy)
7.10 A Few More Insights about Costs
7.11 Summary
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Introduction
A company can use a variety of pricing strategies when selling a product or

service. The price can be set to maximise profitability for each unit sold or
from the market overall. It can be used to defend an existing market from
new entrants, to increase market share within a market or to enter a new
market. Businesses may benefit from lowering or raising prices, depending
on the needs and behaviours of customers and clients in a particular
market. Finding the right pricing strategy is an important element in
running a successful business.
Also for a pricing model to be successful, it should strike the right balance
between the customer’s expectations of quality, timeliness and price, and
the service provider’s cost and operational efficiency. Customer
engagements may not be successful with one type of pricing model every
time.
7.1 How Much Should You (The Company) Charge For Your
Product Or Service?
One of the most difficult, yet important, issues the company must decide is
how much to charge for your product or service. When setting your prices,
you must make sure that the price and sales levels you set will allow your
business to be profitable. You must also take note of where your product or
service stands when compared with your competition. While there is no
one single right way to determine the pricing strategy, fortunately there
are some guidelines that will help with its decision.
Some of the factors that you need to consider:
1. Positioning: How are you positioning your product in the market? Is

pricing going to be a key part of that positioning? If you’re running a
discount store, you’re always going to be trying to keep your prices as
low as possible as or at least lower than your competitors. On the other
hand, if you’re positioning your product as an exclusive luxury product,
a price that’s too low may actually hurt your image. The pricing has to
be consistent with the positioning. People really do hold strongly to the
idea that you get what you pay for.
! !230
2. Demand Curve: How will your pricing affect demand? You’re going to
have to do some basic market research to find this out, even if it’s
informal. Get 10 people to answer a simple questionnaire, asking them,
“Would you buy this product/service at X price? Y price? Z price?” For a
larger venture, you’ll want to do something more formal, of course –
perhaps hire a market research firm. But even a small company can
chart a basic curve that says that at X price, X' percentage will buy, at Y
price, Y' will buy, and at Z price Z' will buy.
3. Cost: Calculate the fixed and variable costs associated with your
product or service. How much is the “cost of goods”, i.e., a cost
associated with each item sold or service delivered, and how much is
“fixed overhead”, i.e., it doesn’t change unless your company changes
dramatically in size? Remember that your gross margin (price minus
cost of goods) has to amply cover the fixed overhead in order for you to
turn a profit. Many companies underestimate this and it gets them into
trouble.
4. Environmental factors: Are there any legal or other constraints on

pricing? For example, in some cities, towing fees from auto accidents
are set at a fixed price by law. Or for doctors, insurance companies and
Medicare will only reimburse a certain price. Also, what possible actions
might your competitors take? Will too low a price from you trigger a
price war? Find out what external factors may affect your pricing.
Activity A
1. Can a product be marketed only on the basis of a low price? Why?

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7.2 Pricing Approaches: Seller’s Cost or Customer’s Benefit
Price is the value placed on what is exchanged. Something of value is

exchanged for satisfaction and utility, includes tangible (functional) and
intangible (prestige) factors. The configuration includes three
complementary models, namely: customer value in exchange, customer
value buildup, and customer value dynamics. (Figure 7.1) Thinking about
customer value in this way is helpful in the designing of and studying of
service offerings.
!
Figure 7.1: Customer Needs, Benefits Perspective
Buyers must determine if the utility gained from the exchange is worth the
buying power that must be sacrificed. Price represents the value of a good/
service among potential purchases and for ensuring competition among
sellers in an open market economy.
Marketers need to understand the value consumers derive from a product

and use this as a basis for pricing a product to be customer-oriented.
! !232
There are three main approaches a business takes to setting price:
1. Cost-based pricing: Price is determined by adding a profit element on

top of the cost of making the product.
2. Customer-based pricing: Where prices are determined by what a firm

believes customers will be prepared to pay.
3. Competitor-based pricing: Where competitor prices are the main

influence on the price set.
1. Cost-based Pricing
Whereas customer-value perceptions set the price ceiling, costs set the
floor for the price that the company can charge. Cost-based pricing
involves setting prices based on the costs for producing, distributing, and
selling the product plus a fair rate of return for its effort and risk. A
company’s costs may be an important element in its pricing strategy.
This involves setting a price by adding a fixed amount or percentage to the

cost of making or buying the product. In some ways this is quite an old-
fashioned and somewhat discredited pricing strategy, although it is still
widely used. Customers are not too bothered what it cost to make the
product – they are interested in what value the product provides them.
The main advantage of cost-based pricing is that selling prices are

relatively easy to calculate. If the mark-up percentage is applied
consistently across product ranges, then the business can also predict
more reliably what the overall profit margin will be.
Some companies, such as Wal-Mart, work to become the “low-cost

producers” in their industries. Companies with lower costs can set lower
prices that result in smaller margins but greater sales and profits. However,
other companies—such as Apple, BMW, and Steinway—intentionally pay
higher costs so that they can claim higher prices and margins.
For example, it costs more to make a “handcrafted” Steinway piano than a

Yamaha production model. But the higher costs result in higher quality,
justifying that eye-popping $72,000 price. The key is to manage the spread
! !233
between costs and prices—how much the company makes for the customer
value it delivers.
Activity B
2. What is the relevance of benefits in relation to a product’s price?

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2. Customer-based Pricing
In this case, the firm first sizes up its customers to determine how much
each customer is willing to pay for its product or service and then charges
the price each customer is willing to bear.
Customer-based pricing gives the company the flexibility to charge

different prices to different customers, rising or falling to match the size of
the customer’s wallet. Theoretically, the firm can achieve a high volume of
sales at the best possible margins. However, an obvious problem with this
pricing approach is that it inevitably alienates those customers who end up
paying more than the successful bargain hunters.
Car dealers often take this approach. A dealer typically displays a high
sticker price for a car, which is nothing more than a wished-for price
intended to frame the value of the car for the customer. Then a salesperson
takes the prospective buyer out for a test drive. In the process, the
salesperson gathers information about the customer’s job, hobbies, and
family, and so on to help size up how serious the shopper is about the car
and how price-sensitive he might be. When the salesperson senses that
price is not a primary concern or that the customer is not a deft bargainer,
he will typically give all kinds of reasons for not being able to bring down
the list price much. However, if the salesperson senses that the price is the
obstacle to closing the deal, the salesperson will offer a better discount—
but only after securing the “reluctant” approval of his boss
! !234
Activity C
3. How can hotel owners apply the principle of “customer-0based pricing”?

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Penetration Pricing
You often see the tagline “special introductory offer” – the classic sign of
penetration pricing. The aim of penetration pricing is usually to increase
market share of a product, providing the opportunity to increase price once
this objective has been achieved.
Penetration pricing is the pricing technique of setting a relatively low initial

entry price, usually lower than the intended established price, to attract
new customers. The strategy aims to encourage customers to switch to the
new product because of the lower price.
Penetration pricing is most commonly associated with a marketing

objective of increasing market share or sales volume. In the short term,
penetration pricing is likely to result in lower profits than would be the case
if the price were set higher. However, there are some significant benefits to
long-term profitability of having a higher market share, so the pricing
strategy can often be justified.
Penetration pricing is often used to support the launch of a new product,

and works best when a product enters a market with relatively little
product differentiation and where demand is price elastic – so a lower price
than rival products is a competitive weapon.
Price Skimming
Skimming involves setting a high price before other competitors come into
the market. This is often used for the launch of a new product which faces
little or no competition – usually due to some technological features. Such
products are often bought by “early adopters” who are prepared to pay a
higher price to have the latest or best product in the market.
! !235
Good examples of price skimming include innovative electronic products,

such as the Apple iPad and Sony PlayStation 3.
There are some other problems and challenges with this approach:
Price skimming as a strategy cannot last for long, as competitors soon

launch rival products which put pressure on the price (e.g., the launch of
rival products to the iPhone or iPod).
Distribution (place) can also be a challenge for an innovative new product.

It may be necessary to give retailers higher margins to convince them to
stock the product, reducing the improved margins that can be delivered by
price skimming.
A final problem is that by price skimming, a firm may slow down the
volume growth of demand for the product. This can give competitors more
time to develop alternative products ready for the time when market
demand (measured in volume) is strongest.
Activity D
4. What are the similarities between penetration pricing and price

skimming?
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Loss Leaders
An interesting strategy adopted by companies which produce or sell

multiple products is to sell one product at a low price and compensate the
loss by other products of the same firm. However, the success of this
strategy largely depends upon a combination of goods which are
complementary in nature and one product cannot be utilised without the
other product, e.g., printer and cartridge, In this case, the firms charge low
price for the good which is durable and has high value and high price for
the product which is consumable and has low value and hence has
recurring demand.
! !236
Also the use of loss leaders is a method of sales promotion. A loss leader
is a product priced below cost-price in order to attract consumers into a
shop or online store. The purpose of making a product a loss leader is to
encourage customers to make further purchases of profitable goods while
they are in the shop. But does this strategy work?
Pricing is a key competitive weapon and a very flexible part of the

marketing mix.
If a business undercuts its competitors on price, new customers may be

attracted and existing customers may become more loyal. So, using a loss
leader can help drive customer loyalty.
One risk of using a loss leader is that customers may take the opportunity
to “bulk-buy”. If the price discount is sufficiently deep, then it makes
sense for customers to buy as much as they can (assuming the product is
not perishable).
Using a loss leader is essentially a short-term pricing tactic for any one
product. Customers will soon get used to the tactic, so it makes sense to
change the loss leader or its merchandising ever so often.
Activity E
5. Give an example of a product which supports the theory of loss leader

pricing. Explain.
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Predatory Pricing
With predatory pricing, prices are deliberately set very low by a dominant
competitor in the market in order to restrict or prevent competition. The
price set might even be free, or lead to losses by the predator.
! !237
Psychological Pricing
Sometimes prices are set at what seem to be unusual price points. For
example, why are shoes priced at Rs. 999 or 999.99? The answer is the
perceived price barriers that customers may have. They will buy something
for Rs. 999, but think that Rs. 1000 is a little too much. So, a price that is
Rs. 1 lower can make the difference between closing the sale, or not!
The aim of psychological pricing is to make the customer believe the

product is cheaper than it really is. Pricing in this way is intended to attract
customers who are looking for “value”.
3. Competitor-based Pricing
If there is strong competition in a market, customers are faced with a wide

choice of who to buy from. They may buy from the cheapest provider or
perhaps from the one which offers the best customer service. But
customers will certainly be mindful of what is a reasonable or normal price
in the market.
Most firms in a competitive market do not have sufficient power to be able

to set prices above their competitors. They tend to use “going rate” pricing
– i.e., setting a price that is in line with the prices charged by direct
competitors. In effect such businesses are “price-takers” – they must
accept the going market price as determined by the forces of demand and
supply.
An advantage of using competitive pricing is that selling prices should be in

line with rivals, so price should not be a competitive disadvantage.
The main problem is that the business needs some other way to attract
customers. It has to use non-price methods to compete – e.g., providing
distinct customer service or better availability.
! !238
Activity F
6. Mention products you believe to be products of predatory, psychological

and competitive pricing.
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7.3 Why Value-based pricing
Knowing the difference between cost and value can increase profitability:
• the cost of your product or service is the amount you spend to produce it
• the price is your financial reward for providing the product or service
• the value is what your customer believes the product or service is worth
to them
For example, the cost for a plumber to fix a burst pipe at a customer’s
home may be Rs. 50 for travel, materials costing Rs. 500 and an hour’s
labour at 150. However, the value of the service to the customer — who
may have water leaking all over their house — is far greater than the Rs.
700 cost, so the plumber may decide to charge a total of Rs. 2,000.
Pricing should be in line with the value of the benefits that your business
provides for its customers, while also bearing in mind the prices your
competitors charge.
To maximise your profitability, find out:
• What benefits your customers gain from using your product or service
• The criteria your customers use for buying decisions — for example,
speed of delivery, convenience or reliability
• What value your customers place on receiving the benefits you provide
• Wherever possible, set prices that reflect the value you provide — not
just the cost.
! !239
This focuses on the price you believe customers are willing to pay, based
on the benefits your business offers them. Value-based pricing depends on
the strength of the benefits you can prove you offer to customers. (Figure
7.2) If you have clearly-defined benefits that give you an advantage over
your competitors, you can charge according to the value you offer
customers. While this approach can prove very profitable, it can alienate
potential customers who are driven only by price and can also draw in new
competitors.
Many marketing researchers have maintained that detailed analyses of

consumption behaviour are the fundamental basis for creating superior
customer value for consumers. They maintain that marketing strategies
should be planned and implemented in terms of the customer’s needs and
behaviour patterns. Also, the core element of an effective marketing plan is
to think in terms of the “consumption system” in which the product plays a
part.
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Figure 7.2: Value-based Pricing 
! !240
(a) Consumption Values
Consumption values refer to subjective beliefs about desirable ways to

attain personal values. People achieve personal values (or goals) through
actions or activities, such as social interaction, economic exchange,
possession, and consumption. According to means-end chain models of
consumer product knowledge, people may have ideas and preferences
about various actions that can help them achieve personal values.
Therefore, relative to personal values, consumption values are instrumental
in nature. For example, owning an elegant house and acquiring a
prestigious car are for some people desirable ways of achieving self-
fulfillment. Attending football games (especially those of favourite teams)
and taking a vacation trip are favourable activities which lead to personal
fun and enjoyment. Furthermore, individuals may hold several personal
values by which they direct or evaluate consumption activities. Therefore,
the consumption values of these types of activities (or possessions) are
sophisticated and do not simply satisfy one single personal value.
As we can observe in ourselves or others, consumption activities usually

include an assortment of goods and services. For example, “owning an
elegant house” requires house owners to acquire many goods and services
in addition to the house itself, just as “taking a vacation trip” involves
many other related acquisitions. Moreover, in a product constellation for a
consumption activity, there may be some properties in common. The
consumer goods in any complement are linked by some commonality or
unity. From a social interaction perspective, consumers employ product
constellations in “setting the stage” for the social roles they play. Product
constellations occur, because individuals use entire complements of
products to achieve personal values. The products unified in a constellation
all carry the same information about individual values. Consumers may
obtain satisfaction holistically from the related consumption activities and
the constellation of products in use.
! !241
Activity G
7. Give examples of at least four products that you believe in which value
is more important than price.
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7.4 The Pros and Cons of Value-Based Pricing
Value-based pricing is the opposite of cost-based pricing in almost every

way, including countering the pros and cons of cost-based pricing with its
own. In simplest terms, value-based pricing is charging based on the
value your service is providing the client, not necessarily on the time and
materials involved.
To illustrate the contrast, let’s take a sample project being priced by a web
design studio. The project is a site redesign. After meeting with the client
and detailing out the requirements, the studio is able to closely estimate
how many hours will be involved in the redesign. Based on that time
estimate, they price the project at $50,000.
But what if the studio instead took a value-based approach? In the client
meeting, in addition to documenting the project’s technical requirements,
the studio also focused on learning more about the business problems this
redesign will be addressing for the client. Based on that information, the
studio includes some ideas in the redesign that have the potential of
increasing the client’s revenue by $1.5 million. That being the case, the
value of the redesign is worth far more than the $50,000 of estimated
time. And you would have no argument from the client if that price was
doubled, tripled, or even more. It would be well worth the investment.
! !242
A. The Good
With value-based pricing, you are aligning the amount you charge with the
impact your services have on your client’s business. In many situations,
this provides a much greater potential upside to your earnings. Because
your fees are tied to value and not time, your amount of profit is not
limited by an hourly rate. And this helps your clients focus on
your expertise instead of focusing on the clock, positioning you as
an investment for their business rather than just a time-based commodity.
Value-based pricing rewards you for your skills, expertise, and expediency.
For example, it might require a new web designer 20 hours to design and
code a project for a client. But as the designer gains more experience, they
can complete the same project in 10 hours, or half the time. If the
designer is charging by the hour, they are actually being “punished” for
their experience and increased efficiency. Yes, they could always increase
their hourly rate to compensate for their increased efficiency. But a value-
based approach dodges the issue altogether, as the client is charged what
the work is worth to their business, regardless of the time involved.
Increased experience and efficiency then becomes a reward for the
designer, as the faster they work does not mean less income, but instead
more time left over to take on more projects to make even more money.
Pros of Value-based Pricing
1. It provides real willingness to pay data.
Most companies shy away from diving into pricing, because they are afraid
of the process and end up rushing to solve other problems facing the
business, because they at least know how to test different landing pages.
Yet, even though there is work involved, value-based pricing provides real
data that forces you into a profit generating price within your pricing
strategy.
Simply put, if done correctly, value-based pricing helps you generate the
most profit.
! !243
2. It helps you develop higher quality products.
Value-based pricing not only determines a more accurate price for the end
product, but the process will also benefit your business.
a. Exploring your competition will help you understand the advantages of
your product, which is where marketing should focus on, and its
disadvantages, the parts that should be altered.
b. Taking on a consumer perspective will also help you discover what

clients are really looking for in your solution.
c. Products and features will be driven by consumer demand, which raises

perceived value, thereby resulting in a higher price.
3. It allows you to provide phenomenal customer service.
Much of the customer data in value-based pricing is collected through

customer surveys or interviews. The responses seen to simply bringing
customers into the discussion of value have been extraordinarily positive
and appreciated.
This attention to consumer opinions and wants will result in more

personable and considerate services. This can be the difference between
one-time customers and loyal clients who develop a bond with the
company and always come back, because they trust you are providing the
value you continue to claim you are in your price.
B. The Evil
Despite all its benefits, value-based pricing has its challenges. It requires a
deeper understanding of your client’s business and the problems they are
asking you to solve. This might mean the need for in-depth research,
multiple meetings and interviews, and more complex proposals. In the
eyes of your client, you will need to position your business as a strategic
partner instead of a labour-based commodity. In other words, the amount
of upfront work required to discover and propose the value of a project
goes far beyond simply gathering the necessary technical requirements.
! !244
Because most value-based projects are priced up-front, you must also be
careful that the determined value of the project meets or exceeds the
actual amount of work involved. Otherwise you will be losing money on the
project. This can happen if you have misinterpreted the technical
requirements for the project or if the client requests unpredicted features
in the midst of the project.
Cons of Value-based Pricing
1. It takes time and resources.
The method can be simplified and quickened, but it is not necessarily as

quick as Googling your competitors or calculating your costs and pulling a
margin number out of thin air. You can also be a bit intimidated by the
method, because pricing is not something they teach us Businesses.
For this reason, many businesses shy away from the most important
aspect of their business as traditionally it is told that how important pricing
is to profit, but they never tell you how to optimise pricing. Businesses also
think only extremely large and wealthy businesses can afford to do things
this way. However, there are in fact ways to find perceived value without
breaking the bank.
2. It is a science, just not an exact science.
The secret is out: Unless you are dealing with a very saturated product
where market-based pricing works, there is no silver bullet for pricing.
Thus, value-based pricing is more of a process that requires consistent
dedication, not just a “set it and forget it” mentality.
Think about it, willingness to pay differs between different customer

personas, regions, and even offer. A 100 per cent accurate prediction is
impossible, but we can get pretty darn close.
Value-based pricing should be a part of almost everyone’s pricing strategy,

but you shouldn’t shy away from other methodologies.
! !245
C. A Mix of Both
Because of these potential “gotchas”, many businesses use a blend of cost-

based and value-based pricing from project to project. Some businesses
might opt for a value-based approach only when the determined value is
far enough beyond the predicted amount of work that it is very unlikely to
lose money on the project. Cost-based pricing might then be reserved for
the tighter, more unpredictable projects.
You can also use a blended approach within the same project. For example,
you might give your client a project estimate based on value, but state that
a cost-based fee will kick in for any work required due to the documented
scope of the project changing.
To summarise, almost everyone will benefit from value-based pricing. Even

individuals outside of retail, media, etc. would benefit from the
methodology, because even with staunch competition, you can determine
the value of profit maximising, differentiated features for your product.
Remember though, value-based pricing takes dedication. Yet, when done

right, provides enormous benefits in terms of more profit, better and more
competitive products and customer- oriented marketing and development
7.5 The Power of Value Pricing
Using a value pricing strategy is a better proposition because it attracts

loyal customers. This method is exceptionally profitable in niche areas
where a company can offer premium services that are highly valued by
their customers. However, it is not applicable in most businesses where
normal competitive pressures make it impossible to use value-based
pricing.
(a)How Does Value-based Pricing Work?
A few value-based pricing strategies are listed below that take into account
the break-even point, but are heavily weighted with subjective judgments.
a. Price the same as competitors. This strategy is used when offering a

commodity product, when prices are relatively well established (such as
with professional services) or when you have no other means to set
! !246
prices. Your challenge then becomes to determine how to lower your

costs so you can produce a higher profit than your competitors.
b. Establish a low price (compared to the competition) on a product in

order to capture a large number of customers in that market. This
strategy may also be used to achieve non-financial objectives such as
product awareness, meeting the competition or establishing an image of
being low-cost. It works if you are able to maintain profitability at the
low price, or if you’re able to maintain an acceptable level of sales
should you later raise prices.
c. If your product has a mystique and uniqueness that is valuable to

customers, you might have the ability to charge a very high price
premium relative to your cost. Also, if your target market is affluent and
you are positioning your product as a “prestige” product, an especially
high price could be in order.
Titan watches, Philips products, Tanishq jewellery and Parker pens are
some of the brands which have consistently resorted to value pricing by
creating hype about high quality.
Examples of value-based pricing:
• Special packaging, e.g., recyclable containers, gift wrapping with card

• Package deals (for convenience), e.g., bundles, “all inclusive” value pack
• Fulfilment options e.g. "white glove" delivery service, instant download

• Payment options, e.g., monthly and yearly plans
• Free training material, e.g., online manual, video, audio
• Personalised service, e.g., “I oversee each account”

• Free product updates or refreshers (for courses)
• Bonus offers
• Certification, e.g., license, training certificate
! !247
(d)Advantages and Disadvantages of Value-based Pricing
Value-based pricing is the practice of setting the price of a product or

service at its perceived value to the customer. This approach tends to
result in very high prices, and correspondingly, high profits for those
companies that can persuade their customers to agree to it. It does not
take into account the cost of the product or service, nor existing market
prices.
Value-based pricing is usually applied to very specialised services. For

example, an attorney experienced in defence against criminal charges can
charge a very high price to his or her clients, since the value to them of not
being incarcerated is presumably quite high. Similarly, an attorney skilled
in initial public offerings can use value pricing, since clients might not
otherwise raise millions of dollars without their services.
Other areas where value-based pricing may be an option includes:
(a) Product design

(b) Bankruptcy work outs
(c) Cost reduction analysis
(d) Lawsuit defense
(e) Pharmaceuticals engineering
Value-based pricing is also more applicable to situations where customer

approval is made at the executive level, rather than by the procurement
department. The purchasing staffs are more skilled in evaluating supplier
prices, and so would be less likely to allow such pricing.
What is Value-based Pricing?
Pricing has a great impact on consumers’ purchasing behaviours. The price

of your product can influence decisions, considerations, and loyalty of a
customer. Yes, pricing is that powerful.
Several businesses use different techniques to set the price of their

products and services.
However, the two most used methods are the cost-based pricing and the
value-based pricing methods.
! !248
Cost-based pricing is a pricing method that allows companies to set the

price of their products or services based on the cost incurred in the
production process and some extra amount which is the profit.
So, basically, in the cost-based pricing method, prices of products and

services are been influenced by the cost of producing them.
In contrast, value-based pricing model allows companies to set the price

for their products and services based on customer’s perception of the value
of the product or service.
Here, the cost of production is not considered — it might take you $20 to
produce your product but if after your research, you found out that your
customer’s perceived value for the product is $500 — it is still okay to sell
at $500.
How Effective is Your Pricing Model?
Are You Looking to Try Value-based Pricing Model?
While this pricing model works so well for brands that are specialised in a
particular product or service, you might want to learn more about the
benefits of value-based pricing as well as its demerits.
For example, Starbucks raised their net income by 25 per cent, i.e., from
$333.1 million to $4177.8 million by leveraging value-based pricing.
! !249
How? Wondered why Starbucks’ beverage prices are relatively higher than
their competitors and they still record huge sales?
a. Well, the truth is when customers feel they are getting a deal for their
money they are more likely to buy from your brand even if your price is
higher than your competitors.
b. Starbucks spends more time and energy differentiating itself from other
brands. By consistently producing high-quality beverages and
positioning itself as an authority in the coffee business.
c. So, people are more comfortable with Starbucks’ products and services
even if they increase their prices just like they did in 2015 when coffee
beans price was even low.
Starbucks is an ardent believer in value-based pricing and has been doing

it for years successfully.
Advantages of Value-based Pricing
The following are advantages to using the value-based pricing method:
1. Value-based pricing increases profit
Value-based pricing can actually help you increase your profit. As this
method results in the highest possible price that you can charge, and so
maximises profits.
Value-based pricing is used less frequently than the previous two pricing
strategies, but it offers some excellent opportunities for stabilising or
increasing your profit margins. In value-based pricing, price is based on an
estimate of the maximum perceived value of your product or service and
the maximum price customers will pay for it.
2. Enhances customer loyalty

If customers perceive your product to be of high quality, you can build a
top-notch customer loyalty for repeat business and even referrals.
Despite the high prices charged, you can achieve extremely high customer
loyalty for repeat business and referrals, but only if the service or product
! !250
provided justifies the high price. This advantage tends to also derive from
the nature of the sales relationship, which needs to be both close and
trusting before value-based pricing can even be contemplated.
3. Transparency
Customers become even more confident to pay for your services. Why?
Because they know the value they are going to get from the price they are
making and they are happy with it.
4. Predictable revenue from every new client

Value-based pricing can be the only way to price new products or
“breakthrough” products. With a value-based pricing, you can always
predict exactly what you are going to get from any of your new clients. So,
it is easy for you to measure your success.
5. Trust
Clients know they can always consult and ask questions without an extra
cost. They trust your opinion. After all, you are known for delivering value.
6. Clients pay for value not time
Unlike cost-based pricing, clients pay for the value you provide rather than
the time or cost of production.
It takes into account industry structure, segmentation, competitor pricing

practices, and substitutes and alternatives, all of which can make pricing
more coherent and complex.
7. Pricing can be based on several customer-focused methods

Expert opinion, customer surveys, price experiments. For example, using
conjoint analysis theories and techniques, etc. and analysis of past,
present and expected market data and conditions.
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Disadvantages of Value-based Pricing
The following are disadvantages of using the value-based pricing method:
1. Niche Market
The very high prices to be expected under this method. Often times, the
high price and high value concept will be accepted by a tiny fraction of
customers. This might cause some customers to feel isolated and left out.
It may even make you lose some prospective customers.
2. Not Scalable
This method tends to work best for smaller organisations that are highly
specialised. As your company grows, it might become very difficult to scale
your services because it is difficult to apply value-based pricing in larger
businesses where the employee skill levels might not be very high.
3. It takes time and resources

You can make the method simple, but since there are no metrics you
cannot easily pull out and determine your cost quickly.
It takes extra time for you to do the research, create your customer
persona, and study it closely before you are able to determine what your
customers actually perceive to be of high value.
Inadvertently, most brands shy away from it, though it is been found to be
the best pricing model in today’s competitive market.
4. Competition
Companies that adopt the value-based pricing model might be losing a lot
of their market shares by leaving rooms for their competitors to offer lower
prices and take away their market share.
It works best when you are specialised in a particular product or service,

value-driven pricing works best when you brand yourself as a leader in
your industry and differentiate yourself from the competition.
5. Labour costs
Assuming that a service is being provided, you are likely offering such a
high-end skill set that the employees needed to provide the service will be
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quite expensive. There is also a risk that they may leave to start competing
firms.
6. Quantity and Quality of Data to be Gathered
i. It requires more data gathering and analysis than market-based or

cost-plus approaches.
ii. The process for determining price is more complex than other
approaches because it uses “soft” market data in addition to “hard”
market data.
iii. Most methods used to gather data for this type of pricing are
relatively specialised and require expertise to convert raw data to
information to knowledge, i.e., needing adequate level of resources
and systematic business intelligence and customer insight process in
place.
iv. Thus, for small and mid-size companies difficult to do by themselves

of course outsourcing always a possibility which again can be costly?
Value-based pricing model is deemed profitable and many attorneys and

investment bankers have engaged in it for decades. Could this be the
reason why they command such a high pay rate?
But you have got to look through it, conduct your research, understand
your customers, and only price your product to bring them the best
experience.
Activity H
8.When is the time you believe value-based pricing will not work?
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7.6 Building Of Perceived Value(Determination Of

Economic Value)
Economic value is also called as exchange value in the conceptualisation of

perceived value pricing. This is the price that a marketer would like to
recover from the supply side. Any cost basis pricing method is good for
assessing economic value. Cost-based methods include cost plus margin or
full cost prices, target cost prices and contribution value prices. The
minimum economic value that a marketer would base his price on is the
marginal cost which the firm has to recover. Prices below marginal cost
would be referred to as dumping or predatory pricing. In the case of
perceived value pricing, the minimum economic value which is the floor
price is much higher than the marginal cost.
(a)Assessment of Psychological Values
The psychological values refers to ways that a product or service creates

satisfaction and delight for a customer through psychological parameters,
and have to be assessed for a given marketing offering and monetised to
enable obtain the differentiation value.
Psychological value could also be imputed to those marketing elements

which have no direct monetary implication but provides a value to the
customer. For example, priorities on room reservation within a 72 hour
notice of arrival. Another way this could occur is when the product benefits
are linked with very useful beliefs, values and attitudes. For example, a
bottle of packaged drinking water may cost Rs. 20/. However, another
bottle of drinking water may command a premium of Rs. 20/- all other
costs being covered, if the consumer is told that the water is pristine and
got from the Himalayas or the Alps.
One of the popular psychological values is perceived quality. This

monetisation is also called by researchers as Customer Value Modeling.
Apart from perceived quality, some of the other psychological values are:
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a. Consumer complaints that are favourably handled. This leads to

loyalty.
b. Brand value can be measured as an additional attribute in conjoint
analysis. This can be monetised as price premium.
c. Service failure recovery system, manifested as warranties
monetized as warranty charges. The guarantees are backed up by
some kind of promise that is valuable to the consumer.
d. Better selection manifested as choice.
e. Quicker search.
f. Favourable customer reviews.
g. Prestige and esteem value.
(b) Assessment of Psychology of Consumption
One of the important aspects of building perceived value is to understand

the psychology of consumption. It can be generally hypothesised that
consumers will repeatedly pay higher perceived value prices provided they
have used the products and services more regularly and feel satisfied with
the products they have purchased. Further consumers will pay higher
prices if they judge that these products and services have a higher
perceived cost. An up market restaurant charges more for the same bottle
of drinking water and the consumer pays it because he judges the
increased cost of providing the ambience that goes along with it. For long
inter-purchase interval, products such as cars, the consumer dissonance
has to be constantly managed so that the consumer perceives that he has
valued right.
Consumption also helps build or establish switching costs; customised

software providers make more money on upgrades than on initial product/
service. A colour printer manufacturer makes more money on the sale of
cartridges than on the printer itself; the repeat purchase prices of colour
cartridges are as high as 80% of the original cost of printer.
Consumption and price charges should go together if the consumer’s

attention should be drawn to its increased price and for the consumer to
associate the product/service to its high perceived cost. Products such as a
bottle of water served in high ambience are immediately paid for and the
consumer notes the increased price paid for the service; he perceives the
value. However, if a high price is charged for using sports and gymnasium
facilities in an up-market club than as they are paid once a year-the
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consumer fails to assign the perceived cost to the price charged. This
means he consumes the facilities less and as such he perceives the value
provided to be less. Thus, the club sports/gymnasium service marketer
finds it difficult to increase the perceived price whereas the bottled water
marketer finds it easier to charge a higher perceived price.
Price bundling on products also has a propensity to decrease consumption

and as such consumers fail to assign a higher perceived cost to the service.
This means the marketer’s ability to a higher perceived price is reduced.
For example, a season ticket to a tennis grand slam event such as the
Wimbledon may induce the customer to only attend the star studded
matches and as such the season ticket prices should be much lower.
(c) Customer Equity
Although the marketing concept has reflected a customer-centered

viewpoint since the 1960s, marketing theory and practice have become
increasingly customer-centered during the past 40 years. For example,
marketing has decreased its emphasis on short-term transactions and has
increased its focus on long-term customer relationships.
The customer-centered viewpoint is reflected in the concepts and metrics

that drive marketing management, including such metrics as customer
satisfaction, market orientation, and customer value.
In recent years, customer lifetime value (CLV) and its implications have
received increasing attention. For example, brand equity, a fundamentally
product-centered concept, has been challenged by the customer-centered
concept of customer equity.
Customer Equity Management (CEM) is a dynamic, integrative marketing

system that uses financial valuation techniques and data about the
customers to optimise the acquisition of the, retention of and selling of
additional products to a firm’s customers at a profit and that maximises the
value to the enterprise of customer relationship throughout its life cycle.
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(d) Challenges of Using a Value-based Pricing Model
1. How to measure value?
If your product is in high demand, you might want to consider pricing

which is based on the value it provides. Although, measuring “value” is
difficult — since there is no set rule or metric for measuring value.
Most brands do not have a strategy to measure the value of services

provided apart from the time spent and energy exerted in rendering a
service.
Creating the skills and systems to measure value beside hours spent is one
of the biggest factors affecting clients and brands alike.
So, you have to find out how your products and services are highly desired
by your customers.
2. Customer segmentation
This is another serious factor affecting value-based pricing, because even

with the same customer, the value may vary depending on time and place
of use.
To beat this, brands should conduct thorough research on their customers

regularly, and segment them accordingly.
3. It is hard to know customer’s perception
Different customers have different perceptions of your product/service.

This makes pricing a product/service based on “value” difficult because it
must not be adopted based on assumptions.
To scale through this hurdle and eliminate assumptions, conduct surveys

on your customers.
The survey is geared towards knowing the value their customers place on
services they provide. In turn, this will help align their pricing model to suit
customers and create a better experience for them.
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Customer Life Cycle
CEM recognises that customer-firm relationships, like all relationships,

evolve over time. Customer’s relationships with the enterprise change, so
do their expectations and behaviour. The concept of customer life cycle
provides a framework for understanding and managing these differences.
(Figure. 7.3)
1. Prospect
2. First-time Buyer and Early Repeat Buyers
3. Core Customers
4. Core Defectors.
!
Figure 7.3: Customer Life Cycle
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The Five Stages of Customer Life Cycle
1. Prospects: They are not yet customers, but they represent the
potential value. During the prospect stage, the customer develops an
initial set of expectations about a product or a service. This is where
enterprise’s ad campaign, promotional activities are predominant.
2. First-time Buyers: These newly acquired customers usually have the

lowest retention rates within a firm’s customer base. They need to learn
whether the products and customer service levels meet their
expectations. This stage is characterised by short purchase cycles and
frequent repurchasing. This is the stage where the customer defection is
at its highest.
3. Early Repeat Buyers: These early repeat buyers are “still evaluating
the relationship” in terms of add-on services, product satisfaction level
(palpable and non-palpable). These buyers may not be as vulnerable as
first-time buyers but still they have lower retention rates.
4. Core Customers: The firm's product or service meets their required

specifications, perceived and also actual value. This stage has the
highest retention rates and highest sales per customer.
5. Core Defectors: At some point, core customers become willing to

switch brands or products, showing the declining phase of the customer
life cycle, this is due to new competing products or services. At this
stage, the customer is re-engineering his perceived value of his present
product thus causing a decline in the customer life cycle, which is been
apparently reflected in the product life cycle.
Brand Equity and Customer Equity
Customer Equity does not preclude developing strong brand, but for higher
customer equity you need strong brands. Brand Equity is the driving force
in the product differentiation.
The reflection of product life cycle on the customer life cycle is basically
determined by brand equity. Brand equity attracts the customers towards a
certain brand when the customer is at his value saturation point of
! !259
customer life cycle. Thus, higher Brand Equity leads to a higher Customer
Equity from which we can formulate
Customer Equity = Brand Equity × Number of Repurchasing
Thus, leveraging relationships across value chain can be achieved only with
strong Brand and higher Customer Equity, reflecting lifetime customer
value.
7.7 Building Value through Differentiation
Differentiation is much more than just difference. It is any aspect of our

total customer offer that is different from the competition and, crucially,
valued by the customer. Our product or service may be different from that
of the competition but, unless this delivers value in a way that the
customer can identify with and acknowledge, it is nothing more. (Figure
7.4)
The question for us is: what are the critical differences between us and the
competition and how does this influence the value we offer? Our success in
meeting those requirements is based on the differential value of our
product or service offering.
Delivering value is about enhancing your customer’s competitive

advantage, and competitive advantage is about your customer’s ability to
leverage his differential value. So, good differentiation is about your ability
to enhance your customer’s differential value better than anyone else.
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!
Figure 7.4
A minor, incremental difference is not a differentiation unless we can

demonstrate and, better still, measure how it adds value. A change that
makes a product easier for us to produce, or the service easier to deliver, is
not a differentiation. It only becomes one when it can demonstrably
enhance our customer’s business.
Here are a few ideas about how to differentiate.
Consistency
Have you ever had the experience of taking your car for a service at your
local garage? The first time you go, the job is done perfectly. The car is
clean, performs well and the bill is reasonable. You are delighted and
resolve to use this garage as your preferred service. Next time, the car is
returned in a disgusting state. Half the work is not done, the mechanic
couldn’t care less, and the bill is outrageous. The service delivery is
inconsistent. There is no quality control in operation and so the standard of
service you receive is a lottery, depending on the professionalism of the
individual mechanic.
We can differentiate our service by ensuring that our customers receive

sterling service, not just once but every time.
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Convenience
A major European chemicals company carved out a large slice of the

market for its specialised adhesives. This market is dominated by huge
companies and is commoditised. Suppliers typically ship their product
monthly, in hundreds of tons. The material is stored in huge storage tanks
on site until required, locking up millions of euros. The supplier delivered
fortnightly, guaranteeing just-in-time. The effect was that customers could
reduce the size of the storage facilities required and unlock both working
capital and space for new buildings.
By enhancing the convenience to your customer of using your product or

service, you can lock them in — especially if your competitors cannot copy
your methods.
Customised Services
Delivery of a customised service demands deep understanding of your

customer’s value adding processes or production operations. This can only
come from a proper discovery process, and may require some in-depth
study of the client’s business. One company, operating in the energy
efficiency consultancy market, routinely undertakes a detailed site by site
assessment of its clients’ energy consumption.
By understanding deeply its clients’ needs, it can offer highly customised

recommendations for energy cost reduction. The service provider and the
client share in the cost savings. The client pays nothing upfront. Customer
loyalty is assured through major cost reductions — often many hundreds of
thousands of pounds — which the client could never have achieved
unaided. The service is difficult to copy because the consultant has years of
experience, an encyclopedic knowledge of energy costs from all suppliers,
and a robust analytical process.
By clearly and thoroughly understanding your customer’s value-adding

processes, and pinpointing where your company’s unique skills can be
applied, you can create a mutual dependency that yields benefits to both
the client and the service provider.
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Combinations
A well-known mobile telephone operator was exploring opportunities in the

fiercely competitive Indian mobile market. There seemed no way in. The
company searched for a poorly served sector and discovered it in the youth
market. The typical offer for young mobile phone users was exactly the
same as for adults. No other supplier had differentiated the offer to young
customers – the standard offer being monthly contract, tied handsets, peak
and off-peak call rates and premium priced services like internet
connection.
The operator, long experienced in serving the youth market in its other
businesses, understood deeply the needs of young people. It had excellent
contacts in the entertainment sector which provided an opportunity to
provide unique, specialist content. The operator constructed a specifically
targeted youth offer, eliminating the monthly contract providing tariffs that
were easy to use and understand and in which customers only paid for
what they used, thus eliminating monthly billing and statements which
parents might see. They incorporated a host of cool features that the kids
loved.
The essence of this offer was to understand the unique needs and wants of
the youth market which were not being met by incumbent suppliers. The
company assembled a carefully crafted package of services and features
that appealed to young people, but not the adult market. It used its unique
contacts in the entertainment field to provide content and judiciously
selected suppliers who could provide funky handsets.
To summarise: To differentiate, you will need to follow these steps:
1. Learn all you can about your customer. There is lots of information in
the public domain and it should not take much time to collect it.
2. Consider what your research says about your customer’s context –

especially sources of pain and difficulty.
3. Find ways of using your company’s unique capabilities and build them
into a solution that is difficult to copy – and easy to buy.
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4. Build a powerful value proposition and learn how to deliver it

persuasively and compellingly
Activity I
9.How can a customer derive value if price is not a consideration?

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Table 7.1.Contrasting the Product Mindset With the Customer Value

Mindset.
Dimension Product Mindset Customer Value Mindset
Dimension Product Mindset Customer Value Mindset
Strategic Product leadership – Customer value – winning by

focus winning by launching creating and delivering superior
innovative products and value to customers.
adding features to
products.
Growth driver Primary demand – sell Selective demand – sell deeply to

broadly to new customers. existing customers.
Offerings Horizontal products with Customised vertical solutions.

limited customisation. Collaborate with partners to
Delegate solutions design design and deliver solutions.
and delivery to partners.
Pricing Perpetual license pricing Value-based pricing to align value

strategy to maximise revenue from creation for customers with value
transactions. capture for the firm through
subscription pricing and gain
sharing arrangements.
Sales Product-centric Customer-centric organisation

organisation organisation with multiple organised around key customer
faces to a customer. segments or customer accounts,
with a single face to a customer.
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Marketing Emphasis on product Emphasis on ongoing customer

operations launches and breadth engagement and customer value
campaigns to increase assessment/tracking.
reach and influence
customer perceptions.
Success Product revenues and Customer satisfaction,

metrics product profitability. profitability and growth. Declare
Declare success at product success when customers
sale. experience success.
Monitoring Periodic surveys of Ongoing tracking and continuous

and tracking customer satisfaction with improvement of the total
products. customer experience.
7.8 Roles of Price and Product in the Marketplace Strategy
In some companies, price plays a dominant role in marketing strategy,

while, in other situations, price may perform a more passive role.
Nevertheless, the strategic role of price is too often not recognised: “Part
of the reason that pricing is misused and poorly understood is the common
practice of making it the last marketing decision. We think that we must
design products, communication plans, and a method of distribution before
we have something to price. We then use pricing tactically to capture
whatever value we can.” Taking a wholly tactical view of price neglects the
important strategic role pricing can play in marketing strategy. Strategic
choices about market targets, positioning strategies, and products and
distribution strategies set guidelines for both price and promotion
strategies. (Figure 7.5)
Product quality and features, type of distribution channel, end-users

served, and the functions performed by value chain members all help to
establish a feasible price range. When an organisation forms a new
distribution network, selection of the channel and intermediaries may be
driven by price strategy.
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!
Figure 7.5: Pricing-Strategic Dimensions
Importantly, the global economic downturn and recession of the late-2000s

and early 2010s encouraged many companies to direct renewed attention
to the use of price to maintain sales volume, or at least to protect market
share, as buyers reduce purchase levels and competitors reduce their
prices. During the downturn, most developed countries experienced an
unprecedented decline in prices—although there were different price falls in
different sectors and for different companies. The economic downturn
underlined the competitive importance of pricing decisions for many
companies where price has traditionally been seen as a largely tactical tool.
Among the reasons for this change in perspective is the unprecedented
level of investor, public, media, and regulatory scrutiny of prices.
Companies in many situations are aiming to use price in new and more
creative ways to establish advantage and to deliver superior value to
customers. Innovation provides some examples of the creative use of
pricing strategy to impact on positioning in the market and to deliver
superior value. It is likely that responding effectively to the new
! !266
competitive imperatives of the post-recession era will require many more

companies to develop new business models in which price plays a different
type of role. Far from operating as a tactical tool, price is becoming a key
part of reinvention in redesigning the process of how products are taken to
market. The core issue is finding new and better ways to create superior
customer value. As a result, the role of price is increasingly central to
positioning.
Activity J
10.Manipulation of prices occur in what conditions?

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Price in the Positioning Strategy
Price is an important part of positioning strategy, and pricing decisions

need to be coordinated with decisions for all of the positioning components.
Importantly, this pricing perspective mandates understanding how pricing
is viewed and understood by customers. Interestingly, A.T. Kearney
research suggests that because of the complexity of negotiated prices for
business-to-business products—volume discounts, payment terms, local
deals, freight and handling, service calls, and so on—the actual price paid
by customers may be half the product’s list price, and importantly
executives in the seller organisation may not know what that price is—
which underlines the importance of close management involvement in
pricing.
Importantly, while price may be a decisive positioning issue because it

impacts buyer choices in some situations, it is relatively rarely the only
factor that impacts customer value. A goal is to maintain the premium
prices of major brands, but at the same time the company must compete
effectively with the retail price discounters and generic retailer brands, who
are taking a market share with low prices.
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Product Strategy
Pricing decisions require analysis of the product mix, branding strategy,

and product quality and features to determine the effects of these factors
on price strategy. When a single product is involved, the pricing decision is
simplified. Yet, in many instances, a line or mix of products must be priced.
The prices for products in a line do not necessarily correspond to the cost
of each item. For example, prices in supermarkets are based on a total mix
or assortment strategy rather than individual item pricing. Understanding
the composition of the mix and the interrelationships among products is
important in determining pricing strategy, particularly when the brand
identity is built around a line or mix of products rather than on a brand-by-
brand basis. Consider a situation involving a product and consumable
supplies for the product. One popular strategy is to price the base product
at competitive levels and set higher margins for replacement supplies.
Examples include parts for automobiles and razor blades.
Product quality and features affect price strategy. A high-quality product

may benefit from a high price to help establish it as a prestige position in
the marketplace and satisfy the management’s profit performance
requirements. Alternatively, a manufacturer supplying private-branded
products to a retailer like Wal-Mart or Target must price competitively in
order to obtain sales.
For example, many luxury items, such as designer handbags, are priced at
hundreds of times their production cost, but customers are paying for the
prestige of owning the brand. Drug companies may price their products
high and justify this by arguing their drug can save the patient and an even
more expensive medical procedure.
Innovation in value for customers influences feasible prices. The product

strategy challenge is innovation at the right price. For example, Henkel’s
“Purex” detergent brand is succeeding in getting customers to spend more
on their laundry, even in times of austerity, by adding anti-static fabric
sheets to the Purex offering. Similarly, Colgate-Palmolive has launched
packs of disposable mini-toothbrushes and a mouth freshener called Wisp,
to address the unmet need for “on-the-go tooth cleaning.” At launch, Wisp
took 7% of the US toothbrush market. Value innovation judgments are
central to price choices.
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Product Prices perform various functions in the marketing program. Here

are the four major roles of price in marketing.
(1)Signal to the Buyer – Price offers a fast and very direct way of
communicating with your customers. The price is visible to your buyer
and provides a basis of comparison between brands. Price also can be
used to position your brand as a high quality product.
(2)Instrument of Competition – Price offers you a way to quickly attack

competitors, or alternatively to position your business away from direct
competition.
(3)Improving Financial Performance – Because Prices determine

financial performance, pricing strategies will impact a business's
financial statements both in the short and long term.
(4)Marketing Program Considerations – Prices can also substitute for

advertising and sales promotion, in addition to being used to reinforce
these activities in the marketing program. For example, pricing strategy
can be used as an incentive to channel members as the focus of
promotional strategy and as a signal of value.
In deciding the role of pricing in the marketing strategy, you must

evaluate the importance of prices to competitive positioning, probable
customer reaction, financial requirements, and relationships in the
marketing mix.
Traditionally, most managers would hesitate to associate market share

leadership with a high-price strategy; the belief is that a premium price
strategy is best suited for small, niche markets. High market share and
high prices can be achieved if prices truly reflect high customer value. It
is at least as important to create customer value by innovative products
and services, as it is important to quantify and to communicate the value
of these products to customers through pricing and marketing activities..
! !269
Activity K
11.How can products be priced higher when most of the customers are
price conscious?
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Marketing Program Considerations
Prices may substitute for selling effort, advertising, and sales promotion.
Alternatively, price may be used to reinforce these promotion activities in
the marketing program. The role of pricing often depends on how other
components in the marketing program are used. For example, prices can
be used as an incentive to channel members, as the focus of promotional
strategy, and as a signal of value. In deciding the role of pricing in
marketing strategy, management evaluates the importance of prices to
competitive positioning, probable buyers’ reactions, financial requirements,
and interrelationships with other components in the marketing program.
7.8 The Most Dangerous Pricing Strategy (Market

Penetration Strategy)
When a company wants to increase market share, usually the easiest way
is to reduce prices, which increases product sales. The competition may be
forced to follow suit if its products are similar. As prices get lower the
quantity of sales increases and customers receive the benefits. Eventually,
a price point is reached that only one company can afford. Some
companies will even sell at a loss in an attempt to eliminate the
competition completely.
Lowering prices to defend market share and utilise capacity is a natural

reflex during a recession. Your competitors are doing it. So it would seem
that you should follow, if not take the initiative – especially if you feel that
your operating costs are lower and you have more room to manoeuvre. But
is this really a good strategy? A knee-jerk reaction to competitors’ price
cuts or demands from sales representatives to slash prices is
counterproductive; a well-conceived strategy must be used to avoid the
! !270
risk of widespread contagion. Charging too little is far more dangerous: a

company not only forgoes significant revenues and profits but also fixes the
product’s market value position at a low level. And as companies have
found time and again, once prices hit the market it is difficult, even
impossible, to raise them. Research shows 80% to 90% of all poorly
chosen prices are too low.
Prices should be lowered only when they will give a substantial boost to
sales volumes and capacity utilisation; prices should be maintained when
products provide genuine value to customers, and customers are willing to
pay for it.
Market penetration strategy can be a great method for gaining market

share, especially when the cost of switching to a competitor is high. In a
market where a lot of companies are offering similar products, market
penetration pricing can help set your company apart from the competition.
(Figure. 7.6). The key to successfully and ethically implementing this
strategy is to make it abundantly clear that the low price is a limited time
offer. If your customers were not made aware that the price was a limited
time offer, they will be much more likely to ditch your product or service as
soon as the price goes up again.
!
Figure 7.6
! !271
Penetration pricing strategy is most appropriate when:
a. Demand is expected to be highly elastic; that is, customers are price-

sensitive and the quantity demanded will increase significantly as price
declines.
b. Large decreases in cost are expected as cumulative volume increases.
c. The product is of the nature of something that can gain mass appeal
fairly quickly.
d. A marketer suspects that competitors could enter the market easily.
When Doesn’t an Overall Low-Cost Penetration Strategy Work?
1. When technological breakthroughs open cost reductions for competitors,

negating a low-cost provider’s efficiency advantage.
2. Competitors find it relatively easy and inexpensive to imitate the

leader’s low-cost methods.
3. Low-cost leader focuses so much on cost reduction that the organisation

fails to respond to:
(a)Changes in customer requirements for quality and service

(b)New product developments
(c)Reduced customer sensitivity to price
Activity L
12.Why is penetration pricing considered risky?

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7.10 A Few More Insights about Costs
Cost-benefit Analysts typically use one of several metrics—or a

combination of them—to report their findings. The benefit-cost ratio, return
on investment, and net present value report the results of a cost-benefit
analysis by comparing discounted costs with discounted benefits. This
document briefly describes each metric, the information it conveys, and its
advantages for reporting cost-benefit findings.
As per the Figure 7.7, Benefit-Cost ratio is the difference in total benefit
from doing the project this year rather than next year, divided by one
year’s opportunity cost of capital. Benefit is the difference in cost, including
avoided maintenance and risk, between having a new asset next year and
having the existing one. In most cases, the net benefit is the difference
between next year’s Marginal Cost and the Equivalent Annual Cost. So,
total benefit is this difference plus one.
!
Figure 7.7. Benefit-Cost Ratio
The Benefit-Cost Ratio (BCR) directly compares benefits and costs. To

calculate the BCR, divide total discounted benefits by total discounted
costs. For example, a program that costs Rs. 30 lakhs and accrues Rs. 80
lakhs in benefits has a BCR of 2.67 (Rs. 80 lakhs divided by Rs. 30 lakhs).
A benefit-cost ratio of 2.67 means policymakers can expect Rs. 2.67 in
benefits for every Rs. 1 in costs. A BCR greater than 1 means the benefits
outweigh the costs and the investment should be considered. If the ratio is
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less than 1, the costs outweigh the benefits. If the BCR is equal to 1, the
benefits equal the costs.
The Return on Investment (ROI) is similar to BCR, but compares the

net benefit (total discounted benefits minus total discounted costs) to
costs. To calculate the ROI for the previous example, first calculate the net
benefits (Rs. 80 lakhs minus Rs. 30 lakhs equals Rs. 50 lakhs). Then
divide the net benefits by the total costs (Rs. 50 lakhs divided by Rs. 30
lakhs). The result—1.67—is the ROI, which is typically expressed as a
percentage (167%). Thus, the investment (i.e., the cost) will generate a
return (i.e., net benefit) that amounts to 167% of the cost of the
investment. The ROI indicates how much of the investment policymakers
can expect to receive as a benefit. If the ROI is positive, the benefits
exceed the costs and the investment should be considered. A negative ROI
means that the costs outweigh the benefits. An ROI of 0 means the
benefits equal the costs.
The Net Present Value (NPV) reflects the net benefits of a project in
Rupee terms. To calculate NPV, subtract the total discounted costs from the
total discounted benefits. The NPV for the previous example is Rs. 50
lakhs (Rs. 80 lakhs minus Rs. 30 lakhs). A positive NPV means that
benefits outweigh costs and the investment should be considered. A
negative NPV means that the costs outweigh the benefits. An NPV of 0
means the benefits are equal to the costs.
Selecting a Metric for Reporting Results
All three metrics can be used to report results for a cost-benefit analysis.
Each one emphasises a different aspect of the relationship between
benefits and costs.
A. The BCR is commonly used to demonstrate the relationship between

total benefits and total costs. The BCR is thus a relative measurement of
the investment’s benefits and costs.
B. The ROI is frequently used in financial settings and reports the gain
from the investment. It is also a relative measurement.
C. The NPV reports the total difference between benefits and costs in dollar
terms. It is an absolute measurement of a program’s net benefit or cost.
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Because each metric calculates benefits and costs differently, it is possible

for an investment to have a higher BCR and ROI, but a lower NPV than
another investment.
7.11 Summary
How customers respond to your pricing is determined by value more than

the product you offer and the price you charge. It is also determined by
how they evaluate your product and your price. If you leave that evaluation
to chance, you are likely to get paid much less or to sell much less than
you could. Most customers lack the time or the incentive to fully inform
themselves about their alternatives and to evaluate the information they
do have. If you want them to recognise your value, you have to make the
process easier for them by supplying them with information about what
you offer and ideas about how to evaluate that information.
The consumption behaviour approach to customer value can be an effective

way of achieving more innovation, enhancing customer value, and
obtaining greater marketing penetration and strategy sustainability. In
other words, understanding the consumers' consumption behaviour means
that their activities should be analysed thoroughly and holistically, from the
expectation about consumption values at the pre-purchase stage, to the
purchase evaluation at the stage of selection and acquisition, to
consumption values actualisation in the stage of use, possession, and
maintenance.
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Study Questions
1. Define price and identify how marketing objectives affect pricing

decisions.
2. Discuss the two new product strategies of market-skimming and

market-penetration. Indicate when each strategy makes the most
sense or when each should be used as the primary pricing strategy.
3. A company has possible reactions to a competitor that has changed its

price. What are these options?
4. For many years, the Compaq Computer company succeeded in the

marketplace by making a variety of excellent quality computers that
were sold through a series of resellers (such as Circuit City, CompUSA,
and other electronic retailers). However, because of price pressures
from such direct marketers as Dell and Gateway 2000, profits shrunk.
The management of Compaq decided to take a bold pricing and
distribution strategy to offset these problems and challenges. The
company began to slowly develop their own network of retail outlets or
“Compaq stores” in which to distribute their newest products. If you
were the Vice-President of Marketing for Compaq, what new product
pricing strategy would you recommend for the new Compaq stores (and
their new product offerings) — market skimming pricing or market
penetration pricing? Be specific in your explanation.
5. Applying the principles of pricing strategy, how would you introduce a

product for the first time in a rural market?
6. Do you believe in the concept “high value-high price”? Give reasons.
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1. _________ is the amount of money charged for a product or service.
(a)Price
(b)Salary
(c)Demand curve
(d)Experience curve
2. Consumer perceptions of the product’s value set the _________ for

prices.
(a)floor
(b)ceiling
(c)demand curve
(d)variable cost
3. Which of the following is a customer-oriented approach to pricing?
(a)Value-based pricing
(b)Target profit pricing
(c)Sealed-bid pricing
(d)Break-even pricing
4. In _________ , price is considered along with the other marketing mix

variables before the marketing program is set.
(a)building the marketing mix

(b)value-based pricing
(c)price elasticity
(d)target pricing
5. Underpriced products sell very well, but they produce less revenue than
they would have if price were raised to the _________ level.
(a)value-based
(b)variable
(c)perceived value
(d)demand curve
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6. _________ is a company's power to maintain or even raise prices

without losing market share.
(a)Variable cost
(b)Target cost
(c)Fixed cost
(d)Pricing power
7. _________ pricing is product-driven. The company designs what it

considers to be a good product, totals the expenses of making the
product, and sets a price that covers costs plus a target profit.
(a)Variable
(b)Skimming
(c)Value-based
(d)Cost-based
8. Throughout history, the most common pricing approach was set by

ruling monarchs
(a)True
(b)False
9. _________ are the sum of the _________ and _________ for any
given level of production.
(a)Break-even costs; fixed; total costs

(b)Fixed costs; variable; total costs
(c)Total costs; fixed; variable costs
(d)Variable costs; fixed; total costs
10.Which of the following is a cost-based approach to pricing?
(a)Value-based pricing
(b)Break-even pricing
(c)Going rate pricing
(d)Good value pricing
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11.Which of the following is an external factor that affects pricing

decisions?
(a)Competition
(b)The salaries of production management
(c)The salaries of finance management
(d)The company’s overall marketing strategy
12.Common_________ objectives include survival, current profit

maximisation, market share leadership, and leadership building.
(a)marketing mix
(b)image
(c)cost-plus pricing
(d)pricing
13.Under _________ , the market consists of many buyers and sellers

trading in a uniform commodity such as wheat, copper, or financial
securities.
(a)oligopolistic competition
(b)a pure monopoly
(c)monopolistic competition
(d)pure competition
14.Consumers usually perceive higher-priced products as _________.
(a)out of reach for most people

(b)having high quality
(c)having high profit margins
(d)being in the introductory stage of the product life cycle
15.If demand hardly changes with a small change in price, we say the
demand is _________.
(a)inelastic
(b)variable
(c)market penetrating
(d)at break-even pricing
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16.When setting prices, the company must consider factors in its external
environment. _________, including factors such as boom or recession,
inflation, and interest rates affecting pricing decisions, can have a
strong impact on the firm's pricing strategies.
(a)Target costing
(b)Competitors
(c)Economic conditions
(d)Demand curve
Answers:
1. (a), 2. (b), 3. (a), 4. (b), 5. (c), 6. (d), 7. (d), 8. (b), 9. (c), 10. (b), 11.
(a), 12. (d), 13. (d), 14. (b), 15. (a), 16. (c).
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REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !281
OUTSIDE-IN COMMUNICATION
Chapter 8
Outside-In Communication
Objectives
• Align customers’ communication needs and habits

• When communication matters
• Determine communication’s role in marketing strategy
• More about sales in outside-in marketing strategy
• Match customers’ communication patterns
• Communicate about customer benefits
• A Vendor Report Card
• More communication challenges
• Customers, advertising, and brands
Structure:
8.1 Align Customers’ Communication Needs and Habits: An Outside-in

Communication
8.2 When Communication Matters?
8.3 Determine Communication’s Role in Marketing Strategy
8.4 More about Outside-in Marketing Strategy
8.5 Match Customers’ Communication Patterns
8.6 Communicate about Customer Benefits
8.7 Communication Challenges: Why Customers Tune-out?
8.8 Customers, Advertising, and Brands
8.9 Summary
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Introduction
Regular interaction with your customers will help build trust and loyalty. If
your customers believe that you are communicating with them openly, they
will feel their relationship with you is one of mutual trust. Customer
communications matter, people’s expectations and demands of customer
service is continually increasing so the companies that are successful focus
on customer service and ensure a satisfying customer experience.
Effective communication is critically important to organisations, which is

why they use a variety of promotional tools. Advertising, sales promotion,
public relations, direct marketing, personal selling and added-value
approaches such as sponsorship are the most used. To get their messages
through they use traditional media such as print and broadcast, cinema
and radio; but increasingly digital media, and the Internet in particular, are
used to ‘talk’ to and with their customers, potential customers, suppliers,
financiers, distributors, communities and employees, among others.
Focusing on customer communication is important to the long-term

success of any business. In the early stages of the relationship, effective
communication ensures your product or service meets the customer's
immediate needs. As time goes on, regular communication with your
customers’ allows you to adapt and grow so you can continue to meet their
requirements.
8.1.Align Customers’ Communication Needs and Habits: An

Outside-In Communication
Do you know how your customers view your products and services? Are
your communications meaningful? All you have to do is ask. It may seem
obvious, but you can significantly increase your effectiveness in promoting
a brand and as a communicator just by asking for input from the very
people who you are trying to reach.
Marketing communications are designed to inform potential customers and

to motivate them to purchase your products or make use of your services.
Each element of your communications strategy — promotions, advertising
and public relations — must be aligned with and support a compelling
positioning statement that is unique to your business. (Figure 8.1)
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In order for your business to succeed, you need to advertise and promote
your products or services to the same buyers that your competitors are
targeting. In those rare cases where your business is one-of-a-kind, you
still need to tell target buyers that your business exists with some kind of
advertising or promotional communication. Public relations (PR) activities
are another way to promote the image or reputation of your product. PR is
similar to promotion and advertising, but can be more indirect, since some
or all of the publicity a company’s products and services receive from
public relations activities may not be controlled by the company..
!
Figure 8.1: Communication Strategy Alignment
Simply put, understanding how your customers view your brand and your
communications reduces your margin of error. After all, even the highest
quality, most professionally produced communications program and
materials will fall flat if their contents aren't compelling to the intended
audience. When your brand positioning and communications are based on
your target audiences’ needs and motivations, you can be confident that
they will be meaningful to the people that you are seeking to reach — a
pull rather than push strategy.
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In addition to awareness and persuasion, new goals such as developing

understanding and preference, reminding and reassuring customers were
recognised as important aspects of the communications effort. Direct
marketing activities heralded a new approach as one-to-one, two-way
communications began to shift the focus from mass to personal
communications effort.
Exploring customer product and service needs and reactions to

communications both increases your effectiveness and saves money.
Advanced statistics in communications surveys of customers have shown to
identify the key drivers of effective communications. By key drivers, it
mean the strategies and tactics that are most likely to produce a desired
outcome, i.e., customers feeling informed.
The pay-off for clients is more effective communications, significant cost

savings and quantified measurement of results.
Product development, identification of new services, and building and

marketing a brand require a tremendous amount of effort and resources.
An outside-in perspective provides invaluable insight into ensuring the
effectiveness of that hard work. Asking for input before proceeding with
campaigns and initiatives always pays off in the form of customers that
feels they need our products and services and value our message..
Planning Effective Marketing Support Programs
Whatever you’re selling, you’ll need to communicate about it with your

target buyers. Most businesses find that they need all three components of
marketing communications (promotion, advertising, and public relations),
in some combination. But how do you narrow down the available choices
and build a communications program that makes sense? Here’s how:
1. Determine who the target buyer is. Identification of exactly who the
target buyer is, in demographic, lifestyle, and other descriptive terms, is
necessary before the construction of practical promotion, advertising,
and public relations (PR) programs.
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2. Determine what is meaningfully unique about your product. Many

small businesses can describe what is meaningfully unique about their
product or service. For other businesses, careful market research may
be the only way to determine meaningful sources of uniqueness on
product features and benefits. For our purposes, “meaningful”
differences are defined as those business or brand attributes that buyers
or end-users consider in making purchase decisions among different
available choices. Customer perceptions control what is “meaningful.”
3. Construct a business positioning strategy statement. It is

important to be consistent in all promotion, advertising, and PR
programs, particularly with the scarce resources of most small
businesses. A good business positioning strategy statement will address
who the target buyer or end-user is, what the competitive environment
is, and what the meaningful differences in the products or services are
when compared to the competition. The statement might also include
reasons why these meaningful differences are valuable and perhaps
some idea of a business “personality” that will be created and fostered
in all marketing programs.
4. Determine the best message to communicate your product

positioning to target buyers. The key to communicating product
uniqueness and positioning is constructing a memorable unique selling
proposition (USP) about product features and benefits that are
meaningful to your target buyer. This USP may be a memorable “slogan”
or ad message that correlates with the needs and wants of your target
buyer. The ad message is a result of a carefully constructed positioning
statement.
5. Determine promotion and advertising options and costs in terms

of available budget. There is never enough money to do everything
desirable to build the business. Often a promotional budget reality check
for a small business means a choice between a little promotion,
advertising, or PR, but not all three at the same time.
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Word-of-mouth/referral is a powerful way of reaching new customers,

particularly for a small business. There are different sources:
a. Existing customers (ask!)

b. Friends and family (ask!)
c. Professional colleagues (ask!)
d. Influencers
Develop word-of-mouth by looking at your dress code, behaviour,

language, etc., via smart use of business cards, via “thank you” notes and
a tracking system.
Identifying Your Target Market
Identify and understand your target market, you need to know how your
potential customers behave, motivations, their perceptions, their
preferences, their attitudes and their knowledge. You also need to know
what your customers want.
Generally, a sequence of events is needed before a consumer will buy a

product. This is known as a “hierarchy of effects.” The customer must first
be aware that the product exists. He or she must then be motivated to give
some attention to the product and what it may provide. In the next stage,
the need is for the customer to evaluate the merits of the product,
hopefully giving the product a try. A good experience may lead to
continued use. Note that the customer must go through the earlier phases
before the later ones can be accomplished.
Promotional objectives that are appropriate differ across the Product Life
Cycle (PLC). Early in the PLC—during the introduction stage—the most
important objective is creating awareness among customers. (Figure 8.2)
A second step is to induce trial—to get customer’s to buy the product for
the first time. During the growth stage, important needs are persuading
the customer to buy the product and prefer the brand over competing
ones. Here, it is also important to persuade retailers to carry the brand,
and thus, a large proportion of promotional resources may need to be
devoted to retailer incentives. During the maturity stage, the firm may
need to focus on maintaining shelf space, distribution channels, and sales.
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Different promotional approaches will be appropriate depending on the

stage of the customer’s decision process that the marketer wishes to
influence. Prior to the purchase, the marketer will want to establish a
decision to purchase the product and the specific brand. Here, samples
might be used to induce trial. During the purchase stage, when the
customer is in the retail store, efforts may be made to ensure that the
customer will choose one’s specific brands. Paying retailers for preferred
shelf space as well as point of purchase (POP) displays and coupons may
be appropriate. After the purchase, an appropriate objective may be to
induce a repurchase or to influence the customer to choose the same brand
again. Thus, the package may contain a coupon for future purchase.
There are two main approaches to promoting products. The “push”

strategy is closely related to the “selling concept” and involves “hard” sell
and aggressive price promotions to sell at this specific purchase occasion.
In contrast, the “pull” strategy emphasises creating demand for the brand
so that consumers will come to the store with the intention of buying the
product. Hallmark, for example, has invested a great deal in creating a
preference for its greeting cards among consumers.
There are several types of advertising. In terms of product advertising, the

“pioneering” ad seeks to create awareness of a product and brand and to
instill an appreciation among consumers for its possibilities. The
competitive or persuasive ad attempts to convince the consumer either of
the performance of the product and/or how it is superior in some way to
that of others. Comparative advertisements are a prime example of this.
For instance, note the ads that show that some luggage bags are more
durable than others. Reminder advertising seeks to keep the consumer
believing what other ads have already established. For example, Coca-Cola
ads tend not to provide new information but keep reinforcing what a great
drink it is.
Celebrity endorsements are believed to follow a similar pattern of

effectiveness. The Elaboration Likelihood Model (ELM) suggests that for
trivial products, a popular endorser is likely to be at least somewhat
effective regardless of his or her qualifications to endorse. For example,
Sachin Tendulkar may be perceived as knowledgeable about cricketing
gear, but not particularly so about life insurance..
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!
Figure 8.2: Creating Awareness amongst Customers
Your products and services should reflect what your target market wants to
buy rather than what you want to sell. And the best way of discovering
what they want is to put yourself in their shoes:
i. Think like a customer

ii. Look at your business like a customer
iii. Ask yourself if you are happy with every aspect of the buying
experience.
Your customers must want your product or service. If they don’t want it,
even if they need it, you can’t sell it.
Activity A
1.What does it take for a customer to buy your product?

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8.2 When Communication Matters
Communication works to the extent that your product or service creates

value that is not otherwise obvious to potential buyers but is nevertheless
important to them. There are many reasons why your value might not be
obvious. The less experience a customer has in a market, the more
innovative a product’s benefits, and the more separated the purchaser is
from the actual user; the more likely it is that the value of product or
service differentiation will be unrecognized or under appreciated. The idea
is that you don’t only develop and enhance your offering to win markets,
but you can redefine it by communicating it to your potential customers.
With this, the company can create a new value curve that has potential to
conquer the market. (Figure’s 8.2 and 8.3)
For example, without a planned communication from the seller, a business

buyer may not have considered that your nearby distribution location and
resulting short time to delivery, could reduce or eliminate the need to hold
inventories. Moreover, if the buyer is unsophisticated, he may not have
recognised the high cost of holding inventories for your technology product
for which industry prices decline on average by 15% per year. In this case,
explaining how quick delivery could reduce inventory costs by more than
your price premium could motivate a purchase that would not otherwise
have seemed wise.
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!
Figure 8.3: Communicate the Changes for Enhancing Values
!
Figure 8.4: Defining Your Product
! !291
Still, even a well-documented case for the value of your differentiation will
not have an effect unless the buyers are motivated to listen. Value
communication is effective to the extent that buyers see the price as
economically important.
The price is economically important when the buyer is committed to getting

“a good deal” or “the most for my money” as opposed simply to making a
purchase that meets the need. There are five reasons why people often
make purchases without a strong motivation to minimize cost of meeting
their need.
1. The Expenditure Effect – Some expenditures are just too small to

justify serious thought or effort to find the economically best deal,
rather than simply to find a brand that meets the need. In business
markets, they are purchases too small to justify a purchasing agent’s
time. In consumer markets, they are called “impulse” purchases.
2. The Shared Cost Effect – Some expenditures involve spending other

people’s money, in whole or in part. So long as travel expenses are
within a business person’s expense budget, for example, there is not
much incentive to look for the best deal.
3. The Switching Cost Effect – Some expenditures involve making a

supplier-specific investment before being able to gain maximum value.
A business might have to train its employees on the use of a particular
software package. A consumer might have to educate her lawyer, child-
care provider, and hairdresser on her needs and expectations before
they can fully meet her needs. Unless these customers get some
indication that a price difference between brands exceeds this hurdle,
they will repeat buy from the same supplier without evaluating other
brands.
4. The End-benefit Effect – Some expenditures are simply a small part

of a total package of expenditures to achieve an end-benefit.
Consumers often pay little attention to the cost of accessories when
buying a car, since the cost seems small in the context of a larger
expenditure. The effect is not simply economic, but psychologically
embedded in most people. Consider how you would feel if, after
celebrating a very special occasion for you, your spouse paid the
restaurant tab with a two-for-one coupon. While the economists among
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us would be proud, most others would feel that “getting a good deal”
distracted from the occasion.
5. The Price Quality Effect – Some expenditures have more perceived

value because they are expensive. One would be hard-pressed to argue
that Rolls Royce, with a price over Rs. 3 crores, offers a value superior
to that of luxury cars costing much less. Its parts are less uniform, and
the cost of maintenance is very high because a Rolls is handmade. The
problems with the Rolls are the ones that mass production was meant to
solve: problems of consistency and cost. But Rolls buyers do not
purchase the car for cost-effective transportation any more than they
buy Rolex watches to accurately tell time (a digital watch does a better
job). They buy these items to communicate to others that they can
afford them.
Consequently, it is usually possible and often cost-effective to influence

customers’ willingness to pay through a systematic strategy. There are four
potential goals of that strategy, one or all of which may be important to
raise willingness to pay for your product or service. They are:
1. To help customers establish an appropriate “reference value” against

which to measure your product, unless there is a direct substitute for
your product with a price that establishes the reference.
2. To help customers recognise your differentiation on attributes that are

not readily observable, unless yours is an established brand about which
the market has learned from experience.
3. To make salient potential benefits of your differentiation that translate

into high value for the customer. Established brands focus the customer
on the loss they could suffer (e.g., social humiliation) by relying on a
cheaper substitute. Differentiated newcomers focus customers on the
added benefits they could receive (e.g., prestige) over and above what
they get from their current supplier.
4. To justify that the share of value captured in your price is “fair,”

assuming that you are in the type of market environment (defined
below) where fairness issues arise.
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The first three involve value communication, the latter involves price
communication.
Activity B
2.What are the ill-effects of miscommunication?

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Activity C
3. What is the correlation between price and value?

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8.3 Determine Communication’s Role in Marketing Strategy
Marketing communications are a management process through which an

organisation engages with its various audiences. By understanding an
audience’s communications environment, organisations seek to develop
and present messages for their identified stakeholder groups, before
evaluating and acting upon the responses. By conveying messages that are
of significant value, they encourage audiences to offer attitudinal and
behavioural responses.
In the increasingly competitive environment of business, the need for

effective communication is demanding for achieving competitive advantage
in the target market. Marketing communication is the process of
communicating the marketing strategies and their implications throughout
the organisation in order to increase the ability of the organisation to
become proactive to a situation in the target market.
! !294
Successful marketing communication strategy relies on a combination of

options called the promotional mix. These options include market research,
corporate communications, advertising, sales promotion, public relations,
events and promotions, direct marketing, and personal selling, etc. (Figure
8.5) The Internet has also become a powerful tool for reaching certain
important audiences. The role each element takes in a marketing
communication program relies in part on whether a company employs a
push strategy or a pull strategy. A pull strategy relies more on consumer
demand than personal selling for the product to travel from the
manufacturer to the end-user. The demand generated by advertising,
public relations, and sales promotion “pulls” the good or service through
the channels of distribution. A push strategy, on the other hand,
emphasises personal selling to push the product through channel
intermediaries
Activity D
4.Explain the purpose of devising a marketing communication strategy.

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!
Figure 8.5: Marketing and Communication Strategy
Without effective marketing communications, consumers remain unaware

of products and services they need, who might supply them and the
benefits which both product and suppliers can offer. Moreover, it is
impossible to develop effective and efficient marketing systems without
first establishing channels of communication. Even the best products do
not sell themselves. Marketing communications serve four key objectives:
(Table 8.1):
1. Information
2. The stimulation of demand (Process and Imagery)
3. Integration
4. Relational
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Table 8.1: The Developing Orientation of Marketing Communications

Orientation Explanation
Information and Communications are used to persuade people into

promotion product purchase, through mass media
communications. The emphasis is on rational, product-
based information.
Process and imagery Communications are used to influence the different

purchase stages of the process that customer’s experience. A
range of tools are used. The emphasis is on product
imagery and emotional messages.
Integration Communication resources are used in an efficient and

effective way to enable customers to have a clear view
of the brand proposition. The emphasis is on strategy,
on media neutrality, and on a balance between
rational and emotional communication.
Relational Communications are used as an integral part of the

different relationships that organisations share with
customers. The emphasis is on mutual value and
meaning, plus a recognition of the different
communication needs and processing styles of
different stakeholder groups.
Activity E
5. Which according to you is a better strategy — the “pull” or the “push”?

Explain.
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Marketing communications takes four forms — advertising, sales

promotion, public relations and publicity, and personal selling. These must
be formulated within a coordinated marketing communications plan. If
there is more than one target market, then there will need to be more than
one communications program. Like all other elements of the marketing
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mix, it must be tuned to the characteristics and needs of the target

market.
1. Advertising: Advertising is the most visible element of the

communications mix because it makes use of the mass media, i.e.,
newspapers, television, radio, magazines, bus hoardings and billboards.
Mass consumption and geographically dispersed markets make
advertising particularly appropriate for products that rely on sending the
same promotional message to large audiences. Many of the objectives
of advertising are only realised in the longer term, and therefore it is
largely a strategic marketing tool.
2. Sales Promotion: Sales promotion employs short-term incentives,

such as free gifts, money-off coupons, product samples etc., and its
effects also tend to be short-term. Therefore, sales promotion is a
tactical marketing instrument. Sales promotions may be targeted either
at consumers or members of the channel of distribution, or both.
3. Public Relations and Publicity: Public relations is an organisation’s

communications with its various publics. These publics include
customers, suppliers, stockholders (shareholders, financial institutions
and others with money invested in the business), employees, the
government and the general public. In the past, organisations thought
in terms of publicity rather than public relations. The distinction between
advertising and publicity was based on whether or not payment was
made to convey information via the mass media. Advertising requires
payment by the sponsor of the message or information, whilst publicity
is information which the media decides to broadcast because it is
considered newsworthy and therefore no payment is received by the
media from a sponsor. It is more common these days to speak of public
relations than of publicity. Public relations is much more focused in its
purposes.
The objectives of public relations tend to be broader than those of other

components of promotional strategy. It is concerned with the prestige
and image of the organisation as a whole among groups whose attitudes
and behaviour can impact upon the performance and aims of the
organisation. To the extent that public relations is ever used in product
promotion, it constitutes an indirect approach to promoting an
organisation’s products and/or services.
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4. Personal Selling: This can be described as an interpersonal influence

process involving an agribusiness promotional presentation conducted
on a person-to-person basis with the prospective buyer. It is used in
both consumer and industrial marketing and is the dominant form of
marketing communication in the case of the latter.
Activity F
6.Why is public relations considered a better form of communication?

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Importance of Integrated Marketing Communication
Integrated marketing communication is an important part of a company’s

overall marketing strategy. The goal of an integrated marketing
communication strategy is to ensure that all communications remain
consistent and convey the company's message in a way that adheres to its
values, image and goals. Ensuring an integrated marketing strategy is
often the responsibility of the chief marketing officer of an organisation or
its director of marketing communication.
Reasons
When a single person does all the marketing for an organisation, it is fairly
certain that all marketing communications will be consistent with each
other and present the same brand image.
However, at larger organisations, several different departments can be

responsible for marketing messages, in addition to messages coming from
sales and communications created by outside agencies.
The possibility of confusion, or at least different styles of communication

going out on different channels, without intent, are great without an
integrated communication strategy.
! !299
Pitfalls of Not Pursuing an Integrated Marketing Communication

Strategy
The pitfalls of not having an integrated marketing strategy are great.

Inconsistent messages can lead to consumer confusion. They can also
make the brand's image fragmented. Serious problems, such as
contradictory promotions going out, are also possible.
A. Proliferation of Channels
The proliferation of channels for marketing, ranging from social media to

email, broadcast advertising to direct mail, makes it even more important
to have an integrated marketing communication strategy in place. More
channels can increase the odds of an inconsistent message going out if a
central directing strategy is not in place.
B. Organisational Communication
Consistent communication is important within an organisation as well.

Ensuring that all employees receive consistent messaging ensures that
they can convey the right messages to customers at all times.
8.4 More about Outside-in Marketing Strategy
In essence, “outside in” marketing is starting with the customer first. All
definitions of marketing talk about satisfying customer needs but why do
so many organisations not use this as the starting point or have all the
right customer intentions but then lose the focus?
Marketing facilitates the exchange process between the company and the
customer. Value starts with the customer and works back into the
company, so it is vital to change from product-focused “inside-out” thinking
to customer-focused “outside-in” thinking.
With the digital age, the power really does rest with the customer so it is
no longer producers selling stuff to buyers, it is buyers identifying what
they need and who they want to buy that from. More than that it is about
customers determining what type of communication they want and from
whom – the growth of permission marketing is a testament to this trend.
! !300
When a company substantially changes its overall marketplace strategy in

some way, its communication approach will also have to change. To
effectively adapt to change, most established organisations have a
daunting task ahead of them in a variety of operational and procedural
areas. Business processes must be redefined and redesigned and adapted
to specific geographical and cultural settings. The workforce needs to be
retrained to be ready for changes in how work is done, what skills and
knowledge is needed, and how to relate to global collaborators and
customers. The very culture of an organisation needs to be reshaped to
properly support the new processes introduced. Structures, reward
systems, appraisal measurements and roles need redefinition.
What separates a powerful strategy from an ordinary or weak one is the

management’s ability to forge a series of moves, both in the marketplace
and internally, that makes the company distinctive, tilts the playing field in
the company’s favour by giving customers’ reason to prefer its products or
services, and produces a sustainable competitive advantage over rivals.
Activity G
7.What is the role of value in outside-in marketing?

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8.5 Match Customer’s Communication Patterns
Customers’ communication needs are all different. Some like to receive

correspondence via SMS, others like e-mail or even postal mail. More often
than not many customers wish to mix and match based on type or content
of the correspondence. Today’s technology lets you make decisions on what
channel and what messages to use, based on customer preferences and
pre-programmed rules. To match customer expectations, it is essential to
have a flexible platform that can help you communicate with your
customers through their preferred channel and ensure each customer
receives personalised, timely, relevant communications.
! !301
Marketers and sales professionals are focused on obtaining new customers

and increasing awareness within targeted market segments. However, they
must also consider the lifetime value of existing customers and how
marketing communications can contribute to that relationship. Taking the
time to examine what kind of communications can keep their brand on top
of the mind with customers, and inspire continued awareness for repeat
sales and referrals is of enormous value.
Activity H
8.Describe the main tasks facing the marketing team responsible for
marketing communications.
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8.6 Communicate about Customer Benefits
A value proposition is a short statement that clearly communicates the

benefits that your potential customer gets by using your product, service
or idea. It “boils down” all the complexity of your sales pitch into
something that your customer can easily grasp and remember.
It needs to be very specific: Simply describing the features or capabilities

of your offer is not enough. Your value proposition must focus closely on
what your customer really wants and values. Your customer wants to solve
problems, to improve on existing solutions, to have a better life, build a
better business or do more, better, faster and so on.
Creating a value proposition is a useful marketing technique that had wider

application than product marketing. Whatever you are ‘selling’ and to
whom, a value proposition is useful, if not an essential tool. Whether your
‘customers’ are external customers, employees, co-workers or even your
family, the idea is to help them see the specific value your offer brings to
them. And by doing so, you will grab their attention in such a way that
they know: “Yes, that’s right for me”.
! !302
In general, marketers tend to turn to advertising to inform consumers

about a new product. Advertising is relatively cheap, the information that is
communicated to consumers is under control, and it can reach a mass
audience. Nevertheless, advertising is not the most effective tool for
consumer learning of really new products, at least not when it is used in its
traditional way of communicating product attributes and benefits. Ads
regarding complex products, such as really new products, typically need to
contain a high amount of attribute information because there is more
content-related information to impart about a new PC, for instance, than
about a bottle of perfume or soft drink. As consumers find it difficult to
understand the link between product attributes and the benefits they
provide, the use of analogies in advertising has been proposed as a
promising means to enhance consumer learning of new product benefits.
Consumers typically have to learn about new benefits in order to

appreciate really new products. Since benefit comprehension does not
guarantee a positive evaluation of these benefits, marketers strive for
communication goals that go beyond understanding. They aim to create a
positively exaggerated impression of the key benefits in order to make
their new product more appealing to consumers. Having said this, it can be
expected that benefit comprehension will lead to a more positive evaluation
of the new product. Marketers will make sure only to emphasise product
benefits that consumers are likely to appreciate. Since a comparison is
believed to attract attention to the key benefits of a really new product and
given the assumption that consumers appreciate these key benefits, a
positive relation is expected between the use of comparisons versus literal
similarities in ads for really new products and consumers’ preference for
the new product.
Activity I
9.What needs to be highlighted by the marketing team in their advertising?

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8.7 Communication Challenges: Why Customers Tune-out?
Finding the right mix for product and service communication is a challenge
for even the savviest marketing teams. Perhaps the most difficult challenge
is capturing the attention of potential customers who are increasingly
turning a deaf ear to the cacophony of media messages competing for their
notice. Clever ideas executed with precision can reach customers where
traditional media falls short.
Clutter is the most common form of noise in the marketing

communications. It occurs when receivers are exposed to many different
messages (television, radio, billboards, bunches of ads in the paper, etc.) in
one day and therefore some messages get tuned out.
While consumers continue to tune out traditional, intrusive marketing

communications, they increasingly crave the type of genuine, customer-
focused information that content marketing delivers.
What is Content Marketing?
Content marketing is really about providing valuable information or content

to current and potential customers for the purpose of building trust,
branding, awareness, and positive sentiment. A successful content
marketing campaign establishes you as an expert in your field, and that
sets the groundwork for a long-term business relationship.
Simply put, its primary focus is on building the relationship, not the hard
sell.
Types of content that typically form a content marketing strategy include:
1. Blog posts
2. Guest blog posts
3. E-books
4. Email newsletters
5. PowerPoint presentations
6. Podcasts
7. Standard videos
8. Social media posts
9. Live presentations
10.Webinars
11.White papers
! !304
Content refers to what in your organization needs to change—strategy,

structure, systems, technology, business processes, products, services, or
culture. Content describes the “business solution” being designed and
implemented, and typically gets the most customer attention.
Strategic Communication for Better Customer Attention
Many communication initiatives have succeeded in enhancing customer

awareness, but have failed in going beyond awareness, to stimulate
positive changes in attitudes and practices toward creating lasting change.
Communication, to impact on sustainable behaviour change among
individuals and groups on a large scale, needs to be strategic.
Communication programmes need to be responsive to peoples’ wants,

needs and desires. What’s more, communication programmes must be
geared to stimulate change in more effective ways through careful
communication research, analysis, planning, coordination, implementation,
management, monitoring and evaluation.
Activity J
10. How can a marketing message be termed effective?

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8.8 Customers, Advertising and Brands
Differentiated customer experiences build brand, market share and

competitive advantage. They also yield analytical insight into buying
behaviour that can inform closed-loop marketing strategies, and work best
when functional boundaries between marketing, sales and technology are
eliminated. This is best achieved by an “outside in” approach that draws
technology, market trends and customer needs to the center of how you do
business.
To build your leadership brand, first articulate what you want your firm to
be known for by your best customers. Then link those qualities to specific
managerial traits and activities. For example, Wal-Mart wants to be known
! !305
for its everyday low prices. So, it strives to hire and develop managers who
are frugal and unassuming and who can drive a hard bargain.
Consumers are today continuously exposed to advertising, which value is

increasing to brands. The advertising amount has long been recognized as
a major driving force to signaling effects, and thus revenues. However,
several brands distinguish themselves by setting their advertising amount
to zero. These non-advertising brands have challenged traditional
advertising theory by their prevalence and success.
Most brands use each element of market communication in their brand

strategy. However, some brands have formed their communication strategy
abstaining from the advertising element.
For brands to prevail on competitive markets, it is crucial that consumers

have positive attitudes towards the brands and that their buying intentions
are at a sufficient level. Following, there must exist consumers who have
positive attitudes towards non-advertising brands and intend to buy the
non-advertising brands’ products. Attitudes facilitate social behaviour; they
are functional for the person and are determined by a person’s motives.
Consumers can have different reasons for having the same attitude.
Consumers also hold certain feelings toward brands or other objects.

Sometimes these feelings are based on the beliefs (e.g., a person feels
nauseated when thinking about a hamburger because of the tremendous
amount of fat it contains), but there may also be feelings which are
r e l a t i v e l y i n d e p e n d e n t o f b e l i e f s . Fo r e x a m p l e , a n e x t r e m e
environmentalist may believe that cutting down trees is morally wrong, but
may have positive affect toward Christmas trees because he or she
unconsciously associates these trees with the experience that he or she
had at Christmas as a child.
The total advertising amount, as well as the media channels it is

communicated through, has increased over the years why consumers today
encounter advertising continuously. Advertising appeals should be
meaningful, believable, and distinctive. Consumers’ attitudes and
perceptions of a brand and the brand’s products are formed by the
information they possess about the products and their features. These
brand perceptions are, according to recent advertising literature, claimed
to be the most reliable measurement of advertising effectiveness. This has
! !306
its origin in the fact that consumers are incapable of discerning all the
advertising they are exposed to.
A positive brand attitude is fundamental for consumers’ willingness to pay

for the brands’ products, and also for creating buying intentions and finally
generating sales. Consumers’ brand attitudes in many cases determine
their behaviour towards the brand and its products. For brands to prevail
on competitive markets, it is crucial that consumers have positive attitudes
towards the brands
Activity K
11.“Advertising appeals should have three characteristics. What are they?”

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Outside-in Analysis of Branding
The Outside-in strategy takes customer value as its starting and end point.
Companies using this approach are focused on creating and nurturing their
customers by providing high caliber customer value. They put themselves
in the position of their customers, and view themselves from their
perspective along with specific messaging for the roles of key influencers
and decision-makers.
It’s also about having a firm vision that drives you forward; there’s no
room here for looking back.
With this approach, you first identify a focused audience segment. Then,
using research and market intelligence, you clearly identify the brand
drivers for that audience, building your strategy around those things.
Businesses are always looking for growth opportunities. Being market-
driven and following an outside-in marketing approach are excellent
strategies for driving growth.
! !307
Outside-in Case Study: Amazon
Amazon has set a new standard for Outside-in strategising. They began as
an online bookshop, and built an incredibly strong brand around that. But
they put themselves in their customer’s shoes and asked what else their
customer base wanted. This allowed them to expand into the Kindle, and
then into cloud computing, web services for their channel partners, and
massive online retailing of a range of products outside their initial offering.
Rather than dwelling on what they were good at (selling books), they
asked ‘Who are our customers and what do they need?’ By shifting their
focus, they were able to leverage their brand to seize opportunities in other
areas.
Customers buy the expectation of benefits they will receive from forming a
relationship with a brand. Buying from and interacting with a business is
guided by a business’s brand. An Outside-in strategy means a change of
focus and entering into a collaborative relationship with the customer.
Key Insight: With outside-in brands, your audience tells you what the
brand should stand for. With inside-out brands, you’re telling the audience.
Arguably, outside-in brands are the way to go. Done right, this process
yields a brand strategy that resonates with your target audience, clearly
aligning with their wants and needs.
! !308
8.9 Summary
Marketing communications is an audience-centered activity and uses five

traditional elements of the promotional mix: advertising, sales promotion,
public relations, direct marketing, and personal selling. Each has its
strengths and weaknesses, and these tools are now beginning to be used
in different ways to develop relationships with customers, whether they be
consumers or organisational buyers. The development of partnerships
between brands and consumers, and between organisations within
distribution channels or networks, is an important perspective of marketing
communications.
Communications in this context has been an important part of this chapter.

Finally, marketing communications can be seen as a series of episodes that
occur within a particular set of circumstances or contexts. Marketing
managers need to be able to identify principal characteristics of the context
they are faced with and contribute to the context with a suitable
promotional programme.
Study Questions
1. Define communication. Why does it play such a crucial role in marketing

and business?
2. Who are the typical senders in marketing communications? Who are the
typical receivers?
3. Define clutter. Name some of the standard forms in marketing

communications.
4. Explain push and pull promotion mix strategies for reaching the market.
5. How much weight marketing communications should receive in relation

to alternatives such as product improvement, lower prices, or better
service?
! !309
6. People’s attitudes and actions toward an object are highly conditioned

by that object’s image.” Explain why this is so and how marketers can
change a person’s “attitude” towards an object.
7. How does marketing communications support the marketing and

business strategies of an organization?
8. In what ways would effective marketing communications influence the

performance and profitability of an organisation?
1. Push strategy is primarily about communications with _________.
(a)Stakeholder networks
(b)Channel intermediaries
(c)Consumers
(d)Vendors
2. The communication focus when targeting consumers is _________.
(a)The organisation
(b)The product/service
(c)Consumers
(d)Vendors
3. The communication goal when targeting all relevant stakeholders is

_________.
(a)Building reputation
(b)Generating a purchase
(c)Developing relationships
(d)Building brands
4. Communication strategy should always be:
(a)Product-oriented
(b)Media-oriented
(c)Customer-oriented
(d)Audience-oriented
! !310
5. _________ is an important element in the communication process. It

recognises that successful communications are more likely to be
achieved if the source and the receiver understand each other.
(a)The realm of understanding

(b)Personal selling
(c)Noise
(d)Feedback
6. Marketing communications are the means by which firms attempt to

inform, persuade, and remind consumers about the products and brands
that they sell.
(a)True
(b)False
7. When selecting the elements for the marketing communications mix

which five criteria should be used?
(a)Control, finance, credibility, dispersion and tasks

(b)Impact, finance, credibility, role, and vision
(c)Advertising, sales promotion, public relations, direct marketing, and
personal selling
(d)Audience, measurability, credibility, dispersion and finance
8. Define from the following in each: Push and Pull Strategies.
(a)Advertising and mass media promotion

(b)Word-of-mouth referrals
(c)Trade show promotions to encourage retailer demand
(d)Customer relationship management
(e)Direct selling to customers in showrooms or face to face
(f) Negotiation with retailers to stock your product
(g)Efficient supply chain allowing retailers an efficient supply
(h)Sales promotions and discounts
(i) Packaging design to encourage purchase
(j) Point of sale displays
! !311
Answers:
1. (b), 2. (b), 3. (c), 4. (d), 5. (a), 6. (a), 7. (c), 8. (a) pull, (b) pull, (c)
push, (d) pull, (e) push, (f) push, (g) push, (h) pull, (i) push, (j) push. 
! !312
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !313
OUTSIDE-IN CHANNELS OF DISTRIBUTION
Chapter 9
Outside-in Channels of Distribution
Objectives
• Channels for customers and channels as customers

• Distribution channels to fit customers
• Distribution in marketplace strategy
• Using marketing channels to create value for customers
• Types of channel partners
• Distribution today—challenge and opportunity
Structure:
9.1 Outside-in (A Customer focused Approach) = Flexibility and Speed

9.2 Distribution Channels to Fit Customers
9.3 Distribution in Marketplace Strategy
9.4 Using Marketing Channels to Create Value for Customers
9.5 Types of Channel Partners
9.6 Distribution Today—Challenge and Opportunity
9.7 Summary
9.9 Multiple Choice Questions 
! !314
Introduction
Distribution is a key function that adds value across the supply chain and
plays a strategic role. The dynamic nature of markets, technological
developments and demanding customers have caused distributors to adjust
their way of doing business. Logistics research on the relation between
logistics and strategy from a logistics perspective, and strategy theory
ranging from the resource-based view of the firm, or the inside-out
perspective, to positioning theory, or the outside-in perspective. A pattern-
matching methodology is used to establish an appropriate description of
the logistics content and context in the strategy of the firm.
Distribution solutions need not be optimal in terms of the lowest cost and
the highest service level to be used successfully in the strategy of the firm
to reach growth under sustained profitability. Research shows that similar
outside-in contexts can be approached successfully with strategies with
different logistics content. The logistics organisations in the firms in the
scope of this thesis display robustness towards changes in the outside-in
context of the firm, i.e., the logistics organisations can encounter
considerable changes in the environment without altering their position in
the firm.
9.1.Outside-In(A Customer-Focused Approach)=Flexibility

and Speed
Where will the investment be going forward? Significant investments will be

made to make supply chains more capable of responding directly to
customers. Customer-focused supply chains need to be designed around
the needs of the customer and be interdependent on the operating
demands of others. An Outside-in approach emphasises sensing, shaping,
and driving intelligent, fast responses.
Intra-company Benefits
1. Increases speed and accuracy of Interpretation of partner performance

2. Compresses the planning horizon to reduce risk
! !315
Inter-company results:
1. Respond directly to customers

2. Correlate multiple processes across all trading partners
3. Recognise impact of resource decisions on the entire value chain
More and more companies, to stay competitive and relevant, are learning
from the best and are adapting. Samsung, Apple, Proctor and Gamble are
all examples of fully integrated supply chains. These companies have taken
the step beyond the enterprise approach, which is the outside-in supply
chain. They are driving the design of their supply chain around the needs
of their customers, suppliers and logistics providers. They have highly
flexible supply chains and are great companies. They sense demand well
and respond quickly to customer needs.
This allows you to better meet your customer’s needs in a highly

competitive world. For example, in logistics, when a carrier is waiting at
your gate instead of getting right into your dock, they will charge you a
penalty. When you maximise your trading partner’s efficiency, you
maximise your own.
Resolving the Tension of Competing Demands
The Enterprise-Focused approach (inside-out) and the Customer-focused

approach (outside-in) are not mutually exclusive. One is not better than
the other; in actuality they must work in harmony. (Figure 9.1) Both are
needed, and equally valuable. You’ve invested heavily in SAP and it’s the
important first step. First, you need the Enterprise Approach in place and
then you can build through to the Outside-in needs of the broader market.
There is a gap that needs to be bridged between the two, and today we
see a variety of approaches
! !316
!
Figure 9.1: Resolving the Tension of Competing Demands
So, what’s needed? Manufacturers – with all their trading partners – must
collectively sense and properly respond to demand and supply changes in
the market. You can address the Inside-out supply chain. However, you
need additional resources to bridge the gap to really meeting customer
needs. Those are…
1. Automation of Customer Driven Processes – The outside-in supply

chain cannot be successful if the bridge between your Enterprise and
the Customer continues to be manual and costly. Automation in the
enterprise must be extended out through to the customer’s processes.
2. Broad and Deep Trading Partner Integration – Automation

programs should be across the entire supply chain, and with as many
trading partners as possible. And that integration must be industrial
strength.
! !317
3. And finally, Real Visibility – This includes, understanding where you

have to distribute the product, understanding where you have materials
to make the product, understanding delays in shipments, and
understanding the market demand.
Activity A
1.What are the qualities that make an organisation outside-in?

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9.2 Distribution Channels to Fit Customers
A recent study determined that high performance businesses “excel in the

development of meaningful customer insights and practical ways to put
those insights into action.” They understand what their customers want,
and they know how to deliver solutions that customers will buy. An
unwritten, but nonetheless significant, extension of this idea is that they
not only know what customers will buy, but where and how they want to
buy. In short, no company is successful for its insights alone. Success
ultimately depends upon the effectiveness and reach of its go-to-market
strategy. Distribution channel optimisation is therefore a critical ingredient
to sustaining growth through a rigorous customer focus.
For example, whether you are able to buy it directly from the seller, at a
store, online, from a salesperson, and so on—is referred to as the product’s
marketing channel (or distribution channel). All of the people and
organizations that buy, resell, and promote the product “downstream” as it
makes its way to you are part of the marketing channel.
At their most basic level, distribution partners enable suppliers to deliver

goods or services to end-users, and distributors’ reach significantly
influences the extent to which suppliers can engage with customers. On a
more meaningful level, distribution partners provide customer service in
areas where suppliers cannot or do not (e.g., financing, insurance, training,
maintenance, repairs). Taken together, the two deliver an enhanced
customer experience. If managed properly, distributors provide access to
! !318
customers that can determine a supplier’s reach, revenue, and long-term

growth potential.
Companies with productive channel relationships stand to increase sales,

reduce operating costs, and improve customer reach. Importantly, effective
distribution channel management (Figure 9.2) delivers benefits to all
players in the value chain, often by increasing the size of the market or
capturing a greater share of customer wallet through the channel. Proper
distribution planning can ensure that the best available channels and
distribution methods are in place to efficiently move products and services
to customers.
For example, instead of Procter & Gamble selling individual toothbrushes to

consumers, it sells many of them to a drugstore close to you, which then
sells them to you and other people.
!
Figure 9.2: The Distribution Channel 
! !319
If mismanaged, distributor relationships can be a drain on a supplier’s

resources, rather than an asset for long-term growth. Poor-fit partners,
misaligned objectives or incentives, and other conflicts can derail
relationships before they have an opportunity to succeed. Failure to reach
end-users or to communicate with those end-users through distributors
effectively leaves the door open for competitors to supplant your business.
In short, mistakes in the distribution chain can directly affect the top and
bottom line in the short term and the industry’s competitive dynamic in the
long term.
A firm’s competitive strategy will be defined based on the customer’s

priorities. Competitive strategy targets one or more customer segments
and aims to provide products and services that satisfy these customers’
needs.
Activity B
2. How do distribution partners go out of the way to enhance customer

experience?
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The Importance of Marketing Channels
1. Intermediaries make distribution and selling processes more efficient.
2. Intermediaries offers supply chain partners more than they could

achieve on their own.
• Market Exposure
• Technical Knowledge/Information Sharing
• Operational Specialization
• Scale of operation
Therefore, in today’s very competitive marketplace, a strategy that insures

a consistent approach to offering your product or service in a way that will
outsell the competition is critical. However, in with defining the marketing
! !320
strategy, you must also have a well-defined distribution methodology for

the day-to-day process of implementing it. It is of little value to have a
strategy if you lack either the resources or the expertise to implement it
Activity C
3. How does distribution play a role in tackling competition?

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9.3 Distribution in Marketplace Strategy
Buyers and sellers of goods are continuously looking beyond the

boundaries of their current business environment—literally and figuratively
—to meet the multiple challenges of emerging market forces, technological
advances, significant changes in interpretation of distribution law, and
ever-increasing customer demands for better service and greater value.
The changing marketplace has led to a wave of mergers, acquisitions and
consolidations has created a number of retailing and distribution giants. At
the same time, e-commerce continues to revolutionise customer service,
internal management and delivery systems for all participants in the supply
chain. Additionally, globalisation has raised a host of new opportunities and
challenges. As new channels proliferate, competition in and among them
intensifies.
There are two major components to a marketing strategy:
1. how your enterprise will address the competitive marketplace

2. how you will implement and support your day-to-day operations
In the process of creating a marketing strategy, you must consider many

factors. Of those many factors, some are more important than others.
Because each strategy must address some unique considerations, it is not
reasonable to identify ‘every’ important factor at a generic level. However,
many are common to all marketing strategies. Some of the more critical
are described below.
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In the process of creating a marketing strategy, you must consider many

factors. Of those many factors, some are more important than others.
Because each strategy must address some unique considerations, it is not
reasonable to identify ‘every’ important factor at a generic level. However,
many are common to all marketing strategies. Some of the more critical
are described below.
You begin the creation of your strategy by deciding what the overall
objective of your enterprise should be. In general, this falls into one of the
four categories:
a. If the market is very attractive and your enterprise is one of the

strongest in the industry, you will want to invest your best resources in
support of your offering.
b. If the market is very attractive but your enterprise is one of the weaker
ones in the industry, you must concentrate on strengthening the
enterprise, using your offering as a stepping stone toward this objective.
c. If the market is not especially attractive, but your enterprise is one of

the strongest in the industry, then an effective marketing and sales
effort for your offering will be good for generating near term profits.
d. If the market is not especially attractive and your enterprise is one of

the weaker ones in the industry, you should promote this offering only if
it supports a more profitable part of your business (for instance, if this
segment completes a product line range) or if it absorbs some of the
overhead costs of a more profitable segment. Otherwise, you should
determine the most cost-effective way to divest your enterprise of this
offering.
Efficient and effective distribution is important if the organisation is to meet

its overall marketing objectives. If an organisation underestimates a
demand and customers cannot purchase products because of it,
profitability will be affected.
Depending on the type of product being distributed, there are three

common distribution strategies available: (Table 9.1):
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1. Intensive distribution: Used commonly to distribute low priced or

impulse purchase products, e.g., chocolates, soft drinks etc.
2. Exclusive distribution: Involves limiting distribution to a single outlet.

The product is usually highly priced, and requires the intermediary to
place much detail in its sell. An example of it would be the sale of
vehicles through exclusive dealers.
3. Selective Distribution: A small number of retail outlets are chosen to

distribute the product. Selective distribution is common with products
such as computers, televisions, household appliances etc, where
consumers are willing to shop around and where manufacturers want a
large geographical spread.
If a manufacturer decides to adopt an exclusive or selective strategy, they

should select an intermediary which has experience of handling similar
products, is credible and is known by the target audience.
Table 9.1: Three Examples of Distribution Channels in Marketing
Direct to   Sell through   Sell through a VAR  

End Users a Dealer Network (Value-added
Reseller)
You have a sales team You sell a product You sell a product to a
that sells directly to through a geographical company who bundles it
Fortune 100 companies. network of dealers who with services or other
sell to end-users in their products and resells it.
areas. The dealers may
service the product as
well.
You have a second Your dealers are That company is called a

product line for small essentially your Value Added Reseller
businesses. Instead of customers, and you have (VAR) because it adds
using your sales team, a strong program to train value to your product.
you sell this line directly and support them with
to end-users through marketing campaigns
your website and and materials.
marketing campaigns.
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You have two markets A VAR may work with an

and two distribution end-user to determine
channels. the right products and
configurations, and then
implement a system that
includes your product.
Vertical Marketing Systems
Firms attempt to develop and manage integrated distribution systems in

one of the four ways: (1) a corporate VMS, which involves a vertically
integrated system; (2) a contractual VMS, which formulates agreements
spelling out a coordinated set of rights and obligations for members of the
system; (3) an administered VMS, in which one firm uses its economic
position or expertise to provide inducements for cooperation from other
members; or (4) a relational VMS, where cooperation between two or more
channel partners is based on norms of mutual trust and the expectation
that cooperation will increase the total system’s success and thereby make
all members better off in the long term.
1. Corporate VMS: In these systems, firms achieve coordination and

control through corporate ownership. In most cases, this is the result of
forward integration by a manufacturer of the functions at the wholesale
—and perhaps even the retail—levels. For example, many industrial
firms have their own salesforces, warehouses, or branch sales offices.
Backward integration occurs when a retailer or wholesaler assumes
ownership of institutions that normally precede them in their distribution
channels. Such integration is common among large supermarket chains.
The primary advantage of these systems is the tight control they provide
over personal selling, promotion, distribution, and customer service
activities. Such control is particularly important when the product is
technically complex; when specialised knowledge or facilities are needed
to sell, distribute, and/or service the product; and when few capable
independent middlemen are available. Corporate VMSs are not without
their disadvantages, which include the large capital investment required
and less flexibility than conventional systems.
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2. Contractual VMS: In such systems, independent firms at different

levels of production and distribution coordinate their programs through
contracts that spell out the rights and duties of each party. The intent is
to obtain greater economies and market impact than they could achieve
alone. Contractual VMSs have had the greatest growth of any channel
system in recent years.
3. Administered VMS: Firms using this system coordinate the necessary

activities at successive stages of distribution through the informal
guidance and influence of one of the parties (rather than through
ownership or contractual agreements). The administrator is typically the
manufacturer, but in some cases the role is performed by a large retailer
or wholesaler, such as Tesco or Wal-Mart. Usually, the administration of
such systems develops a detailed merchandising program in which the
manufacturer spells out shelf-space arrangements, a promotional
calendar, pricing policies, and guidelines for other activities to be
followed by its wholesalers and retailers.
To encourage the other members of the distribution channel to go along

with its merchandising program, the channel administrator typically
relies on its superior economic or expert power to provide incentives for
cooperation. Therefore, administered VMSs are typically designed and
managed by the most powerful member. As a result, however, the
performance outcomes that are rewarded may be more reflective of the
powerful member’s objectives than of the interests of the system as a
whole. And there is often a tendency for the administrator to use its
power to “share the pain” when economic conditions are tough but to
“hog the gain” during the good times.
4. Relational VMS: Relational VMS’s also rely on economic rewards—and

often contractual agreements, as well—to specify what is expected of
each channel member and to provide incentives for cooperation.
However, in relational systems what is expected of each partner may
change by mutual agreement as market or competitive conditions
change, and the economic incentives depend more on the long-term
market success of the entire system than on the power and largesse of
the strongest member.
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As we have seen, such relational systems or alliances are often more

effective and efficient than more traditional systems. This is largely
because of the extensive and rapid sharing of information, cost savings
resulting from better coordination of activities and less duplication of
efforts, and the cooperative search for innovative ways for the system to
gain a competitive advantage over other systems.
However, the open sharing of internal operating data and innovative

ideas for improving efficiency and sales performance requires substantial
mutual trust and long-term commitments from each partner. Trust tends
to build slowly. Thus, the partners in a relational system must typically
have some history of satisfying experiences with one another to provide
a foundation for trust and a history of mutually rewarding performance
outcomes to motivate continued commitment for the long haul.
9.4 Using Marketing Channels to Create Value for

Customers
When choosing a distribution strategy, a marketer must determine what

value a channel member adds to the firm’s products. Customers assess a
product’s value by looking at many factors including those that surround
the product (i.e., augmented product). Several surrounding features can be
directly influenced by channel members, such as customer service,
delivery, and availability. (Figure. 9.3) Consequently, for the marketer,
selecting a channel partner involves a value analysis in the same way
customers make purchase decisions. That is, the marketer must assess the
benefits received from utilising a channel partner versus the cost incurred
for using the services.
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!
Figure. 9.3
Today, marketing channel decisions are as important as the decisions

companies make about the features and prices of products. Consumers
have become more demanding. They are used to getting what they want.
If you can’t get your product to them when, where, and how they want it,
they will simply buy a competing product. In other words, how companies
sell has become as important as what they sell.
Companies strive to choose not only the best marketing channels but also
the best channel partners. A strong channel partner like Wal-mart can
promote and sell heavily a product that might not otherwise turn a profit
for its producer. In turn, Wal-Mart wants to work with strong channel
partners it can depend on to continuously provide it with great products
that fly off the shelves. By contrast, a weak channel partner, can be a
liability.
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The simplest marketing channel consists of just two parties—a producer

and a consumer. However, many other products and services pass through
multiple organisations before they get to you. These organisations are
called intermediaries (or middlemen or resellers). Companies partner with
intermediaries not because they necessarily want to (ideally they could sell
their products straight to users) but because the intermediaries can help
them sell the products better than they could working alone. In other
words, they have some sort of capabilities the producer needs; contact
with many customers or the right customers, marketing expertise, shipping
and handling capabilities, and the ability to lend the producer credit are
among the types of help a firm can get by utilising a channel partner.
Intermediaries also create efficiencies by streamlining the number of

transactions an organisation must make, each of which takes time and
costs money to conduct.
The marketing environment is always changing, so what was a great

channel or channel partner yesterday might not be a great channel partner
today. Changes in technology, production techniques, and your customer’s
needs mean you have to continually reevaluate your marketing channels
and the channel partners you ally yourself with. Moreover, when you create
a new product, you can’t assume the channels that were used in the past
are the best ones. A different channel or channel partner might be better.
Consider Microsoft’s digital encyclopedia, Encarta, which was first sold on

CD and via online subscription in the early 1990s. Encarta nearly destroyed
Encyclopedia Britannica, a firm that had dominated the print encyclopedia
business for a number of years. Ironically, Microsoft had actually tried to
partner with Encyclopedia Britannica to use its encyclopedia information to
make Encarta but was turned down. But today, Encarta no longer exists.
It’s been put out of business by the free online encyclopedia Wikipedia. The
point is that products and their marketing channels are constantly
evolving.
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Activity D
4. Why is creating value for customers considered important?

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9.5. Types of Channel Partners
The basic types of channel partners are wholesalers and retailers. In recent
years, the lines between wholesalers, retailers, and producers have begun
to blur considerably. Companies must decide how they will distribute their
products. Will they sell directly to customers (perhaps over the Internet)?
Or will they sell through an intermediary (Wholesaler or Retailer) who helps
move products from their original source to the end-user — a wholesaler or
retailer who helps move products from their original source to the end-
user? As you can see from Figure 9.4 “Distribution Channels”, various
marketing channels are available to companies.
!
Figure 9.4: Basic Distribution Channels
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Microsoft is a producer of goods, but recently it began opening up its own

retail stores to sell products to consumers, much as Apple has done. Wal-
Mart and other large retailers now produce their own store brands and sell
them to other retailers. Similarly, many producers have outsourced their
manufacturing, and although they still call themselves manufacturers, they
act more like wholesalers. Wherever organisations see an opportunity, they
are beginning to take it, regardless of their positions in marketing
channels.
Wholesalers
Wholesalers obtain large quantities of products from producers, store

them, and break them down into cases and other smaller units more
convenient for retailers to buy, a process called “breaking bulk.”
Wholesalers get their name from the fact that they resell goods “whole” to
other companies without transforming the goods. If you are trying to stock
a small electronics store, you probably don’t want to purchase a truckload
of iPods. Instead, you probably want to buy a smaller assortment of iPods
as well as other merchandise. Via wholesalers, you can get the assortment
of products you want in the quantities you want. Some wholesalers carry a
wide range of different products. Other carry narrow ranges of products.
There are many types of wholesalers. The three basic types of wholesalers
are merchant wholesalers, brokers, and manufacturers’ agents, each of
which we discuss next.
Merchant Wholesalers
Merchant wholesalers are wholesalers that take title to the goods. They are
also sometimes referred to as distributors, dealers, and jobbers. The
category includes both full-service wholesalers and limited-service
wholesalers. Full-service wholesalers perform a broad range of services for
their customers, such as stocking inventories, operating warehouses,
supplying credit to buyers, employing salespeople to assist customers, and
delivering goods to customers.
Limited-service wholesalers offer fewer services to their customers but

lower prices. They might not offer delivery services, extend their
customers’ credit, or have sales forces that actively call sellers. Cash-and-
carry wholesalers are an example. Small retailers often buy from cash-and-
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carry wholesalers to keep their prices as low as big retailers that get large
discounts because of the huge volumes of goods they buy.
Drop shippers are another type of limited-service wholesaler. Although drop

shippers take title to the goods, they don’t actually take possession of
them or handle them, often at times because they deal with goods that are
large or bulky. Instead, they earn a commission by finding sellers and
passing their orders along to producers, who then ship them directly to the
sellers. Mail-order wholesalers sell their products using catalogs instead of
sales forces and then ship the products to buyers. Truck jobbers (or truck
wholesalers) actually store products, which are often highly perishable
(e.g., fresh fish), on their trucks. The trucks make the rounds to
customers, who inspect and select the products they want straight off the
trucks.
Brokers
Brokers, or agents, don’t purchase the products they sell (take title to
them). Their role is limited to negotiating sales contracts for producers.
Clothing, furniture, food, and commodities such as lumber and steel are
often sold by brokers. They are generally paid a commission for what they
sell and are assigned to different geographical territories by the producers
with whom they work. Because they have excellent industry contacts,
brokers and agents are a “go-to” resource for both consumers and
companies trying to buy and sell products.
Manufacturers’ Sales Offices or Branches
Manufacturers’ sales offices or branches are selling units that work directly
for manufacturers. They are a type of factory outlet store. They sell
products to stores and sometimes to consumers, often at a discount.
Retailers
Retailers buy products from wholesalers, agents, or distributors and then

sell them to consumers. Retailers vary by the types of products they sell,
their sizes, the prices they charge, the level of service they provide
consumers, and the convenience or speed they offer. You are familiar with
many of these types of retailers because you have purchased products
from them.
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Supermarkets, or grocery stores, are self-service retailers that provide a

full range of food products to consumers as well as some household
products. Supermarkets can be high, medium, or low range in terms of the
prices they charge and the service and variety of products they offer.
Drugstores specialise in selling over-the-counter medications,

prescriptions, and health and beauty products and offer services such as
photo developing.
Convenience stores are miniature supermarkets. Many of them sell

gasoline and are open twenty-four hours a day. Often they are located on
corners, making it easy and fast for consumers to get in and out.
Specialty stores sell a certain type of product, but they usually carry a
deep line of it. Tanishq, which sells jewelery, and Hafele which sells an
array of kitchen and cooking-related products, are examples of specialty
stores. The personnel who work in specialty stores are usually
knowledgeable and often provide customers with a high level of service.
Specialty stores vary by size. Many are small.
However, in recent years, giant specialty stores called category killers have
emerged. A category killer sells a high volume of a particular type of
product and, in doing so, dominates the competition, or “category.”
Reliance Digital is a category killer in the electronics-product market.
Department stores, by contrast, carry a wide variety of household and

personal types of merchandise such as clothing and jewelery. Many are
chain stores. The prices department stores charge range widely, as does
the level of service shoppers receive. Akbarally’s sell extensive products
and offer extensive personal service to customers.
Superstores and Malls are oversized department stores that carry a

broad array of general merchandise as well as groceries, e.g., Big Bazaar,
D’Mart, Haiku’s, etc. Banks, hair and nail salons, and restaurants such as
Starbucks are often located within these stores for the convenience of
shoppers. Superstores are also referred to as hypermarkets and
supercenters.
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Warehouse clubs are supercenters that sell products at a discount. They

require people who shop with them to become members by paying an
annual fee.
Off-price retailers are stores that sell a variety of discount merchandise

that consists of seconds, overruns, and the previous season’s stock other
stores have liquidated.
A new type of retail store that turned up in the last few years is the pop-up
store. Pop-up stores are small temporary stores. They can be kiosks or
temporarily occupy unused retail space. The goal is to create excitement
and “buzz” for a retailer that then drives customers to their regular stores.
Nokia, LIC Insurance, Aquaguard etc.
Marketing channel decisions are as important as the decisions companies

make about the features and prices of products. Channel partners are firms
that actively promote and sell a product as it travels through its channel to
its user. Companies try to choose the best channels and channel partners
to help them sell products because in doing so it can give them a
competitive advantage.
Benefits Offered by Channel Members
1. Cost Savings in Specialisation: Members of the distribution channel

are specialists in what they do and can often perform tasks better and
at lower cost than companies who do not have distribution experience.
Marketers attempting to handle too many aspects of distribution may
end up exhausting company resources as they learn how to distribute,
resulting in the company being “a jack of all trades but master of none.”
2. Reduce Exchange Time: Not only are channel members able to reduce
distribution costs by being experienced at what they do, they often
perform their job more rapidly resulting in faster product delivery. The
wholesaler will distribute to the store in the quantities the store needs,
on a schedule that works for the store, and often in a single truck, all of
which speeds up the time it takes to get the product on the store’s
shelves.
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3. Customers want to Conveniently Shop for Variety: Marketers have

to understand what customers want in their shopping experience.
Shopping is time-consuming, but consider what would happen if
customers had to visit multiple retailers each week to satisfy their
grocery needs.
4. Resellers Sell Smaller Quantities: Not only do resellers allow

customers to purchase products from a variety of suppliers, they also
allow customers to purchase in quantities that work for them. The
ability of intermediaries to purchase large quantities but to resell them
in smaller quantities (bulk breaking) not only makes these products
available to those wanting smaller quantities but the reseller is able to
pass along to their customers a significant portion of the cost savings
gained by purchasing in large volume.
5. Create Sales: In some cases, resellers perform an active selling role

using persuasive techniques to encourage customers to purchase a
marketer’s product. In other cases, they encourage sales of the product
through their own advertising efforts and using other promotional
means such as special product displays.
6. Offer Financial Support: Resellers often provide programs that enable

customers to more easily purchase products by offering easy payment
options. These options include allowing customers to: purchase on
credit; purchase using a payment plan; delay the start of payments;
and allowing trade-in or exchange options.
7. Provide Information: Companies utilising resellers for selling their

products depend on distributors to provide information that can help
improve the product. High-level intermediaries may offer their suppliers
real-time access to sales data including information showing how
products are selling by such characteristics as geographic location, type
of customer, and product location. Marketers can often count on
resellers to provide feedback as to how customers are responding to
products.
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Activity E
5. Why do you think big companies like Apple and Microsoft turn retailers?
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9.6 Distribution Today—Challenge and Opportunity
The constantly evolving landscape surrounding the distribution industry is

providing more and more variables and challenges for an organisation’s
supply chain. With online and mobile orders on a steady rise, companies
need fresh ways to meet these multiple channels of distribution while
keeping costs under control. The essence of this change stems from the
modern ways for a customer to submit an order. It can be via smartphone,
laptop or even the good old call center. These orders are also expected to
be able to be delivered to a variety of places; homes, offices, etc. All of
these new obligations are creating challenges that organisations are
learning to overcome.
One thing is certain, multi-channel fulfilment has become the way of the
present. These trends predict that these new avenues of distribution are
not only here to stay, but will continue to grow.
In the retail sector, the evolution of the seamless multi-channel approach

across all sectors is a huge priority for most organisations. Consumers
want and expect online shopping options. Additionally, the consumer wants
to use the various shopping channels (mobile, computer, tablets, TV, direct
mail, catalogue, etc.), and they expect the product information to be
streamlined and uniform; regardless of the channel being used. This
creates a more knowledgeable buyer, and it places enormous pressure on
the retailers and distribution companies to reformulate their supply chain
strategies in order to match this monumental shift in consumer demand.
Supply chain executives in the retail industry have been debating

strategies for managing and integrating distinct order taking and fulfilment
processes. In the retail industry, a majority of companies offer and support
multiple distribution channels.
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With this new shift in the multi-channel process, there really is no “one-
size-fits-all” approach to tackling the challenges of implementation. Many
retailers and distribution centers are taking a variety of approaches. Some
are making new investments into software or automated materials
handling systems, while others are combining processes together into one
multi-channel distribution center. Regardless of the approach, all of these
strategies are focused on reducing costs, improving throughput, and
maintaining customer satisfaction.
Transitioning to the multi-channel approach presents a multitude of

challenges for retailers and distribution centers alike. The main problems
largely stem from process flow and inventory management issues. A
channel design process that follows sound design principles is needed to
identify and select among the myriad of channel alternatives. (Figure 9.5)
Ultimately, a channel strategy is a series of trade-offs and compromises
that align the company’s resources with what it should do to satisfy its
target customers and stay ahead of competitors. Defining and establishing
a roadmap and examining resources, and adopting proficient technology
applications are a few of the areas that need immediate attention.
Furthermore, labour, transportation expenses, and expediting orders all
contribute to the escalating cost in the order fulfilment process.
!
Figure 9.5: Multiple Channels
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The main focus for distribution centers going forward will be to find ways to
accurately and effectively handle more orders and, at the same time, lower
costs. The key areas of expense are transportation, labour and materials.
The challenges that come along with today’s multi-channel distribution

demands are also considerable opportunities for manufacturers, retailers
and distribution centers alike. The ability to make your product available to
as many customers as often as possible, coupled in a way to accurately
and efficiently deliver it to them is a pronounced opportunity for every link
in the supply chain.
The nature of rural emerging markets makes building a successful

marketing channel challenging. The population is widely dispersed,
transportation infrastructure is poor or non-existent, household incomes
are low and sporadic, and traditional methods of creating brand trust and
awareness will not work.
Channel Power
Strong channel partners often wield what’s called channel power and are
referred to as channel leaders, or channel captains. In the past, big
manufacturers like Procter & Gamble and Dell were often channel captains.
But that is changing. More often today, big retailers like Wal-Mart and
Target are commanding more channel power. They have millions of
customers and are bombarded with products wholesalers and
manufacturers want them to sell. As a result, these retailers increasingly
are able to call the shots. In other words, they get what they want.
Consumers are gaining marketing channel power, too. Regardless of what

one manufacturer produces or what a local retailer has available,
consumers can use the Internet to find whatever product they want at the
best price available and have it delivered when, where, and how they want.
Channel Conflict
A dispute among channel members is called a channel conflict. Channel

conflicts are common. Part of the reason for this is that each channel
member has its own goals, which are unlike those of any other channel
member. The relationship among them is not unlike the relationship
between you and your boss (assuming you have a job). Both of you want
! !337
to serve your organisation’s customers well. However, your goals are

different. Your boss might want you to work on the weekend, but you
might not want to because you need to study for a Monday test.
All channel members want to have low inventory levels but immediate
access to more products. Who should bear the cost of holding the
inventory? What if consumers don’t purchase the products? Can they be
returned to other channel members, or is the organisation in possession of
the products responsible for disposing of them? Channel members try to
spell out details such as these in their contracts.
No matter how “airtight” their contracts are, there will still be points of
contention among channel members. Channel members are constantly
asking their partners, “What have you done (or not done) for me lately?”
Wholesalers and retailers frequently lament that the manufacturers they
work with aren’t doing more to promote their products—for example,
distributing coupons for them, running TV ads, and so forth—so they will
move off store shelves more quickly.
Meanwhile, manufacturers want to know why wholesalers aren’t selling

their products faster and why retailers are placing them at the bottom of
shelves where they are hard to see. Apple opened its own retail stores
around the country, in part because it didn’t like how its products were
being displayed and sold in other companies’ stores.
Channel conflicts can also occur when manufacturers sell their products
online. When they do, wholesalers and retailers often feel like they are
competing for the same customers when they shouldn’t have to. Likewise,
manufacturers often feel slighted when retailers dedicate more shelf space
to their own store brands. Store brands are products retailers produce
themselves or pay manufacturers to produce for them. “Premium” is D-
Mart’s store brand for example. Because a retailer doesn’t have to promote
its store brands to get them on its own shelves like a “regular”
manufacturer would, store brands are often priced more cheaply. And some
retailers sell their store brands to other retailers, creating competition for
manufacturers.
Channel leaders like Big Bazaar usually have a great deal of say when it
comes to how channel conflicts are handled, which is to say that they
usually get what they want. But even the most powerful channel leaders
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strive for cooperation. A manufacturer with channel power still needs good
retailers to sell its products; a retailer with channel power still needs good
suppliers from which to buy products. One member of a channel can’t
squeeze all the profits out of the other channel members and still hope to
function well. Moreover, because each of the channel partners is
responsible for promoting a product through its channel, to some extent
they are all in the same boat. Each one of them has a vested interest in
promoting the product, and the success or failure of any one of them can
affect that of the others.
Channel Integration: Vertical and Horizontal Marketing Systems
Another way to foster cooperation in a channel is to establish a vertical

marketing system. In a vertical marketing system, channel members
formally agree to closely cooperate with one another. (You have probably
heard the saying, “If you can’t beat ’em, join ’em.”) A vertical marketing
system can also be created by one channel member taking over the
functions of another member.
Procter & Gamble (P&G) has traditionally been a manufacturer of

household products, not a retailer of them. But the company’s long-term
strategy is to compete in every personal care channel, including salons,
where the men’s business is underdeveloped. In 2009, P&G purchased The
Art of Shaving, a seller of pricey men’s shaving products located in upscale
shopping malls. P&G also runs retail boutiques around the globe that sell
its prestigious SK-II skin-care line.
Franchises are another type of vertical marketing system. They are used
not only to lessen channel conflicts but also to penetrate markets. Recall
that a franchise gives a person or group the right to market a company’s
goods or services within a certain territory or location. McDonald’s sells
meat, bread, ice cream, and other products to its franchises, along with the
right to own and operate the stores. And each of the owners of the stores
signs a contract with McDonald’s agreeing to do business in a certain way.
By contrast, in a conventional marketing system, the channel members

have no affiliation with one another. All the members operate
independently. If the sale or the purchase of a product seems like a good
deal at the time, an organisation pursues it. But there is no expectation
! !339
among the channel members that they have to work with one another in
the future.
Activity F
6. What possible benefits related to distribution can intermediaries offer a

manufacturer?
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Case Study
For a company entering a rural emerging market, whose FMCG products

will likely have less immediate demand, Colgate took a hub and spoke
model* approach while determining how to best reach small villages in
rural India with its oral care products. The company had experimented with
stocking retailers in very small villages, but found that its traditional sales
force-driven model was not economically feasible in geographically
dispersed villages with low levels of demand. Colgate decided to hire local
entrepreneurial youth to distribute its products in villages and at weekly
markets called haats. The youth bought Colgate products with cash from a
local distributor, and then biked within a 10 kilometer radius selling the
products to villagers. Although Colgate paid the youth a small stipend, they
received less margin than a professional sales person would have and they
reduced Colgate’s inventory costs.
*In the early 1970s, Wal-Mart became one of the first retailing companies
in the world to centralise its distribution system, pioneering the retail hub-
and-spoke system. Under the system, goods were centrally ordered,
assembled at a massive warehouse, known as ‘distribution center’ (hub),
from where they were dispatched to the individual stores (spoke).
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9.7 Summary
Firms that invest in superb distribution operations can strongly influence

their performance-reducing cost, increasing revenues and raising customer
satisfaction. Today, the distribution facilities are fully linked to the supply
chain. It serves a strategic role as a transfer point of both product and
information as well as a vehicle to provide value-added services.
Depending on customer needs, distribution facilities are required to fulfill
various roles in the supply chain.
Distribution optimisation is therefore the key to competing in new markets

or regions, reaching customers where they prefer to buy, and achieving
both goals profitably. However, most distribution management efforts are
either misunderstood or mismanaged due to one or more factors—
hindering success, rather than fueling growth.
Study Questions
1. Explain why marketing channel decisions can result in the success or

failure of products.
2. How do companies add value to products via their marketing channels?
3. Describe the different types of organisations that work together as

channel partners and mention in short what each does.
4. For any agricultural product of your choice, discuss the factors which
have to be considered in the choice of a channel of distribution.
5. Discuss the role of the middleman between producer and end-consumer.
6. Specify the different ways in which products reach their end-user

market.
7. What are the keys to establishing good relations with customers to

deliver value?
8. What are the key elements of a distribution strategy?
! !341
1. Match the terms to the definitions
(i) Refusal to deal (a)The purchaser is forced to buy other

products in the range
(ii) Tying contract (b) One channel member refuses to

do business with another
(iii) Exclusive dealing (c) Intermediaries are prevented
from selling outside a given area
(iv) Restricted sales territories (d) Intermediaries are prevented from

carrying competing products, or
Retailers insist that suppliers do not
supply anyone else
2. According to the text, which of the following is an element needed for a

successful marketing channel?
(a)Flexibility
(b)Connected systems
(c)Pooled resources
(d)Collective goals
3. Manufacturers are having a selling orientation. Which of the following

statements is Sameer most likely to have overheard while he
eavesdropped on a group of manufacturers discussing business?
(a)‘I am trying to develop long-term relationships with my retailers.’

(b)‘The cost of managing my inventory is going to drive me to
bankruptcy.’
(c)‘Distribution – getting it from Point A to Point B – that’s the only thing
I worry about it.’
(d)‘If you want to be a success, focus on the customer.’
 
! !342
4. Caterpillar (famous for earth-moving equipment) has a powerful

partnership with its dealers. Which of the following is one of the basic
principles upon which this successful partnership is built?
(a)The Internet
(b)Advertising
(c)Dealer profitability
(d)Global networks
5. Most producers use _________ to bring their products to market.
(a)Detailers
(b)Intermediaries
(c)Expediters
(d)Agents
6. All of the following are reasons companies use third-part logistics

provider EXCEPT: (Pick the least likely.)
(a)These providers accept low profit margins willingly.

(b)These providers can often get products to market more efficiently
and at a lower cost.
(c)Outsourcing frees a company to focus more intensely on its core
business.
(d)Integrated logistics companies understand increasingly complex
logistics environments.
7. A distribution channel is described as being a set of interdependent

organisations involved in the process of making a product or service
available for use or consumption by the consumer or business user.
(a)True
(b)False
 
! !343
8. Intermediaries have some sort of capabilities the producer needs:

(i)Contact with many customers or the right customers,
(ii)Marketing expertise, shipping and handling capabilities,
(iii)Absorb some of the overhead costs
(iv)The ability to lend the producer credit
(a)(i), (ii), (iv)

(b)(ii), (iii), (iv)
(c)(i), (iii), (iv)
(d)(i), (ii), (iii)
Answers:
1. (i) (b), (ii) (a), (iii) (d), (iv) (c), 2. (d), 3. (d), 4.(c), 5. (b), 6. (a), 7.
(a), 8.(a).
! !344
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !345
CUSTOMER-CENTRIC TRANSFORMATION – THE BLUEPRINT TO EXECUTION AND PROFITABILITY
Chapter 10
Customer-Centric Transformation – The
Blueprint To Execution And Profitability
Objectives
• Analyse the impact of customer-centricity on revenues, profitability,

growth and loyalty
• Customer Relationship Strategies
• The Strategy Locator
• Increase customer satisfaction by understanding and addressing
customer needs rapidly and efficiently and by delivering value
propositions that competitors cannot match
• Identify, measure and make the most of all customer channels for long-
term profitability
• Guide the development of new products and services by making the
customer the focus
Structure:
10.1 The Myths of Transformation

10.2 Analyse the Impact of Customer-centricity on Revenues, Profitability,
Growth and Loyalty
10.3 Customer Relationship Strategies
10.4 The Strategy Locator
10.5 Increase Customer Satisfaction
10.6 Identify, and Measure All Customer Channels for Long-term
Profitability
10.7 Making the Customer the Focus of Innovation
10.8 Summary
! !346
Introduction
Companies that have aligned their businesses to get, keep, and grow
customers have weathered many economic turmoil’s. Couple this with the
fact that the industry has shifted from a supply-driven market, where the
focus is on maximising the value created by each product, to a demand-
driven market, which focuses on maximising the value of each customer
relationship. The connection between customer-centricity and economic
strength is no coincidence. The focus is on building relationships with
existing customers through customer-focused operating models. Done
right, they will increase revenue while decreasing costs, creating
sustainable growth.
To achieve a sustainable and constantly improving profitability, a

company’s products and services should evolve to cater for its customer
and take market share from its competition. At the end of the day,
increasing profitability means better market penetration and positioning.
This can be achieved by addressing customer needs starting from product
or service design and most importantly when providing customer support
services. Any new products and services should be designed to ensure that
it is better than the competition not only in pricing but also on how
customers will experience the product and the services. The question is
how can you offer a value proposition that competitors cannot match? For
most of us that unmatched value preposition is the Holy Grail.
10.1 Customer-Centric Transformation
Did you know that only 30 per cent of transformation efforts are
successful?
Adopting a customer-centric business strategy requires a carefully planned

and executed organisational transformation. That kind of change alone is
difficult enough without the added pressure of unfounded fears and flawed
assumptions. A 2016 Merkle study, in partnership with Adobe, revealed
several truths that run counter to commonly held beliefs about what is
required to successfully implement people-based marketing across the
enterprise.
! !347
Our research findings, combined with more than 25 years of experience

helping clients place their customers at the center of their business
strategy, will help you build the case for change by providing you with key
data points to support your initiative. Our new report dispels some of the
common myths about transformation – misconceptions that can lead
marketers down the wrong path by instilling either excess confidence or
unnecessary fear.
“Don’t think there is a better time than right now to be in marketing.

Marketers can achieve more for their companies today than they’ve ever
been able to achieve in the past. The ability to do that and to show that
you can produce incremental production and incremental revenue for your
company is an imperative.”
The Myths of Transformation
A. “We don’t need to waste time (and money) on planning. We know what
we want to do.”
B. “Getting the technology right will be the hardest part.”
C. “To make this initiative worthwhile, we need to go big.”
D. “It will be simpler to get this done by keeping the team small.”
E. “We’re all set. Our executives are aligned with the plan.”
F. “We’re a smart group, we can do this ourselves.”
The Myths
Myth # 1: “We don’t need to waste time (and money) on planning.

We know what we want to do.”
Shortcuts can be dangerous in a customer-centric transformation initiative.

Invest in the time and resources required for up-front planning and
roadmap development. Set budgets, roles and responsibilities, and
measurement benchmarks.
Myth # 2: “Getting the technology right will be the hardest part.”
While the critical technology aspects of customer-centric marketing are

complicated, expensive, and ever-evolving, it turns out the most difficult
challenges to conquer are the people-related factors. Lack of leadership
and organizational adoption will ultimately sink the initiative.
! !348
Myth # 3: “To make this initiative worthwhile, we need to go big.”
It is important to see results quickly and build momentum toward the

desired state, but if your scope is too ambitious, the change can be
overwhelming and result in a breakdown. Learn from failures along the way
and be nimble enough to make adjustments to optimise the payoff.
Myth # 4: “It will be simpler to get this done by keeping the team
small.”
For transformation projects to succeed, they must span organisational

functions, channels, and product lines. Disparate teams must put aside
competing objectives and work in an integrated fashion toward common,
measurable goals.
Myth # 5: “We’re all set. Our executives are aligned with the plan.”
The philosophies of a customer-centric approach are so compelling; it is

easy to gain executive support for the idea. The challenge is in the
commitment of leadership, time, money, and other resources that make
the transformation a reality. Move from permission to sponsorship.
Myth # 6: “We’re a smart group, we can do this ourselves.”
The most dramatic difference between the ultimate success and failure of a
transformation initiative is its likelihood of having a team with the right skill
set. Find the right combination of in-house capabilities and outside service
providers with deep expertise in the most complex and revolutionary
competencies.
! !349
10.2 Analyse The Impact Of Customer-Centricity On

Revenues,Profitability, Growth And Loyalty
Only by establishing economics of customer experience metrics will

organisations establish a direct link from the experience to revenue,
profitability and growth. Intensifying competition and growing customer
expectations have made it increasingly difficult in recent years for
companies to keep their customers and do it profitably.
Companies need to the determine direction through goals, objectives,

values and mission. They define the criteria for selecting an organisational
structure. The strategy defines the ways of making the best trade-off
between alternatives. (Figure 10.1).
!
Figure 10.1: Strategic Planning Model
! !350
With customer-oriented measurements will companies be able to justify the

investment in customer-centric strategies and related customer experience
initiatives.
To survive and even thrive in today’s difficult economic environment, many

organizations should take a fresh look at their strategies and methods for
retaining customers—and if necessary renew their commitment to
customer-centricity. The threat of declining customer revenues and
defection is real and must be addressed—at the same time, however, the
economic climate creates new opportunities to strengthen market position
and position for growth by building customer trust, providing meaningful
brand differentiation, tailoring offers in light of new customer needs and, if
appropriate, negotiating new terms.
As customers grow more price-sensitive in response to current economic

conditions, and aggressive rivals gear up to lure them away, companies
must ensure that they tailor the entire customer experience by brand
awareness to create a lasting perception among them that differentiates
their products from the competition.
Activity A
1. How can companies transform themselves by their own experiences?

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a. Begin at the Beginning. The factors that create and influence

customer loyalty begin to take effect even before a customer becomes a
customer. The relationship a customer develops with the brand during
the acquisition stage strongly influences customer value and retention.
b. Recognize Every Kind of Loyalty. Loyalty is not necessarily an

emotional connection to the brand. Companies need to recognise,
develop and manage more than one kind of customer loyalty:
conditional, emotional and passive using more than one kind of
strategy.
! !351
c. Know What to Look For. Most companies know a lot about their
customers, and comparatively little about the factors influencing
acquisition and retention. Achieving high performance in customer
retention means aligning activities throughout the relationship life cycle
—including acquisition.
d. Know What to Measure. Establishing and managing cross-functional

key performance indicators throughout the customer life cycle helps
prevent the loss of current and potential customer value.
e. View the Entire Value Chain. Analysis and decisions concerning such
factors as offers, sales incentives, pricing, service delivery—all
dimensions of the customer experience—should include all the trading
partners who contribute to the customer experience.
f. Manage Complexity. Providers must retain the ability to react quickly

to changing customer needs and market conditions.
Activity B
2. How can companies influence customers to be loyal to their brands?

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10.3 Customer Relationship Strategies
CRM is a strategic approach that is concerned with creating improved

shareholder value through the development of appropriate relationships
with key customers and customer segments. CRM unites the potential of
relationship marketing strategies and IT to create profitable, long-term
relationships with customers and other key stakeholders. It involves
identifying all strategic processes that take place between an enterprise
and its customers.
Best-practice companies do not first adopt a CRM technology solution and

then build their CRM initiatives around it. Rather, they develop a more
balanced approach to conceiving and implementing CRM strategic
capabilities. There are four main CRM strategic capabilities:
! !352
• Technology: The technology that supports CRM.
• People: The skills, abilities and attitudes of the people who manage
CRM.
• Process: The processes companies use to access and interact with their
customers in the pursuit of new value and mutual satisfaction.
• Knowledge and insight: The approaches the company uses to add

value to customer data so that they acquire the knowledge and insight
needed to deepen the relationships that matter.
Strategy Development Process
This process requires a dual focus on the organisation’s business strategy

and its customer strategy. How well the two interrelate fundamentally
affects the success of its CRM strategy.
Business Strategy
The business strategy must be considered first to determine how the

customer strategy should be developed and how it should evolve over
time. The business strategy process can commence with a review or
articulation of a company’s vision, especially as it relates to CRM. This
conceptual framework illustrates the interactive set of strategic processes
that commences with a detailed review of an organisation’s strategy and
concludes with an improvement in business results and increased share
value. The concept that competitive advantage stems from the creation of
value for the customer and for the business.
For large companies, CRM activity will involve collecting and intelligently
using customer and other relevant data to build a consistently superior
customer experience and enduring customer relationships.
! !353
Customer Strategy
Whereas business strategy is usually the responsibility of the chief

executive officer, the board, and the strategy director, customer strategy is
typically the responsibility of the marketing department. Although CRM
requires a cross-functional approach, it is often vested in functionally based
roles, including IT and marketing. When different departments are involved
in the two areas of strategy development, special emphasis should be
placed on the alignment and integration of business strategy.
Customer strategy involves examining the existing and potential customer

base and identifying which forms of segmentation are most appropriate.
In summary, the strategy development process involves a detailed

assessment of business strategy and the development of an appropriate
customer strategy. This should provide the enterprise with a clearer
platform on which to develop and implement its CRM activities.
Example: Giving Away Free Food as a Marketing Trick
The owner of the Macaroni Grill decided to use the entire marketing
budget to start a new marketing trick: once every month, on a not
communicated night, they would give away every meal for free.
This creates many extra customers that hope it’s their ‘lucky night’, and
at the same time, the atmosphere in the restaurant holds a good
competitive excitement. This action made the customers of Macaroni Grill
the ideal advertising channel. It gave the company a huge growth boost.
!
Activity C
3. In what way can business and customer strategies enhance the CRM
experience for the customers?
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! !354
10.4 The Strategy Locator
Of utmost importance to the company is the level of customer-centricity

that should be implemented. Too little or too much could prove significantly
counterproductive, so ascertaining the proper level is key.
The following lists have been compiled to help determine the level—low,
medium, or high—that will give the corporation or division optimal
performance. (Figure 10.2). After locating the company on each of the lists
for scale and scope and for integration, the location needs to be picked on
the list that best describes the offerings of the company or division.
Step 1: Scale and Scope List: The number of products and the number
of different kinds of products that are combined into a solution
1. My company has two to five similar products or services to sell to the

same customer
2. We offer five to ten mostly products and services to sell to the same
customer
3. We have ten to fifteen products or services of different types to sell to

the same customer
4. We have fifteen to twenty variegated products or services to sell to the

same customer
5. We have more than twenty products or services of various different

types to sell to the same customer
Step 2: Integration List: The degree of integration between the

components that comprise a solution
1. My company provides stand-alone products to the same customer with

common invoice and billing (“one-stop shopping”).
2. My Company has a set of minimally connected stand-alone products

(like a common brand, common experience, and combined shipment)
! !355
3. My company has minimally packaged (themed) components that need

to work together for customer segments .
4. We have integrated components of products and services that need to

work tightly together as a system.
5. We have very tightly integrated packages/bundles/full solutions of

products and services to offer the customer.
Add your score from step 1 and 2 and plot this in the customer-centric
strategy locator below. If the total from both lists is one to three, then the
company will benefit most from the information for the light-level
implementation of the customer-centric application.
Locations on the two lists totalling four to seven would require the mid-
level implementation of the application.
A total of eight to ten means that the corporation will gain most benefit
from full, strong-level implementation of customer-centricity. Scale and
Scope Stand-Alone Product 012345678910 Low Medium High
!
Figure 10.2: Level of Customer-Centricity
! !356
Activity D
4. What is the significance of the strategic locator graph shown above?

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10.5 Increase Customer Satisfaction
Great customer experiences produce great business results. Look at

companies such as Apple, American Express, Philips and Allianz. Different
industries, different business models. But they have one thing in common
—large and growing groups of passionate customer advocates, earned by
delivering an experience competitors can’t match. That, more than
anything else, is why these companies lead their industries in profitable
organic growth.
It’s a long, hard road, especially for companies that have neglected their
customers. Turning that around requires energy and resources, and it takes
time. Three fundamental insights that can help you get there:
1. Understand loyalty economics. The logic that connects customer

experience to bottom-line results is simple. If people love doing
business with you, they become promoters. Promoters are the
customers that every company wants more of. They’re less likely to
defect. They buy more products and services over time. They sing your
praises to friends, colleagues and complete strangers over social
networks, in online reviews, through blogs and in every conceivable
channel. They cost less to serve, and they provide constructive
feedback.
2. View the experience from the outside in. Many companies define
the customer experience from the inside out. When they try to improve
the experience, they look at each of the individual functions that affect
the experience—marketing, customer service and so on. Leaders turn
this approach on its head.
! !357
They see that series of interactions from the outside-in, examine the
experience from the customer’s point of view, and they use that
perspective to make improvements and manage the experience.
3. Design and deliver. The starting point is identifying and studying your
most profitable customer segments, then determining the economics of
promoters and critics within those segments. That allows the company
to propose and evaluate potential customers in improving their
experience.
The next step is to implement the changes to put systems in place so that
things work right every time and customers get the feeling, “Wow, they’re
really taking good care of me.”
Tata Motors is committed to attain leadership through business excellence

in the car sector while upholding values and integrity to improve the
quality of life of the communities Tata Motors serves.
Meeting the highest quality standards and customer’s needs in India, Tata
Motors Company offers high quality automobiles. Their aim in developing
their products is to be Indian leaders in value and satisfaction. Quality has
been an elusive concept in automotive industry. It is the totality of features
and characteristics of a product or service that bears on its ability to satisfy
given needs. If a product fulfils the customer’s expectations, the customer
will be pleased and consider that the product is of acceptable or even high
quality. While studies on the way in which quality affects customer
satisfaction have been going for more than two decades, most of the
research on how quality affect satisfaction and loyalty in the past has
focused largely in pure product or pure service settings.
Some of product quality criteria in automotive industry includes:
(a) Safety, comfortable and air pollution

(b) Ergonomics requirements (working distance, clearance, weight)
(c) Product design
(d) Functional qualities, such as output or kilometer per liter
! !358
Activity E
5. In what way Tata Motors delivers value to its customers?

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10.6 Identify And Measure All Customer Channels For

Long-Term Profitability
Managing profitability in the innovation stage requires not only a customer-

centric focus but also a thorough understanding and effective management
of customer profitability. Customer profitability management (CPM) is a
strategy-linked approach to identifying the relative profitability of different
customers or customer segments in order to devise strategies that add
value to most-profitable customers, make less-profitable customers more
profitable, stop or reduce the erosion of profit by unprofitable customers,
or otherwise focus on long-term customer profitability. (Figure 10.3).
Companies that implement CPM systems are able to see which customers
contribute to profits, which customers do not contribute to profits, and
which customers erode profits.
! !359
!
Figure 10.3
A CPM system also assigns net revenue to each customer or customer

segment. The resulting profit is identified with each customer or customer
segment. As can be expected, customer-related costs are more
problematic to trace or assign than customer-related revenues.
Key Factors Driving Profitability
During the innovation stage, the objective was to creatively generate new
sources for capturing intelligence from customers and creating insight that
could enhance the way we communicate and sell to customers.
As you learn more from customers about their needs and preferences, you
have the opportunity to better target your marketing messages, offers and
channels, which ultimately leads to reduced marketing expenses and
increased conversion rates.
The key factors that will drive the profitability of customer insight initiatives
include these: Table 10.1.
! !360
a. Reaching high-value customers and prospects
b. Capturing intelligence on a critical mass of customers to justify the fixed

costs of setting up and managing the program
c. Generating incremental profits from increased sales to new customers,

higher customer retention, selling more to existing customers or
winning back lost customers
d. Reducing costs of delivering solutions and servicing customers
e. Capturing intelligence cost-effectively
f. Building the ability to influence customer profitability over time
A real-time operational customer profitability data helps achieve real-time

operational control. There are some basic checks that should be in place to
ensure that your data is good enough.
1. First and foremost, it should be complete — all of the customers

(that you are interested in) and all of their transaction, balances or
other statistics that will be used as “drivers” (independent variables) in
calculations should be present and refreshed reliably in the data. Equally
important is to ensure that the relationship between customers and
their business activity is complete.
2. Secondly, it should be accurate - values you wish to rely on should

be balanced to authoritative sources to ensure that they reasonably
reflect the business.
3. Third, the data you are going to use must be valid — not full of
blanks, nulls, zeros or odd values that don’t make sense.
4. Finally, the data must be presented consistently, for example, date

formats and number formats from different systems need to made
consistent.
! !361
Activity F
6. What are the considerations to judge customers as “profitable”?

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Table 10.1: Key Factors that Drive Profitability

Method Brief Description What’s Next
1. Customer Identify the most satisfied Build voice of the customer

Satisfaction customers. research into the customer
Research relationship development
process to track what people
DO, not just what they SAY.
Calibrate what they DO with
what they SAY.
2. Net Identify those who promote Track recommendations and

Promoter Score or recommend your results; correlation to profit
company. patterns. Build Voice of the
Customer relationship
development process to track
what people DO, not just
what they SAY.
3. Recency, Data mine for those who Improve upon predictive

Frequency, bought most recently, most modeling by adding to real-
Monetary frequency, and who make time operational data to
(RFM) the largest purchases. historical data.
Transactional
Analysis
4. Customer Calculate CLV, the potential Link CLV to profit, not just
Lifetime Value future profits expected from cash flow, in planning. Link
(CLV) customers. Link either to CLV to the customer
attitude and perception relationship development
research or to cash flow. process and what people DO,
not just what they SAY in
strategy execution. (See brief
description of next method
for another new approach.)
! !362
5. CLV to Compare customers’ Track customer relationship

Contribution to anticipated CLV or metrics and patterns to see
Profit to Date contribution to profit to their what customer interactions
Matrix actual contribution in real lead to success or disaster to
time. (See brief description iteratively improve the
of next method for how to process.
calculate contribution to
profit.)
6. Profitable Correlate the most profitable Make ABC even more robust
Customers to customers with the most by expanding the use of
profitable profitable products in terms variable costs from cost-to-
Products Matrix of total contribution to profit serve to include cost-to-
Analysis using Activity-Based Costing acquire as well. Update
(ABC) and then identifying variable costs tied to
those with the highest individual customers as
potential for high-profit strategy is executed.
growth.
7. Activity- Compare profitable and Make ABC even more robust

Based Costing unprofitable customers with by expanding the use of
(ABC) to those targeted and those not variable costs from cost-to-
Balanced targeted. serve to include cost-to-
Scorecard acquire as well. Update
Matrix variable costs tied to
individual customers as
strategy is executed.
1. Customer Satisfaction Research: Many companies start by focusing

on customers most likely to become or who already are extremely
satisfied customers. Extremely satisfied customers are more likely to be
repeat customers, increase the amount they purchase and purchase
new offerings more easily, eliminating the cost of Acquisition and
lowering the cost of Closing. They are also more likely to refer new
customers, again lowering Acquisition costs.
2. Net Promoter Score (NPS): Another way of segmenting for

profitability is by segmenting the customers who will promote your
business and give your business a recommendation of 9 or 10 on a scale
of 0 to 10.
! !363
In this way, you can measure your success by how many customers like
these you increase. Profits from customers like these are “good” profits.
Profits from customers who are not inclined to give you a score of at
least 7 out of 10 in recommendation are “bad” profits. The Net Promoter
Score which subtracts the percentage of customers who lessen (those
who would give a recommendation score of 0 to 6) from those that
promote (those who would give a recommendation of 9 to 10) to signify
a company’s growth potential based on the strength of its relationships.
3. Recency, Frequency, Monetary (RFM) Transactional Analysis:

RFM transactional analysis—of those who bought most recently, most
frequently, and who make the largest purchases—has been considered a
best practice to measure the share-of-wallet and predict future profits.
But according to research, Customer Lifetime Value (CLV) is proving to
be more effective than other methods for predicting future profits from
customers, including RFM, despite the fact that CLV is estimated and
RFM is based on past transactions. (See next method.)
4. Customer Lifetime Value (CLV): A key performance indicator for

sales and marketing should be whether there is an increase in CLV
expected for the business, one period over another. To bypass the
difficulties most have had in measuring CLV based on profit, and Don
Peppers now suggest a metric they call Return on Customer, which is
based on cash flow in measuring Customer Equity, defined as the Net
Present Value (NPV) of all cash flows expected over a customer lifetime.
NPV calculations consider the risk and the cost of money in the future.
5. CLV to Contribution to Profit to Date Matrix: Compare customers

anticipated CLV or contribution to profit to their actual contribution in
real time to see what customer interactions lead to success or failure.
6. Activity-Based Costing: Activity-based costing (ABC) assigns

manufacturing overhead costs to products in a more logical manner
than the traditional approach of simply allocating costs on the basis of
machine hours. Activity-based costing first assigns costs to the activities
that are the real cause of the overhead. It then assigns the cost of those
activities only to the products that are actually demanding the activities.
(Figure 10.4).
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!
Figure 10.4: Activity-based Costing
For example, assume that a company has annual manufacturing overhead

costs of $ 134,000,000 of which $ 134,00,000 is directly involved in setting
up the production machines. During the year, the company expects to
perform 400 machine set-ups. Let's also assume that the batch sizes vary
considerably, but the set-up efforts for each machine are similar.
The cost per set-up is calculated to be $ 33500 ($ 134,00,000 of cost per

year divided by 400 set-ups per year). Under activity-based costing, $
134,00,000 of the overhead will be viewed as a batch-level cost. This
means that $ 134,00,000 will first be allocated to batches of products to be
manufactured and then be assigned to the units of product in each batch.
If Batch X consists of 5,000 units of product, the set-up cost per unit is $
6.70 ($ 33500 divided by 5,000 units). If Batch Y is 50,000 units, the cost
per unit for set-up will be $ 0.67 ($ 33500 divided by 50,000 units). For
simplicity, let's assume that the remaining $ 1206,00,000 of manufacturing
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overhead is caused by the production activities that correlate with the

company's 100,000 machine hours. Example given below..
With ABC Without ABC
Manufacturing Overhead Costs $ 134,00,000 $0

assigned to set-ups
Number of set-ups 400 Not Applicable

Manufacturing Overhead Cost per $ 500 $0
set-up
Total Manufacturing Overhead Costs $ 134,000,000 $ 134,000,000

Less: Cost traced to machine set-ups 134,00,000 0
Manufacturing Overhead Costs $ 1206,00,000 $ 134,000,000
allocated on machine hours
Machine Hours (MH) 1,00,000 1,00,000

Manufacturing Overhead Costs per $ 1,206 $ 1,340
MH
Manufacturing Overhead Cost $ 33,500  

allocations Set-up Cost per
batch
$ 120 6per MH $ 1340 per MH
7. Profitable Customers to Profitable Products Matrix Analysis: The

output from the ABC analysis is often portrayed as a whale curve (see
chart below), plotting cumulative profitability versus customers. While
cumulative sales usually follow the normal 20-80 rule (20% of the
customers provide 80% of the sales), the whale curve for cumulative
profitability typically reveals that the most profitable 20% of customers
generate between 150% and 300% of total profits. The middle 70% of
customers about break even, and the least profitable 10% of customers
lose 50-200% of total profits, leaving the company with its 100% of
total profits. And, often, some of the largest customers turn out to be
the most unprofitable. (Figure 10.5).
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A company cannot lose large amounts of money with small customers. It

doesn’t do enough business with a small customer to incur large (absolute)
losses. Only a large customer, working in a particularly stubborn, way can
be a large loss customer. Large customers tend to be either the most
profitable or the least profitable in the entire customer base. It’s unusual
for a large customer to be in the middle of the total profitability rankings.
It is not hard to identify the behaviour that causes some customers to be
low-cost-to-serve, and likely to fall on the profitable (left-hand) side of the
whale curve, or the behavior of the high-cost-to-serve customers who, if
not fully priced, end up on the falling (right-hand) side of the whale curve.
!
Figure 10.5: The Whale Curve
If you pay special attention to those customers who generate the most
profit, they are more likely to generate even more. Maintaining these
“platinum relationships” and adding a customer to this level every few
years can help you achieve spectacular growth levels—but only if the
existing relationships are in fact retained.
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Activity G
7. What do you understand by “good profits” and “bad profits”?

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10.7 Making the customer the focus of innovation
Delighting the customer through outside-in innovation is not just profitable.

It’s hugely profitable. That’s ultimately why it has become a business
imperative. It explains why its conquest of the business world is inevitable.
It’s not because the customers are more contented or because the people
doing the work are happier or because it extends the life expectancy of a
firm, generates jobs and fuels the growth of the economy. It does all those
things, but the real driver of its inevitability is that it makes more money.
Innovation is about creating and capturing value through non-traditional

approaches. Companies also innovate on the value they provide to
customers that follows the purchase of the core product. This is the domain
of service plans, customer service, information and education, and
warranties/repairs. Service innovation is typically focused on helping
customers receive the full value of the products they purchase and use.
Nokia’s spectacular success in selling low-priced phones to the bottom

segments of the demand pyramid, and Nestlé India’s impressive growth in
the PPP (Popularly Positioned Products) segment. Both Nokia and Nestlé
have introduced custom-designed innovative products for this segment and
complemented that innovation with creative ways of reaching the end-
customer.
Godrej & Boyce, the Indian engineering company, is another example in

the making. The company made headlines in 2010 when it launched a
“Nano” of its own — “The Little Cool" ("ChotuKool") fridge for lower-income
consumers. The portable fridge, designed to cool five to six bottles of water
and stock a few pounds of vegetables, runs on batteries and is expected to
be sold for just Rs. 3,500/, which is 35% less than the cheapest fridge on
the market. The product is planned to be distributed by villagers who are
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being trained as salespersons and will earn a commission of roughly Rs.

150 per fridge sold. This system is currently under trial and the company is
wisely spending time and money educating the new end-users, training the
intermediaries and building the distribution infrastructure. The company’s
latest experiment is to use the village postman to sell its refrigerators in
rural areas.
Delighting the customer, aka (also known as) outside-in innovation, is

more profitable than traditional management (top-down inside-out
management thinking) because there are gains on both prices and costs.
On pricing, firms that delight their customers have higher margins,
because the customers just have to have the products and services that
they love and they are willing to queue up for it and pay extra for it.
In the mobile phone market, Apple’s share of the worldwide cell phone
market in terms of unit sales is only 4% but its share of the profits is 50%.
Through innovation and customer delight, Apple took over a market
previously dominated by Nokia (NOK) and Research in Motion’s (RIM)
BlackBerry. As a result, Apple is selling iPhones as fast as it can make them
and raking in huge profits in the process.
Activity H
8. How can customers derive Value for Money from the products they buy?
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The World’s Top 10 Most Innovative Companies in India
1. Reliance Jio: For Putting Indians on the Fast Track with Cheap
Internet
India’s first 4G LTE network, Jio began in 2010 as a bet by long time
wireless innovator Reliance Industries that it could help the country
compete in what Reliance president Kiran Thomas calls “the fourth
industrial revolution, which will be defined by information, data, and AI.” To
build a next-gen broadband infrastructure, the company installed more
than 100,000 new cell towers, laid some 155,000 miles of fiber, and built
500,000 square feet of cloud data centers. It then created a device, JioFi,
to enable existing smartphones to connect to its 4G network via Wi-Fi and
launched its own mobile phone. Most importantly, when Jio debuted in
September 2016, it had to persuade Indians “to overcome their fear factor
with consuming data.” Jio dropped the price from as much as Rs. 4,020
per gigabyte to less than Rs. 67 and gave the service away for free for the
first six months. The bet has paid off: In less than 15 months, Jio signed
up more than 150 million customers.
2. Paytm: For Erecting a Marketplace Off of its Mobile Payments
Paytm is India’s largest mobile first financial services platform. What began
primarily as online bill pay is now a full-service mobile money solution that
includes Paytm Payments Bank, which is geared towards people who have
not had access to financial services. Paytm Payments Bank includes debit
cards, money market funds, and soon, business accounts. Speaking of
business, Paytm also recently launched its Paytm for Business app, which
allows retailers to track transactions and receive digital payments via QR
code. It has also beefed up its appeals to corporate customers with
banking features including a food wallet that can be restricted for use at an
office cafeteria. Patytm Payments Bank, CEO, Renu Satti has said in
interviews that he aims for Paytm to earn 500 million users in the next two
to three years.  
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3. InMobi: For Upgrading its Video Ads
InMobi is a global advertising platform that aims to make mobile ads more
user-friendly and less intrusive and impersonal. Initially founded in 2007 as
an SMS-based search engine, the company later pivoted to leverage data
such as location and app interests to serve up (and help app developers
deliver) ads that feel organic and part of a user’s mobile computing
experience.
In 2015, InMobi took this concept to the next level when it launched Miip,
an animated pet monkey that acts as an ad curator for app users. (For
example, Miip might pop up in a fitness app during a run to suggest new
sportswear.) InMobi's partnerships with more than 30,000 apps have
helped it reach more than 1 billion devices, and it has recently secured
high-profile partnerships with Amazon and Alibaba. It also recently
acquired Los Angeles programmatic ad network start-up AerServ for Rs.
6,030 million, InMobi’s largest purchase ever, and indicative of the
company’s focus on video ads. Its broad reach and efficacy have stirred
rumblings of a potential acquisition by the largest players in tech, including
Google and, most recently, Microsoft.
In 2017, InMobi focused on improving video advertising, adding artificial

intelligence, as well as working on mobile remarketing and preventing ad
fraud. InMobi debuted a mobile-first video product to enhance viewability
metrics, building in video measurement from both Integral Ad Science
(IAS) and Moat. The company projected that video would be the largest
driver of 2017 growth. Its AI initiatives are designed to upgrade its ability
to predict prime users for advertisers and show them the right ad at the
right time.
InMobi is a multinational company with 16 offices worldwide and is based

in Bangalore, India, where it is poised to take advantage of the exploding
mobile market in that region.
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4. EM3 AgriServices: For Helping Farmers Rent Equipment Short

Term
India’s EM3 AgriServices brings expensive farming technology to farmers

on a pay-for-use basis in order to help small-scale farmers keep up with
globalisation and advances in agriculture tech. It does so through its
farming-as-a-service platform, which works not through just an app, but
through physical call centers and human representatives that interact with
its largely offline consumer base. Each center is “equipped to handle a
comprehensive suite of basic and precision farm operations throughout the
entire crop production cycle,” according to EM3’s website. So far, the
company has worked with more than 8,000 farms via its 10 service
centers, and a Rs. 670 million Series B funding round promises to expand
EM3’s work to more provinces in India. EM3 has also partnered with local
governments, like Rajasthan, India, in order to get farmers engaged in the
service, and has also partnered with Trimble and John Deere, which
provide technical support.
5. SDGZ: For Pairing Talented Students with Intractable Problems
SDGZ is a platform that encourages and promotes youth education by

pairing young problem-solvers with intractable problems. The global
program features three tracks: learning, action, and innovation. Each track
teaches different scales of research and critical thinking to children and
teens by providing them with methods to think through systemic issues
with worldwide impact. The organisation also encourages investors,
agencies, financial institutions, and governments to get involved with the
education initiatives and build in-house accelerators.
6. Samsung India: For Rolling Out the World’s Largest Curved OLED
Monitor
Over the years, Samsung has cemented its reputation as a consistent

source of leading-edge electronics in all categories, from smartphones to
the Internet of Things. Along the way, it has learned from its mistakes and
used them to come back with even more advanced technology. One of its
biggest success stories is in India, where it is a leading smartphone
provider (trading the No. 1 spot with Xiaomi on occasion). In 2017,
Samsung India introduced the world’s largest curved OLED monitor, a 49-
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inch bezel-free screen. The television also comes with consumer-friendly

features like Flicker-free Technology and Eye Saver Mode.
7. Narayana Health: For Avoiding Surgeries with Nuclear Medicine
Bangalore, India-based Narayana Health (also known as Narayana

Hrudayalaya), is a network of hospitals in India that work to provide low-
cost, high-quality care in a country with millions of impoverished citizens.
For example, Narayana’s largest and most prolific cardiac hospital does
open-heart surgery for less than Rs. 134,000, a third or less what it costs
elsewhere in India and a fraction of what it costs in the US. Narayana
achieves these lowered costs with high output (its flagship hospital has 20
times as many beds as the average American hospitals) as well as
negotiations and equipment bought straight from the manufacturer.
Employees are also paid in salary instead of per operation. So, the more
operations, the lower the cost to the hospital. It is also working on avoiding
intensive surgeries by beefing up its nuclear medicine arm, which enables
Narayana to detect abnormalities and analyse organ function in a way that
is time-efficient, precise, and non-invasive.
8. Jubilant FoodWorks: For Cooking Up Mayo Burgers at Dunkin’

Donuts
Jubilant FoodWorks is the company that brings the culinary delights of

Domino’s Pizza and Dunkin’ Donuts to India, tailoring its products and
business model to the country. On the Domino’s side, Jubilant has been
working to refresh pizzas with more toppings, more cheese, and an herb-
centered tomato sauce, as well as an ad campaign to make customers
aware of the changes. It is also investing in updating product packaging
and expanding the brand’s presence in India with new pizzas like the
Quattro Formaggi Burst Pizza and the Choco Pizza, with coconut nougatine.
Meanwhile, Jubilant is also fixing up Dunkin’ Donuts by introducing new
offerings like vegetarian mayo burgers and potato-pea patties with mint
mayo sauce.
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9. Silly Monks Entertainment: For Creating Digital Content
India-based digital entertainment start-up Silly Monks specialises in

internet publishing and marketing, managing more than 900 YouTube
channels that earn more than 150 million views each month. The Silly
Monks brand also includes an event planning arm (Event Monks), as well
as a live music platform for independent artists, called Monkstar. The
company also acts as a distributor of movies, TV, and other visual content,
especially works created in South India, which it provides to digital
streaming services such as Amazon Prime, Netflix, and YuppTV. Silly Monks
Entertainment IPOs in early 2018 and intends to expand more into
Southeast Asia.
10. Oyo: For Using Tech to Standardise a National Hotel Experience
India’s largest hospitality company is Oyo, an Airbnb-esque network of

properties that include free Wi-Fi, free breakfast, white linens, and other
hotel features for a fraction of the cost of a normal hotel. The platform also
includes on-demand booking and virtual check-ins and checks-out. Oyo
saw a gap in India’s budget hotel offerings and has since used tech to
make them a more viable option to tourists and visitors. So far, Oyo has
partnered with 8,500 hotels and 70,000 rooms in more than 230 cities,
while closing major funding rounds led by backer SoftBank. Oyo has also
launched a higher-end brand called Townhouse which is geared towards
millennial with a goal of creating a community hotspot, a cafe, and a
merchandise store experience all in one.
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10.8 Summary
The way companies must interact with their customers has changed
irrevocably. New communication channels have provided organisations with
unprecedented opportunities that, if tapped carefully, could provide a
much-needed edge for dealing with increasingly empowered customers in
today’s highly competitive marketplace.
Customers increasingly expect companies to have a much better

understanding of them as individuals, as well as more timely appreciation
of their specific needs. To satisfy this new breed of demanding and
empowered customers, companies must have the right processes and
information available to deliver customised and targeted product and
service offerings that keep them engaged and loyal.
Study Questions
1. Do you know what it takes to evolve into a more customer-centric

enterprise?
2. Are any patterns of changes in customer-centricity emerging in respect

to tackling competition?
3. How does a transition take place from a customer who is not a customer
to customer retention?
4. How can companies best practice CRM technology to improve

shareholder value?
5. In what way can companies win back their customers whom they have
lost for various reasons?
6. Why is so much importance given to customer insight in order to derive

profitability?
7. What is the purpose of conducting a “whale curve” analysis?
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8. Give an example of any innovation that you know of which has resulted
in customer delight.
1. By investing in customer-centric strategies, companies can safeguard

against _________.
a. Vision and mission
b. Goals and objectives
c. Revenue decline and defection
d. Values and principles
2. KPI’s or key performance indicators assist during customer life cycle in

_________.
a. Developing a brand
b. Prevent loss of current and potential customer value
c. Pricing and service delivery
d. Differentiating between market position and customer needs
3. Match the following:
(i) Business Strategy (a) Build CRM initiative around it
(ii) CRM Strategy (b) Examining existing customer base and

identifying appropriate segmentation
(iii) Customer Strategy (c) More balanced approach
(iv) Best Practice (d) Improvement in results and shareholder value
4. A corporate strategy that relies on core competencies of the company to

drive change, product development and innovation is known as
_________.
a. Inside-out marketing
b. Best practices
c. Outside-in marketing
d. CRM implementation
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5. Companies implement CPM systems to see which customers contribute

to profits, which do not and which erode profits.
a. True
b. False
Answers:
1. (c), 2. (b), 3. (i) (d), (ii) (a), (iii) (b), (iv) (c), 4. (a), 5. (a)
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REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
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TRANSFORM BUSINESS PROCESSES THROUGH BUSINESS INTELLIGENCE
Chapter 11
Transform Business Processes Through
Business Intelligence
Objectives
• Knowing Business Intelligence

• Staying ahead of the curve with Decision-centric Business Intelligence
• Business Process Management (BPM) and Predictive Business Process
Management (PBPM)
• Using BPM for Competitive Advantage
• Customer Experience Transformation — A Framework to achieve
measurable results in business
• Blueprint of Customer Experience
Structure:
11.1 What is Business Intelligence?

11.2 Empowering Business Intelligence through BI Transformation
11.3 Business Intelligence and Business Process Automation
11.4 Staying Ahead of the Curve with Decision-centric Business
Intelligence
11.5 The Five Tenets of the Customer Centric Approach to Business
11.6 The Nine Imperatives for Leaders
11.7 Business Process Management (BPM) and Predictive Business Process
Management (PBPM)
11.8 Using BPM for Competitive Advantage
11.9 Customer Experience Transformation — A Framework to Achieve
Measurable Results in Business
11.10 Blueprint of Customer Experience
11.11 Summary
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Introduction
For organisations in nearly every area, creating efficient business

operations can deliver key competitive and operational advantages. Many
organisations find they can transform business processes by removing
duplicate or unnecessary steps, automating as many processes as possible
with tools such as Business Intelligence, Business Process Management
and outsourcing non-critical functions to trusted third parties.
Customers have more power today than ever before. They have
tremendous influence and reach through social media, more options and
choices of whom to buy from, and high expectations about customer
service.
In today’s ultra-competitive business environment, looking back on

historical performance is no longer sufficient to stay ahead of the curve.
Organisations need to be able to anticipate future outcomes as well,
understanding not only what happened and what is happening but also
what is likely to happen next. Being a technology leader means staying a
step ahead at every turn. The key to customer satisfaction is anticipating
people’s needs before anyone else, and developing new technologies and
innovative solutions that provide customers with a distinct competitive
advantage.
11.1 What is Business Intelligence?
Business Intelligence (BI) is a broad category of applications and

technologies for gathering, storing, analysing, and providing access to data
to help enterprise users make better business decisions. BI applications
include the activities of decision support systems (decision-making), query
and reporting, online analytical processing (OLAP), statistical analysis,
forecasting and data mining. With BI, firms can identify their most
profitable customers, and quickly detect warranty-reported problems.
BI has always been about transforming business. Companies want better

visibility about what’s going on in their market, and increased
organisational agility in order to be able to deal with change fast.
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According to Suresh Vittal, Forrester Research, “Many marketers are

abandoning their traditional product focus and trying to adopt a more
customer-centric one. But doing so requires the use of numerous
technologies that facilitate deep customer understanding and better
targeting of offers.”
For example, when the customer shops online, retailers can offer choices
that align with the recommendations one might receive in the store. And
when in-store salespeople have access to individual customer data and
customer preferences, they can perform pattern matching with similar
customer buying history to facilitate up-sell.
BI applied in the marketing environment can be a powerful way to achieve

the level of customer understanding needed before relevant programs can
be designed and executed. Add a customer interaction platform that
support business rules, triggers and personalisation, and marketing now
has the technology tools needed to deliver relevant communications cost-
effectively. Business Intelligence tools facilitate a deeper understanding of
customer behavior.
For example, a national specialty cleaning service combined the traditional

customer database with the order/transaction data and call center data.
Through analysis, this company was able to better understand their
customers. Specific service request patterns emerged with some customers
ordering cleaning every three months, some every six months and some
once per year. The company also discovered that a high percentage of
customers used the service only once and never requested additional
service.
Activity A
1. How does BI implementation help companies become customer-centric?

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11.2 Empowering Business Intelligence through BI

Transformation
If age is catching up with any business input, it has to be Business

Intelligence (BI). The ever-popular two-dimensional charts and
spreadsheets littering the desks of production heads, sales managers,
procurement executives and financial chiefs are being retired quickly. They
are being replaced with sophisticated dashboards, visualisations, reports
and query engines.
These are not new tools. They have been around, within the domain of IT
specialists at very large corporations. But now, they are available to
business leaders, small business owners and just about anyone keen to
know industry trends, spot business problems and opportunities, improve
decision making and boost operational efficiencies.
One can imagine how sophisticated and pervasive BI can become when you
look at how Uber, the marketplace for drivers, uses it. Uber presents real-
time business intelligence to drivers with its dynamic peak-time surge
pricing mechanism. By offering more take-home dollars for service
rendered within a small geographic area, Uber instantly attracts more taxis
to the area, keeping supply and demand balanced. What better proof of the
efficacy of BI than this everyday example?
De-bottlenecking Technology with Technology
BI is changing faster than ever before. Driving this change are technology
trends like Cloud, Mobility, Big Data, IoT, Artificial Intelligence and
Analytics. Simultaneously, the demand for data and insights from users is
growing as competition increases and regulatory requirements become
more stringent (especially in industries such as BFSI, Retail and HLS).
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The bottleneck in keeping up with this rate of change is legacy

technology.
Systems and platforms that were adopted six to seven years ago are
unable to keep pace with the demand.
a. These systems are inflexible and lack scalability;

b. Integration with other new applications and third party systems is
complex;
c. The cost of maintaining them is high;
d. For many, end-of-life support is not available.
These are signs that your BI platform is ripe for transformation.
The Sooner the Better
To overcome above challenges, organisations are looking for structured

ways and means to standardise the governance of their BI platforms by
rationalising the existing report inventory, standardising the BI tools across
enterprise, migration to newer BI platform and then setting up the BI
governance.
There is a significant cost to delaying the transformation. One study

showed that organisations with low BI tool consolidation have fewer
employees (~12 per cent) using BI tools vis-à-vis organisations with high
BI standardisation and consolidation having more employees (~25 per
cent) using BI tools. Resultantly, low BI standardisation costs significantly
higher on a per employee basis. The study also found that organisations
that have standardised their BI tools have on average 36 per cent lower BI
spends as a percentage of revenue.
The implications of these findings go deep, suggesting that there is a

hidden cost to delaying BI transformation, which many organisations fail to
appreciate: in the absence of simplification and consolidation fewer
employees use BI leading to lost opportunities and operational
inefficiencies.
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BI Transformation Framework
The key to successful BI Transformation is to consider BI consolidation and

address simplification, standardisation and governance processes
holistically with robust migration frameworks, tools and accelerators. The
end result should be a BI platform that is flexible, extensible and
customisable. The advantages of standardisation and consolidation are
undeniable.
To achieve this, organisations must follow four simple steps:
1. Tools Selection and Standardisation
Work with your IT and Business Heads to understand existing and

emerging BI needs. This helps choose the right technology stacks and
consolidate BI into a single, world-class BI platform. This has the
immediate effect of improving data trustworthiness by 20 per cent to 25
per cent enterprise semantic models and reducing total cost of ownership
(TCO) by 30 per cent owing to lowered support, maintenance and
governance of fewer BI tools. Once the tools are selected, they also help
define governance around them.
2. Report Rationalisation
Multiple BI platforms result in multitude of reports residing within the

organisations without any systems to keep tab on their usefulness.
Organisations need to document their inventory of reports with a
structured and automated process for identification of similar/duplicate and
“Unused/ Unuseful” reports and their rationalisation. Typically, 40 per cent
to 50 per cent of reports are found to be candidates for rationalisation and
their elimination can bring down generation and maintenance costs by upto
25 per cent.
3. Platform Transformation
Users are accustomed to set patterns, processes and dashboards. How will
they respond to change?
There are two aspects to Platform Transformation:
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a. Technology migration: It is best to define a framework for migration

that includes automation to reduce time-to-market and ensure low error
rates. Extracting metadata from existing systems and mapping it to the
target platform is crucial. You should be able to transform data from
your system to any target system of choice.
b. Change management from a user perspective: It is also

recommended that change management processes be put in early by
explaining the technical benefits to users, creating awareness of the
simplification and reducing user discomfort.
4. Governance and Roadmap Definition
A sound BI Transformation Plan includes governance (policies and

processes) and a roadmap. These need to be aligned with users,
organisational process maturity and technology adoption.
For example, On-premise, Cloud and Hybrid models will demand different
governance processes, depending on industry/regulatory requirements and
technology environments. The value of good governance cannot be
underestimated. Many organizations show 20 per cent more benefit
realisation when they have good governance in place.
Time to Make the Move
To gain the advantages of new technology, organisations are getting ready

to undertake a BI Transformation journey. This is because organisations
are moving from historical reporting to planning and forecasting in a bid to
identify and address emerging opportunities. Unless efforts and
investments towards standardisation and consolidation rise up the priority
charts of organisations, organisations will continue to be exposed to risks
of under achievement on the critical strategic agenda of Business
Intelligence.
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11.3 Business Intelligence and Business Process

Automation
In this world of ever increasing data and information, it is only logical for a
firm to think about Business Process Automation to reduce the running
cost. This will enable the firm to not only increase the business productivity
but also empowers the firm to know what they need to know at the right
time. It can be a daunting task on hand for a team to wait for the IT
Operations to get the ad-hoc reports which in turn increases the cost of the
operations. The business intelligence will enable the end-user to initiate the
process which has been automated to get the desired reports or
information. This can become a powerful tool for business without having
to rely on IT resource.
With BPA, you not only get to automate the process but will also be able to
improve workforce productivity.
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You will be able to transform the raw information into more meaningful
reports that can be used to analyse and improve the business areas.
You not only see which sector is doing good but will also be able to pinpoint
the areas that needs better management as well as automation so that the
revenue can improve.
You can benchmark and use that to improve the overall process.
The management will be able to use this information in their decision

making and in coming up with strategic initiatives.
For any decision making process to be effective, useful information is the

utmost requirement of that time. And with BI, you will get this information.
Data is good for any firm, but the quality of data and the way it is
presented makes a big difference. If there is too much data that is not
organised, it can take forever to make sense out of it.
Instead if there is a tool that can analyse this data and format it in end-
user friendly reports for instance developing solutions over SQL Server
Reporting Services (SSRS) which then can be integrated with SharePoint
that every other company uses to manage the data, it can greatly benefit
the cause. These reports can be custom made to the needs of the
business. These reports are not just reports stating the obvious, but they
will be able to explain backing up with data on the factors influencing the
sales for instance. You can use this information to make amendments in
order to improve the sales for future.
Implementing Business Intelligence is much easier than otherwise thought.

You can quickly deploy and make adjustments as you go. The whole
process is an evolving process. All you need is a holistic vision of the
business needs and goals.
There are many BI tools available in the market including the age-old time-
tested Crystal Reports, Charting Components like Telerik, SSRS which is a
component of Microsoft’s SQL Server’s reporting and BI tools.
! !387
With Crystal Reports, you can design and deliver highly meaningful reports
virtually from any data source. There are many reporting formats to
choose from that makes the most sense to your business end-users.
Another powerful ad-hoc reporting tool is the Telerik. Telerik can be used
for the web and even cloud computing. The reports are comprehensive and
make a whole new meaning of the otherwise hard to understand scattered
data.
SQL Server Reporting Services is the reporting services offered by the SQL
Server. It is a MS Visual Studio environment with enhancements that are
specific to the Business Intelligence Solutions.
There is a world of tools out there for one to explore and decide on what is
the best suitable for their business. And BI tools are not just used in big
banks and giant companies, these days professional sports teams, chain
stores spread across the country or globe like Walmart, e-commerce sites
all are using BI tools.
In all, Business Intelligence opens a window of opportunities to the

business by not just saving the money, but also in optimising the business
process, improving the decision making process. The ROI is quite
significant when using such a tool. You can easily and effectively identify
the flawed processes in place that can be targeted for improvement.
With any large-scale firm, it is common to have separate data units,

independent software components and BI will enable to combine all these
information and provide you with an integrated solution. Harness the
potential to transform your business in more far-reaching ways than
otherwise imagined with Business Process Automation.
! !388
11.4 Staying Ahead of the Curve with Decision-Centric

Business Intelligence
Stay ahead of the curve. Translation? Keep your eyes open for change
before it happens – such that you’ve already thought through how you’re
going to make critical adjustments before it’s too late. Similar to ‘ahead of
the pack’ or ‘ahead of the game’ – ahead of the curve means being able to
anticipate or get an insight to consumer buying behaviour. (Figure 11.1).
!
Figure 11.1: Gaining Consumer Insights
! !389
The objectives of getting ahead of the curve are threefold: take advantage
of opportunities that might otherwise be missed, prevent disasters if you
can, and be better prepared if you can’t. In this highly interconnected and
crisis-prone world, the job of intelligence is increasing; anticipation,
recognition, and preparation. The job of management is to be a master of
events by getting and staying ahead of the curve.
Many companies wait too long to attempt transformations, and they do so

only when signs of trouble become obvious, which is inevitably too late.
High performers, by contrast, change before they must, knowing that the
best way to transform is from position of strength. High performing
companies sense the need for market changes early, and act accordingly.
Companies create readiness for challenges by introducing a steady stream
of capability-building and performance-improving initiatives.
They create management teams that drive successful change, early, by

assembling and empowering the right team for the right challenge. This
consists of three activities: ‘putting right people on the team; supporting
them with right resources; and ensuring that everyone on the team is
pulling in same direction’.
Coca-Cola announced plans to invest $5 billion in India by 2020 to boost

consumption and increase its presence in one of the fastest emerging
markets. Chief Executive Muhtar Kent said the company and its bottling
partners will invest $5 billion in India by 2020 as it looks to raise its
presence in one of its fastest-growing emerging markets. “We think there’s
potential here,” Mr. Kent said Tuesday during a visit to India, adding that
the company wants “to stay ahead of the curve” in the country.
The planned investments show how big consumer goods and lifestyle
companies can’t afford to ignore India’s growing middle class, estimated at
about 20% of the population, despite the difficulties of doing business
here.
Coca-Cola bought Parle’s four leading soft drinks brands—Thums Up,

Limca, Gold Spot and Maaza—giving the company an instant 60% share of
the Indian soft drinks market. Coca-Cola’s dominance comes from Thums
Up and Sprite, another of its brands, which both had a 16.5% market
share in 2011, making them the nation’s most popular carbonated drinks..
! !390
Activity B
2. Why so much of an importance is given to “staying ahead of the curve?”

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11.5 The Five Tenets of the Customer-Centric Approach to

Business
The customer-centric approach to business has been proven to produce

more resilient businesses. This “outside-in” approach to business is
supported by researchers. And we know that Net Promoter Score is a firm
predictor of business success and sustainability, due to the fact that if you
have more promoters and positive word-of-mouth than the alternatives
available to your chosen customers, you are more likely to succeed.
Yet businesses still want to use models and structures designed for the last
century – either inspired by military leadership models or post-industrial
management thinking.
Customer-centricity is not a bolt-on for the business. Taking post-industrial

management thinking and adding a touch of customer stuff will not
produce the long-term results we all seek. The business needs to be
designed in a way that leverages the customer-centric principles.
This post identifies and discusses the Five Tenets of the Customer-centric
Approach to Business. They are the tenets of the customer-centric
approach to business, because all good belief and thinking systems must
have a sound set of core ideas that are at the foundation.
Tenet 1. Businesses Exist for Customers
Businesses want to be customer-centric because they somewhat perceive

there are benefits. In reality, customers are the revenue streams for the
business, not the products or services the business offers. You can have all
the products and services you want, but without a customer there is no
business, just an entrepreneur with a diminishing bank account, who
believes in the myth ‘build it and they will come’.
! !391
Businesses exist for customers. No customers, no business. No people to

serve, no organisation (even government services, non, or not-for profits).
Many businesses and organisations today are too focused on themselves,
internal trading and dealings, negotiations and business politics, that make
the game seem like it is all about them, rather than their customers.
Tenet 2. It’s All about People
Businesses and organisations get obsessed with their to-do lists, and the
multitude of ideas that come from the planning events, developing new
products, implementing new systems and so on…action orientation,
important things to do.
And yet when these initiatives are in place, they are brought to life by…
people. And when they do not seem to return the benefits the leaders
imagined, then it is about the people. “We will need to retrain everyone
again“, “the change management stuff didn’t work“, and “the problem
wasn’t the project it’s the culture.”
Your customer contact people – sales, service or anyone who is serving/

supporting someone who is in contact with a customer, including the CEO –
will do better when they recognise that they are in fact humans interacting
with other humans. People connecting with other people. And within these
interactions, we humans rage with emotions, memories and illusions of
cognition.
The revenue streams of the business are your customers, your customers
paying for what they value from you. People connecting with the value you
deliver. And people connecting with the people within your business. All
this, however, is often forgotten among the high level of busy-ness.
If people love to work at your place, they will be productive and deliver
good experiences for the customer. If people also love what you offer, you
get the double-whammy and will have a successful business.
! !392
Tenet 3. Not All Customers are Equal
This reality is not as openly discussed as it should be. It almost seems to

be a taboo subject for people that propose customer-centricity. However, it
is in fact one of the core drivers of becoming a customer-centric business.
All businesses have a portfolio of customers. The profitability and/or value

from these customers determine the sustainability of the business.
Not all customers are equal. In the way, they respond to the value you
provide, nor in the way they reciprocate value back to you. Value here is
the combination of fees for service/product, plus their level of advocacy (is
it negative word-of-mouth, or positive word-of-mouth). So, why do we
randomly grow our customer portfolios with anyone that will buy from
us? Likewise, when we provide service or communicate with customers,
why do we treat them all the same…why do we typically treat each
customer as average?
Tenet 4. Businesses are Systems that Deliver Value
Everything within the business – the systems, people, functions, processes,

products and services – all work as a collective that delivers value. This
overall, collective value is perceived by the customer. This perception of
value is the predictor of future customer behaviour. The collective future
behaviour of customers is a significant predictor of the business results
that will be achieved. Based on this, the business will, over time, either
thrive, survive or go into decline.
Systems Thinking is at the core of this Tenet – the collective output of the
business is the delivery of value for the customer (good, bad, ugly or
indifferent). From this delivery of value, come the results of the business,
and then the outcomes desired by the Board, Owners and Shareholders.
Tenet 5. The Need for Progressive Improvement
There hardly seems a need to discuss the reality that businesses need to
continually improve. We can see this clearly in the enormous acceptance of
continuous improvement and other popular approaches that aim to reduce
waste, defects, errors and achieve bankable improvements. However,
continuous improvement has almost become a meaningless phrase, one of
! !393
those management norms that has lost the power behind its origins. Too
much focus on cost reduction rather than value and
experience improvement.
The need for progressive improvement is demanded by the increasing

expectations of your customers and the changing landscape of rivals
seeking the attention of your customers.
Using these tenets to drive how the business is designed and structured
will support business resilience and success.
!
11.6 The Nine Imperatives for Leaders
The Five Tenets of the Customer-centric Approach to Business provided a

basis that is relevant today of how we should be approaching our work, in
building businesses that are relevant and engaging for our customers, and
sustainable for the long term.
The following Nine Imperatives for Leaders are derived and demanded from
an efficacy of The Five Tenets of the Customer-centric Approach to
Business.
Imperative 1: Perspective
This first imperative for businesses is about the attitude of the leaders,
which then flows into the culture of the business. Put simply, it is about
Arrogance versus Humility.
! !394
If there is arrogance at the leadership level, then this will flow down into a
companywide attitude towards the customer. Customers pick up on the
incongruence between what the business says it is, and how it delivers.
The business landscape is littered with failed arrogant business stories.
For example, the dismal performance of Woolworths (compared to Coles)

was displayed in the attitude of the leaders saying, “We believed our
internal numbers, we thought the customer must be wrong”.
The failure of the Masters chain of stores can be accredited to the arrogant
strategy of choking their competitor Bunning’s, rather than trying to deliver
better customer value. By focusing on the competition, they became
irrelevant to their customers, costing them around AU$ 2 billion.
Similar story in North America (again in retail) where Target USA launched
themselves into the Canadian market. With an attitude of ‘a champion USA
team’ that could take over the Canadian market, and “we know this
business”. A complication with internal project challenges left them failing
to deliver customer value, cost: $ 42 billion.
The perspective of the leaders is critical to success. A sense of arrogance,

that it is all about us, “look at what we can do”, versus the humility of
leadership teams that listen to their customers and recognize that without
delivering value to the customer, they will soon become irrelevant.
Imperative 2: Focus on Results
This might seem an obvious imperative for management.
The common practice is that managers and leaders understand the concept
of focusing on results; however, what happens in the translation is that
they apply pressure on individuals to be “accountable” to reach their
targets. Leaders then set the targets, supposedly with the people who have
to deliver them, collaboratively. The problem here is that the targets end
up being a measure with a target, something like, dollar value of sales $
134 m, or Net Promoter Score is 16. These are poorly described measures
with targets not results. And as a manager, one can do lots of things to hit
the target that may include manipulating the measure or the system but
! !395
not ultimately achieve the intended result such as our customer base is
profitable.
Juggling multiple KPIs (measures with targets) leads us to focus on hitting

the number rather than trying to improve the system and processes we are
managing.
Let’s put the focus on results. A result then is an outcome we achieve, it is

not an action, or a project, it is the result of the work we do. By applying
the focus on the results to be achieved, we empower people to take
ownership on how to achieve their results, the leader’s role then becomes a
coach, to encourage learning about how to improve performance.
Imperative 3: Connect with Your Customers on Value
Customers today seek value. And even more than ever, customers are
seeking experiential value. Today’s consumer invests far more on the
experience than in the past. Similarly, in B2B, businesses most of them
anyway recognise the value of partnership relationships with suppliers and
vendors. They want the expertise and knowledge to be exchanged to
enrich their corporate knowledge.
Customers define value in many ways such as the goals they seek, the
results they want and the experience they desire. Value for customers may
also be about belonging to a community and the decisions they make are
often influenced by their values and ethics. Customers make decisions
emotionally, then seek rational information to support the decision.
Businesses need to connect with their chosen customer groups on

value. This means the narrative of the business story needs to include the
“why” for customers. Remember, customers do not care what you do. They
only care about what you can do for them, and how you can help them get
the value they are looking for, in whatever way they express it.
! !396
Imperative 4: Connect with a Purpose and Vision that is about

People (Customers)
Employees rarely connect with the targets and goals that are about the
financial success of the business, the profits to be shared by the “fat cats”
or “shiny tails”. People respond well to having meaningful work to do, and
goals that are about other people, feeling that they are
contributing to outcomes for groups of people, their customers.
By ensuring the vision and purpose of the business is about people

(customers), the workforce will more readily apply their engaged hearts
and minds to achieving the results that will demonstrate progression
towards the vision. Their work will have meaning. Rather than contributing
to shareholder returns, or executive bonuses. They will be engaged in
trying to make the world a better place for their customers.
Graham Weston, CEO Rackspace (TEDx) says it this way: “We all want to
be valued members on a winning team that is on an inspiring mission”.
Imperative 5: Know Your Customer Groups and Your Intent with

Each Group
Knowing customer groups is about defining each group, understanding how

the two-way value exchange works between you and your customers.
Customer groupings are defined by how they behave, their characteristics
and what they value. This goes well beyond demographic segments and
other neat categories to place prospects in. Your customer groups can also
be defined by how the customer responds to the value you offer. Once
you know your customer groups, extend this knowledge to understanding
how the two-way value exchange works between you.
Then you need to determine what your intent is with each customer group.
Do you want more of these customers? Do you need to change the way the
relationship works (to reduce cost to serve, or add more value)? Do you
want to end this relationship? Do not leave the creation of your customer
portfolio to random chance. Translate your intent with each customer group
into objectives and results that drive how you plan, implement and learn.
! !397
Imperative 6: Articulate Your Value Proposition for Each Customer

Group
Value propositions need to be at two levels. Firstly, there is the value

proposition that is from the company itself, the selling business. The
customer needs to know, what this business stands for, who are they, and
what do they value. This level of value proposition addresses the “Why”
that Simon Sinek refers to, customers need this as well.
Secondly, there are value propositions at the product or service level, but
not about the product or service, they are about the value the customers
get from the product or service. Today’s customers seek value and positive
experiences – from their products and services as well as from each
connection with the organisation.
Too often, organisations leave to communication of value to individuals. We

need to articulate and communicate the value proposition we have for our
customer groups, so that we have a better chance of alignment across the
functions and communications, and a better chance of delivering the
intended value.
Imperative 7: Design the Optimal Activity to Deliver Value
Recognising that the business is really a system (the collection of

functions, processes and systems) that, from the customer’s perspective
delivers value (or not), businesses need to design the optimal delivery of
value from the outside of the business in. Or, as the customer experiences
it. And this may not be to every customer, but to the ones who we have
chosen, through knowing our customer groups and our intent with the
groups.
Align the resources of the business to deliver one thing – the value you
have promised to your customers. Aligning your resources maximises the
realisation of your results.
! !398
Imperative 8: Improve Your Delivery of Value
Your status quo is an evil abode. You have rivals for the attention of your
customers. The expectations of your customers are constantly moving, so
must you. Especially in how you deliver value and how you engage with
customers (new and existing).
We need to ensure:
• Everyone has a clear, line-of-sight view of the purpose, vision and

strategy, especially how this creates value for customers;
• Your strategy is translated into a set of results that clearly demonstrates

the cause-and-effect flow of the results teams achieve;
• You have measures that provide feedback on the results you are aiming
for;
• You allow teams to use these measures to hypothesise, test and learn,
how to apply and quantify improvement initiatives;
• Your teams are accountable for pursuing your goals and results – not
hitting a set of numbers.
Imperative 9: Monitor and Communicate Your Progress
Monitor is an antonym to ‘set and forget’. Many leaders appear to have a

deficit in maintaining attention to the results that will make the business
successful.
What is needed in the business is a focus on the results that are important.
Then communications from the leaders to say we are making progress
towards those results or at least we are learning. When leaders change
focus sometimes not intentionally, the people in the business feel the goal
has changed, progress is stopped and “what happened to that inspiring
mission we were on?”.
A feeling of making progress visible adds meaning to the work we do.
! !399
The veracity of the Five Tenets of the Customer-centric Approach to

Business demand the Nine Imperatives for Leaders. For any business to
achieve its ultimate goal and purpose, to be meaningful and relevant long-
term to its customers, employees and owners, the Nine Imperatives for
Leaders need to be their literal and moral compass.
Example: Embrace Transparency
On a smaller scale (for now!), the online clothing retailer Everlane is

revolutionising the way US shoppers purchase wardrobe staples. By
offering “radical transparency” to their customers, the company is
opening up its doors—and the doors of the factories and partners that
work for them—to give customers an inside look at how their products
are created and priced.
In addition to this customer-centric approach to pricing and

communication, the company is piloting Everlane Now, a same-day
delivery program in markets like San Francisco and New York City. Yet
again, their customers get to hold the reins and direct the business into
a model that suits them perfectly.
The result for Everlane has been great. It has experienced dramatic
growth, progressing rapidly from 200,000 customers in 2012 to more
than one million in 2015.
!
! !400
11.7 Business Process Management (BPM) and Predictive

Business Process Management (PBPM)
Business Process Management (BPM)
Business Process Management (BPM) software and services improve the

visibility and control of your business processes, helping to ensure that
your business operations differentiate you from your competition, deliver
the right goods and services, and meet the demand of your customers for
consistency and convenience.
BPM has been referred to as a “holistic management” approach to aligning

an organisation’s business processes with the wants and needs of clients.
BPM uses a systematic approach in an attempt to continuously improve
business effectiveness and efficiency while striving for innovation,
flexibility, and integration with technology.
BPM provides market-leading capabilities that can help your organisation:
• Optimise business operations with real-time visibility into work-in-

progress through continuous process monitoring and analytics
• Accelerate task completion through robust collaboration capabilities
• Manage change confidently with intuitive governance
• Deliver more meaningful customer engagements by extending business

processes to mobile technology
• Drive continuous insights into business operations through seamless

integration of business processes with core enterprise systems
Predictive Business Process Management (PBPM)
Most businesses today engage in “predictions.” Will a customer agree to

upgrade a purchase based on an array of offers? What is the likelihood that
a customer within a cluster of similar customers will default on a loan? How
much more effective will a targeted marketing campaign be, compared to a
random sampling? How can the churn rate of subscribers be improved?
What is the likelihood that a particular financial transaction is fraudulent?
! !401
These are some questions that could utilise prediction with concrete and
tangible business benefits.
Predictive BPM (PBPM) models greatly enhance the efficiency of processes,

improve the customer experience, and reduce potential risks. Thus, in
predictive BPM’ there is a close affinity between what is discovered and its
execution. For instance, knowledge about a potential customer for credit
risk could involve simple accumulation of data or information about the
customer and application of a weighted formula to know about the
measurement of the risk. The goal of PBPM is to help decision-makers
better manage, plan, understand, and leverage their performance.
Customers are evolving. The traditional shopper has been joined by the
digitally oriented, multi-channel customer; as a result, operating models
must accommodate both. The traditional customer may still be reluctant to
share personal information, but the growing base of digital customers
tends to be more open with data, especially if it is used to provide them
with a better product or service experience.
Nike did exactly that with its Nike + iPod Sport Kit, partnering with Apple
to change the running shoe forever. Anticipating that runners would be
eager to adopt technology and online channels to augment their training,
the company developed a sensor for the left shoe that sends workout data
wirelessly to an iPod. The sensor tracks distance, time, pace and calories
burned—and even tells runners if they’ve beaten their personal best. Nike’s
online portal enables the runner to plot goals and compete with others.
Few companies understand what actually happens as a customer moves

from one interaction to another. To offer the best customer experience, it is
necessary to connect customer-facing and non-customer-facing functions.
For example, an increasing number of companies are connecting internal
data and analytical capabilities such as “next-best-action” decision-making
to enable contact centers and sales forces to dynamically drive interactions
based on real-time customer insight.
Activity C
3. In what way can companies adapt to changing customer needs?

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! !402
11.8 Using BPM for Competitive Advantage
Companies are being sold, merged, and going out of business every day.
These are casualties of the current market and an inability to adjust
quickly. In this fast changing market, it is time that process professionals
refocus their efforts to gaining competitive advantage.
The most important action in any company may arguably be gaining and
keeping an advantage over competition. In order to sustain a competitive
advantage and so face the rapidly increasing global competition, companies
must continuously implement best practice management principles,
strategies and technologies. Competitive advantage is gained when
companies reduce operational risk by making sure that internal guidelines
and external regulatory requirements are fulfilled. Companies thus offer
customers a faster, more accurate and consistent service.
Business Process Management helps your business become more

competitive by:
• Making employees and other resources become more productive which

lowers your costs
• Focusing everyone’s attention on the bottom line which motivates

everyone to work together
• Freeing time by “doing the job right at the right moment” which enables
greater attention to increasing revenues and sales
BPM allows organisations to measure the performance of differentiating

processes, compare them with the competition, and then easily make
adjustments. Furthermore, BPM governance enables organisations to make
well-informed decisions and execute rapidly, ensuring that these
adjustments are enacted with alacrity throughout the organisation. A well-
managed BPM process is also not easy to copy. Hence, the BPM capability
is an important competitive advantage by itself.
A hi-tech company producing compressors noticed increasing competition

from companies they hadn’t seen in the market before. To stay ahead of
the competition, they needed a differentiator that they could implement
quickly, but wasn’t easy to copy. They used a BPM modelling approach to
! !403
define and roll out a new delivery model, providing compressors to their
client and managing them through the internet. They started selling
“compressed air” instead of compressors as a product.
Activity D
4. Other than gaining a competitive advantage, how does a BPM empower

a company to excel?
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11.9 Customer Experience Transformation-A Framework to

Achieve Measurable Results in Business
Customer Experience is the sum of all experiences a customer has with a

supplier of goods or services, over the duration of their relationship with
that supplier. From awareness, discovery, attraction, interaction, purchase,
use, cultivation and advocacy. It can also be used to mean an individual
experience over one transaction; the distinction is usually clear in context.
Growing Recognition
Successful businesses influence people through engaging, authentic

experiences that render personal value. Analysts and commentators who
write about customer experience and customer relationship management
have increasingly recognised the importance of managing the customer’s
experience. Customers receive some kind of experience, ranging from
positive to negative, during the course of buying goods and services.
As such, a supplier cannot avoid creating an experience every time it

interacts with a “customer”. Furthermore, it has been shown that a
customer’s perception of an organisation is built as a result of their
interaction across multiple channels, not through one channel, and that a
positive customer experience can result in increased share of wallet and
repeat business. A company’s ability to deliver an experience that sets it
apart in the eyes of its customers serves to increase their spending with
the company and, optimally, inspire loyalty to its brand.
! !404
Customer Experience Management
The goal of Customer Experience Management (CEM) (Figure 11.2) is to

move customers from satisfied to loyal and then from loyal to promoters.
Where CRM is enterprise-focused and designed to manage customers for
maximum efficiency, CEM is a strategy that focuses the operations and
processes of a business around the needs of the individual customer.
Companies are focusing on the importance of the experience and, realising
that “building great consumer experiences is a complex enterprise,
involving strategy, integration of technology, orchestrating business
models, brand management and CEO commitment.”
Customer Experience solutions provide strategies, process models, and

information technology to design, manage and optimise the end-to-end
customer experience process.
!
Figure 11.2: CEM
! !405
The mobile marketing messages are becoming increasingly localised. HDFC

Bank, for example, presents messages in either Hindi or English,
depending on language preferences. One of the most advanced forms of
mobile marketing in evidence today is location-based messaging. Bank of
America, for example, is planning to deliver real-time deals and offers to
its customers.
Today’s mobile channel encompasses a full range of capabilities that can

both enhance the customer experience and enable sales growth. For
example, mobile alerts bring big benefits to the customer experience.
Similarly, mobile marketing software can boost sales growth. Developing a
mobile strategy that can both improve the customer experience and drive
sales is one of the challenges facing banks today.
Activity E
5. What could be the reasons for a negative customer experience?

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How is CEM Different from CRM?
Traditionally, CRM systems have been internally or operationally centric —

they are about profiling and collecting customer data for marketing and
cross-selling purposes. Benefits of CRM analytics are said to lead not only
to better and more productive customer relations in terms of sales and
service but also to improvement in supply chain management (lower
inventory and speedier delivery) and thus lower costs and more
competitive pricing. Too often the emphasis has been on the company’s
goals, and not necessarily what the customer wants. CEM is the opposite of
that. It is highly customer-centric focused and utilises systems,
technologies, and simplified processes to improve the customers
experience with the company (Figure 11.3).
! !406
!
Figure 11.3: Difference between CRM and CEM
Framework for an Outstanding Customer Experience
The framework outlines the key activities to develop a customer experience

blueprint as a precursor to designing a customer-centric operating model,
which is the key pillar of the transformation. These activities, in sum, set
the foundation for consistent and repeatable customer experience
execution.
Completing this phase, a business starts on the next repetition of the cycle,
where it can adjust to changes in technologies, competitive landscape,
business strategies and customer expectations.
Analytical capabilities support the entire transformation and enable

companies to gain visibility, insight and foresight across their business
! !407
activities. Bringing all this together, companies will move towards creating
higher customer value and ultimately, emotional bond.
For efficient customer experience management, a company needs to

understand that the roots of customer experience success or failure lie
deep within and around the company, not just with customer-facing
employees.
11.10 Blueprint of Customer Experience
It is vital to develop a blueprint with a clear and very detailed definition of

the experience companies want to consistently deliver to customers in each
segment. These descriptions should incorporate how the customer should
feel in a macro journey and how the sales, marketing and service teams
support this journey. Companies should aim to develop a relationship
where customers identify with the organisation on an emotional level,
being strong advocates or even fans.
The buying experience is being reinvented as customers shift from

traditional points of sale, such as branches and shops, to multi-channel
information gathering through blogs and social media, and connected
cross-channel shopping. Recognising this shift, companies should deliver a
seamless transition between channels with a centralised record of the
customer’s past interactions. This avoids the customer having to repeat
information.
Before they start detailed planning of customer experience strategies,

companies should closely examine return on investment and the case for
change. Piloting a small portion of the change can help determine and
quantify the benefits of a broader transformation.
Case Study: BMW
The premium car manufacturer BMW operates in a world of high value,

infrequent purchases with few opportunities to engage with the customer –
therefore making the right impression and exceeding expectations
becomes crucial. BMW recognised that their customers’ experience of the
organisation spanned many different touch-points, from advertising to the
dealership customer service teams to the product itself.
! !408
BMW designed and mapped those journeys, identifying all the important
moments of truth – with positive or negative effect. Those insights were
used to drive change within the business: Investment was focused on
improving underperforming elements of this journey and exploring ways to
outperform expectations with the most potential impact on loyalty and
advocacy.
Customer experience priorities were built into the contractual standards

with the channel (dealers) and the desired target state was developed into
a ‘curriculum’ for training into the organisation.
Activity F
6. How can a company transform an ordinary experience to an “out-of-the-

world experience?”
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11.11 Summary
Even though there are many benefits to modelling business processes, it is

rarely done, and when done at all, not done very well. Many companies
have made efforts to document their processes, but very few have “built
(and committed to improve and learn from) useful process models.” The
process models that do exist are often not well integrated and leave out
key information that would fully describe the process. There is a need for
better tools and techniques for modeling business processes and keeping
them in sync with actual business activities. Now, business transformation
means much more. It implies a holistic process transforming across the
business. It also implies that this is the only valid strategic process towards
achieving your corporate vision or way forward. Whether the intention is to
boost turnover or to improve profitability, the study underlines the extent
to which economic globalisation impacts on the number and content of
these transformation processes.
! !409
Study Questions
1. What is a Business Intelligence? How can it transform a business from

“ordinary to “outstanding”?
2. How does BPM help companies devise a marketing plan in accordance to

customer preference?”
3. How can BPM assist a company in tackling competition?
4. Discuss some of the reasons for an organisation to fail.
5. In what way can employees make a difference in delivering an excellent

customer experience?
1. This is the processing of data about customers and their relationship

with the enterprise in order to improve the enterprise’s future sales and
service and lower cost.
a. Clickstream analysis
b. Database marketing
c. Customer relationship management
d. CRM analytics
2. This is a broad category of applications and technologies for gathering,

storing, analysing, and providing access to data to help enterprise users
make better business decisions.
a. Best practice
b. Data mart
c. Business information warehouse
d. Business intelligence
3. Which of the following are benefits or use of BI?

a. Firms can identify their most profitable customers
b. Quickly detect warranty reported problem
c. Data Mining
d. Both (a) and (b)
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4. Which of the following are direct benefits of Business Intelligence?

a. Decision-making
b. Delivers data mining functionality
c. Artificial intelligence
d. All of the above
5. Business Process Management is a _________.

Options:
a. Process Framework
b. Management Discipline
c. Academic Program
d. Technology Architecture
6. Business processes define _________.

a. What we do and how we do it
b. How technology supports the business
c. Detailed components of enterprise architecture
d. Business performance capabilities
7. BPM provides strategies for managing _________.

a. People, processes, and technology cost-effectively
b. Business processes from an end-to-end perspective
c. Products, processes, people, and profits with a balanced
measurement system
d. Project management and technology implementation
8. To achieve the desired level of process performance and deliver

customer value, process metrics must _________.
a. Be monitored and controlled
b. Be continually changed by executive management
c. Be easily benchmarked
d. Be automated
9. Process measures used to align team performance to process

performance are _________.
a. Customer satisfaction
b. Service quality
c. Both statements are correct
d. Neither statement is correct
! !411
10.Business Intelligence tools facilitate a deeper understanding of

_________.
(i) A deeper understanding of customer behaviour
(ii) Quickly detect warranty-reported problems
(iii) Negative experiences of customers
(iv) Get an insight to consumer buying behaviour
Options:
a. (i), (ii) and (iii)

c. (ii), (iii) and (iv)
d. All of the above
Answers
1. (d), 2. (d), 3. (d), 4. (a), 5. (b), 6. (a), 7. (b), 8. (a), 9. (c), 10. (d).
! !412
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !413
EVIDENCE-BASED CUSTOMER-CENTRIC SERVICE
Chapter 12
Evidence-Based Customer-Centric Service
Objectives
• Listening to customers to improve customer-service processes

• Evidence-based service guiding principles
• Choose the right starting point for your organisation
• Benchmarking for continuous improvement
• Demand Data: All decisions must be data driven
• Look outside your organisation for data
• Eliminate noise (unwanted data)
• Apply Analytics: Relevant analytical techniques will allow you to gain
insights into business process
• Use a customer’s viewpoint (to gain a competitive advantage)
Structure:
12.1 Listening to Customers to Improve Customer Service Processes

12.2 Are You Really Listening to What Your Customers are Saying?
12.3 Evidence-based Service Guiding Principles
12.4 Summary
12.6 Multiple Choice Questions 
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Introduction
The ability to successfully manage the customer value chain across the life
cycle of a customer is the key to the survival of any company today.
Business processes must react to changing and diverse customer needs
and interactions to ensure efficient and effective outcomes.
Evidence-based marketing helps brands decide which products, technology

platforms, referral channels and creative concepts they can use to create
more productive relationships with their customers. While data analysis
should be a strong part of the equation, marketers need to balance
creative brand considerations and emotional resonance into every resulting
strategy. Evidence-based marketers employ customer-centric research,
marketplace analysis and historical data to greatly reduce guesswork and
enhance the probability of success.
For most brands, evidence-based marketing campaigns should be agile

enough to shift perspectives, messages and even target audiences based
upon response. Likewise, evidence-based marketers should use technology
to measure which creative concepts connect with audiences, because
making a meaningful connection with a customer base is often the very
thing that drives sales.
12.1 Listening to Customers to Improve Customer-Service

Processes
Listening to, and engaging, your customers are the first steps to building
good customer relations. It is important to truly understand what’s driving
your customers' actions. What is the real reason they are contacting you
with queries? Understanding the customer’s emotional status and
understanding how you can provide a good service that creates an
emotional connection with their personal circumstances is critical. Consider
engaging a group of your customers in helping you shape what you do to
meet and exceed customer expectations.
Customers increasingly have access to a huge amount of information,

which means any questions they do ask are likely to be more in-depth, and
very specific to themselves. Keeping your front-line staff up-to-date and in
a position where they can confidently answer questions from concerned
! !415
customers will naturally create a greater feeling of confidence for the

customer, helping increase customer retention. (Figure 12.1).
Customers today expect an imaginative, high-quality experience in a multi-

channel environment. Failure to adapt to this new reality will mean not only
lost business but a growing gap in product development. If you’re not
listening and responding to your customers, chances are you’re not
anticipating new needs and demands.
!
Figure 12.1: Listening Analytics
Amway uses the slogan "We are listening.” The idea revolves round the
theme that Amway understands the Indian consumers and the products
are derived from this understanding.
NIND (Nikon India Private Limited) conducts “Happy Call," an initiative

where NIND call customers who have previously put in a request for repair
and ask them in person about what they thought of the response provided
by the service center. This activity enables the company to confirm
customers’ satisfaction level from their own words. “Listening to the views
of customers firsthand is very meaningful. We will continue to strive to
improve customer satisfaction while resolving any problem areas raised by
! !416
customers.” —Tarun Siwach, Call Center Supervisor, Nikon India Private

Limited.
Cell phone manufacturers like Micromax introduced cheap dual SIM phones
that used two SIM cards in a single phone. This is an example of how a
company allowed the market to specify its needs. On the other hand,
Apple’s iPhone is a great example of how a company can transform the
product experience for a market and convince customers of the value of
the innovation.
However, whether a company chooses to lead the market like Apple did
with its iPhone, or whether it opts to follow the market like Micromax did
with the dual SIM phone, it is critical that it develops the ability to listen to
the market. When the company chooses to lead the market, it must have
the ability to understand market trends and also develop a persuasive
argument that will convince prospective customers to buy the product.
When the company wants to follow the market, it should be able to listen
to customer expectations and needs as it develops the product
Activity A
1. How do companies become customer-centric by just listening to them?

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12.2 Are You Really Listening To What Your Customers Are

Saying?
Your customers are speaking – but are you really listening?
Too many companies misuse the treasure that is customer feedback. The
solution is systematically measuring the customer’s voice and integrating it
into a culture of continuous feedback.
!
Customer-experience metrics have proliferated over the past decade, and
chances are that your business relies heavily on one or more of them. But
many companies struggle with metrics.
For some, the problem is a disconnect between the metric and business
performance; for others, it is a loss of confidence among frontline workers
when the metrics do not seem to explain big swings in customer
satisfaction.
Further, in some companies, there is confusion about whether transactional

or relational measures matter more, and, in others, a simple lack of results
from too much focus on one top-line metric.
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Linking Customer Experience to Business Outcomes
It is important to explore why a customer’s end-to-end experience is the

best way to gauge his or her overall satisfaction.
Complicating the problem, many companies struggle with collecting,

analysing, and acting on feedback. Many B2B companies, for instance,
gather customer feedback only through sales channels, missing important
insights from users and influencers. Finally, many companies do not have
the culture to loop customer feedback through the front line to improve
behaviour or connect it to innovation.
Taken together, these complications leave many companies tone-deaf to

the voice of the customer and represent a formidable barrier to building
the foundation of a successful customer-centric strategy.
In our experience, however, we have found that there are three core things
that can turn metrics into a source of true value. These core elements are
critical for transforming a middling approach to customer-experience
measurement into a value-creating system.
Focus on the Journey
Measuring customer experience at the journey level (i.e., those set of

interactions a customer has with a business to complete a task), as
opposed to looking only at transactional touchpoints or overall satisfaction
makes all the difference.
Our research finds that customer journeys are significantly better

correlated with business outcomes, such as churn, than are touchpoints.
Obtaining feedback about customer journeys—say, for the overall purchase
journey, not just a point of sale, or for the issue-resolution journey, rather
than just a customer-care interaction—is foundational.
One of the most important KPIs in an issue-resolution journey is the time

from issue to resolution.
! !419
For this to be meaningful, companies need to tie journey measurement to

key performance indicators (KPIs) and supporting operations. For example,
from a customer perspective, data reveals that one of the most important
KPIs in an issue-resolution journey is the time from issue to resolution.
If the company is looking only at a touchpoint—say, a call interaction—then

the total elapsed time until resolution will never appear as an element that
drives customer satisfaction, nor will it become a focus for improvement.
The business can then focus on addressing how to drive down the time for
issue resolution.
In addition to tying operational KPIs to journey feedback, another essential

effort is building organisational and cultural elements into the foundation of
a measurement system. These elements include clear and broad
transparency of customer-experience measures (including feedback), as
well as employee feedback. In our experience, better employee experience
and engagement translate to better customer-experience performance.
Employees are crucial actors in helping to convey what the customer is
really experiencing.
1. Invest in a backbone system
Just as companies invest in enterprise-resource-planning systems to

collect, measure, and report finances, so investment in technology is
necessary to support a superior customer-experience measurement (CEM)
system. Investing in a robust CEM systems make important.
2. Contributions to creating value
First, they make it possible to scale how many customers a business can
interact with and journeys to analyse. Moreover, the best systems can
process many more different and broader sets of data, e.g., survey results,
social-media posts, and operational data.
Finally, they enable action-based reporting. In other words, not only does
the user gain transparency into results, but the system also offers
recommendations for specific responses when certain issues are flagged. 
! !420
3. Continuous-improvement mindset
Learning from data is an ongoing process, but shifting to that approach is

difficult. Organisational inertia is hard to overcome, even for companies
with a strong customer orientation. There are two areas where establishing
a continuous-improvement regimen matters most in achieving a superior
customer-centric mindset.
The first is at the front line, with employees sending customer feedback
back into the system but then also using that insight to change the way the
process is designed or executed. When this does not occur, it is often
because this “muscle” has not been developed through training,
performance management based on incentives and leaders role modelling
customer-centric behaviour.
The second important area is making feedback part of an approach to

continuous improvement in service design. For designers and engineers in
marketing or research and development, for example, it is necessary to
create a pipeline for feedback and then acting on it, rather than merely
reporting metrics.
Customer-experience metrics are everywhere, but relying on them is not

the same as truly hearing the voice of the customer. Rather, investing in an
effective and complete system to measure the experience of the customer
journey is the way to reap the rewards of customer feedback.
Getting started and lessons learned
This kind of transformation can take time—often 18 to 24 months to fully

realise the bottom-line gains—but the benefits to a company’s culture can
begin accruing quickly as the system is put in place. One particular value of
journey-centric measurement is that it does not require going all in at the
beginning across the customer life cycle. Businesses can build the complete
system, end to end, in one journey at a time and then roll out more
broadly as they build momentum or free up resources.
! !421
Whatever starting point management chooses, there are common

pitfalls.
Lessons learned from these can help ensure that establishing a journey-
centric customer-experience-measurement system gets off to a strong
start:
a. Think systematically. Metrics are simply data points. Think of each as

a medical test, such as an X-ray or CAT scan, that serves as one input in
making an informed diagnosis. In business, as in health, the goal is not
to focus on the test but to figure out how to heal whatever has gone
wrong throughout the entire system. It may seem intuitive, but it bears
repeating that securing a number is not enough. Businesses must be
ready to take that feedback and use it for change.
b. Don’t fret about the metric. Businesses often agonise over whether
they have the right metric. But our research shows that whether a
company is using a net promoter score, customer-satisfaction score,
customer-effort score, or another popular metric of the day, it matters
less which score customer-experience managers choose than what they
do with it. No one metric is the best for all businesses or customer
journeys, and best-in-class operators generally choose the metric that is
most predictive of their desired business outcome, which can vary by
industry.
c. Show me the money. Getting the most out of any metric requires
linking that measurement to financial value. That linkage helps business
leaders set priorities on the changes that will deliver the greatest
bottom-line impact and stimulate conviction at all levels of the
organisation. It is of little use to choose a typical net-promoter-score
scale (say, 0–6, 7–8, 9–10) if moving customers from 7 to 9 does not
actually deliver any improvement in financial metrics such as likelihood
to churn. In tying action to metrics, businesses must establish clear and
well-understood break points.
d. Close the loop. Metrics reflect the state of business at a particular

point in time. Actually, improving customer experience requires closing
the loop with customers to fix individual concerns and to celebrate front
line successes. It also requires closing the loop on core issues by
! !422
applying the feedback to the journey level, analysing the KPIs, and
rewiring the organisation to fix the root causes of any problems.
e. Listen to the front line. Leading customer-experience companies

systematically improve operations by incorporating employee feedback
on perceived customer experience and problem areas. This requires a
shift in thinking that goes beyond conducting focus groups or meetings
between senior management and front line workers. It requires applying
to employees the same operational-feedback platforms used for
listening to customers. Although employees and customers point out
similar problems, employees uncover root causes, while customers only
report on symptoms.
f. Focus on alignment. Successfully establishing a new measurement

system in the context of a broader customer-experience transformation
depends on cross-functional alignment. Marketing, operations, IT, and
even human resources in some cases are essential to have at the table,
jointly committed to the company’s customer-experience vision.
12.3 Evidence-Based Service Guiding Principles
Evidence-based practice involves identifying, assessing, and implementing

strategies that are supported by research. It refers to collecting feedback
from customers about the kinds of services and products, or improvement
to those existing services and products, they would like to see from the
company.
Evidence-based guiding principles can keep you focused on fulfilling an

organisation’s mission and goals, while remaining relevant. These essential
truths will keep your organisation on target for fulfilling your mission and
goals while navigating trends, social media, economic changes and cultural
shifts. Successful implementation of evidence-based principles can be
achieved when equal emphasis is placed on organisational development
and collaboration.
Aspects of evidence-based practice are already in use. In customer service

processes, there is no dearth of evidence. The activity happening outside
the company needs to be harnessed into useful and actionable information.
In order to deliver these improvements, your customer service processes
! !423
need to be agile enough to allow you to actually take action once possible
improvements have been identified..
Activity B
2. In what way can a feedback by a customer improve customer service?

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There are several guiding principles for implementing evidence-

based service:
(a) Choose the right starting point for your organisation
There are five competing concepts under which organisations can choose to
operate their business: the production concept, the product concept, the
selling concept, the marketing concept, and the holistic marketing concept.
The four components of holistic marketing are relationship marketing,
internal marketing, integrated marketing, and socially responsive
marketing. (Table 12.1).
The set of engagements necessary for successful marketing management

includes capturing marketing insights, connecting with customers, building
strong brands, shaping the market offerings, delivering and communicating
value, creating long-term growth, and developing marketing strategies and
plans.
The marketing orientation evolved from earlier orientations, namely, the

production orientation, the product orientation and the selling orientation.
! !424
Table 12.1: Five Competing Concepts
Western
Profit
Orientation European Description
Driver Timeframe
Production Production Until the A firm focusing on a production

methods 1950s orientation specialises in producing
as much as possible of a given
product or service. Thus, this
signifies a firm exploiting economies
of scale until the minimum efficient
scale is reached. A production
orientation may be deployed when a
high demand for a product or
service exists, coupled with a good
certainty that consumer tastes will
not rapidly alter (similar to the sales
orientation).
Product Quality of Until the A firm employing a product

the product 1960s orientation is chiefly concerned with
the quality of its own product. A
firm would also assume that as long
as its product was of a high
standard, people would buy and
consume the product.
Selling Selling 1950s and A firm using a sales orientation

methods 1960s focuses primarily on the selling/
promotion of a particular product,
and not determining new consumer
desires as such. Consequently, this
entails simply selling an already
existing product, and using
promotion techniques to attain the
highest sales possible.
Such an orientation may suit
scenarios in which a firm holds dead
stock, or otherwise sells a product
that is in high demand, with little
likelihood of changes in consumer
tastes that would diminish demand.
! !425
Marketing Needs and 1970s The ‘marketing orientation’ is

wants of perhaps the most common
customers orientation used in contemporary
marketing. It involves a firm
essentially basing its marketing
plans around the marketing
concept, and thus supplying
products to suit new consumer
tastes. As an example, a firm would
employ market research to gauge
consumer desires, use R&D
(research and development) to
develop a product attuned to the
revealed information, and then
utilise promotion techniques to
ensure persons know the product
exists.
Holistic Everything 21st The holistic marketing concept looks

Marketing matters in century at marketing as a complex activity
marketing and acknowledges that everything
matters in marketing — and that a
broad and integrated perspective is
necessary in developing, designing
and implementing marketing
programs and activities. The four
components that characterise
holistic marketing are relationship
marketing, internal marketing,
integrated marketing, and socially
responsive marketing.
Activity C
3. What was the marketing concept followed in the 70 s — Inside-out or

Outside-in?
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(b) Benchmarking for Continuous Improvement
Benchmarking: The continuous, systematic process of measuring and

assessing products, services and practices of recognised leaders in the field
to determine the extent to which they might be adapted to achieve
superior performance.
Benchmarking is all about comparison, and comparison can be a driving

force to spur on organisational or individual performance. It is a tool that
provides goals for realistic improvement and helps you understand the
changes required for improving performance (Figure 12.2).
!
Figure 12.2
! !427
Benchmarking involves rigorous self-examination, careful quantification

and qualification of important performance measurements, extensive data
collection and analysis, and the development of a process for continuous
improvement. Improvement opportunities often involve major cultural or
operational changes for the organisation.
Identifying strengths and weaknesses, increasing client satisfaction,

prioritizing improvement opportunities, setting goals and developing a
climate of continuous change are all marks of the successful organisation,
the one against which other organisations benchmark.
In the early 1980s, Xerox found itself increasingly vulnerable to intense

competition from both the US and Japanese competitors. According to
analysts, Xerox’s management failed to give the company strategic
direction. It ignored new entrants (Ricoh, Canon) as a result of this, return
on assets fell to less than 8% and market share in copiers came down
sharply from 86% in 1974 to just 17% in 1984. Between 1980 and 1984,
Xerox’s profits decreased from $1.15 billion to $290 million.
In 1982, David T. Kearns took over as the CEO. Kearns quickly began
emphasising reduction of manufacturing costs and gave new thrust to
quality control by launching a program that was popularly referred to as
‘Leadership through Quality.’ As part of this initiative, Xerox implemented
the benchmarking program. These initiatives played a major role in pulling
Xerox out of trouble in the years to come. The company even went on to
become one of the best examples of the successful implementation of
benchmarking.
Activity D
4. How did the CEO David Kearns apply the concept of benchmarking?
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(c) Demand Data: All decisions must be data-driven
In today’s multi-channel marketing world, characterised by the rapid and

consequential changes in digital and social marketing, the ability to
measure and optimize marketing initiatives is more challenging and
important than ever. Marketers need to bring data and channels into a
single, comprehensive, and integrated solution.
Data-driven decision-making is a systematic process of collecting,

analysing, and synthesising data; making a judgment about the data; and
then making a decision based on the knowledge derived from your
judgment in order to improve outcomes. Data-driven decision-making is
action-oriented and may involve making a decision for tomorrow based on
today’s outcomes.
Businesses aiming to stay competitive must abandon making decisions

based on instincts and instead apply analytics to gain actionable insight.
This new trend is forcing organisational and cultural change on a massive
scale.
(d) Look outside your organisation for data
How you handle competition can be a direct link to the success or the
failure of your company. You can, however, significantly increase your
chances of coming out on top by creating a competitive edge. Having a
competitive edge means possessing an advantage over your competition
by collecting competitive data.
Monitoring your own centric data is critical, but taking things one step
further and gathering competitive data is a growing trend. As more
companies begin to use competitive data, it will become an increasingly
important part of market analytics. There are a few options for how you
obtain your competitive data, but regardless of the method you select, it is
undeniable that competitive intelligence can be a valuable asset to your
marketing and optimisation strategies
! !429
Activity E
5. As per your perception, what could be the information integrated in the

data of the competitors?
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(e) Eliminate noise (unwanted data)
While collecting data, whether internal or from social interaction, find out
what data is statistically and strategically significant for you. What metrics
should you be observing? Which will have the greatest impact on your
processes and strategies? Eliminate unwanted data if the findings are not
relevant or of importance.
(f) Apply Analytics: Relevant analytical techniques will allow you to

gain insights into business process
Marketing has evolved from a creative process into a highly data-driven

process. Marketing organisations use analytics to determine the outcomes
of campaigns or efforts and to guide decisions for investment and
consumer targeting. Demographic studies, customer segmentation,
conjoint analysis and other techniques allow marketers to use large
amounts of consumer purchase, survey and panel data to understand and
communicate marketing strategy.
(g) Use a customer’s viewpoint (to gain a competitive advantage)
Today’s most innovative companies realise the opportunity of investing

deeply in their social customer experience strategy. Social customer
experiences that include peer-to-peer support enable businesses to help
customers help themselves. Developing a commerce strategy through
social customer experience is a far more cost-efficient and effective way to
drive revenue.
! !430
Cosmetic retailer Sephora, owned by Louis Vuitton, created a deeply

engaging social customer experience with its online “Beauty Talk”
community. It created a place where customers can come together around
a shared interest — make-up and beauty — and encouraged them to share
their passion.
The social customer experience economy is the new frontier of competitive

advantage. It's the place where businesses are not only rising to the
challenge of social media, they’re using it to solve complex business
problems, fuel business change, and stay ahead of the pack.
Sony makes active use of customer feedback to improve its products and
customer services. Opinions, reports of malfunctions after purchase,
questions regarding use and other feedback received through Customer
Information Centers are evaluated promptly and accurately and
disseminated to the planning and design groups so that improvements in
product quality can be made in a timely fashion, thus contributing to
efforts to enhance product power.
Activity F
6. Before investing in a new product or project, how do companies make

use of customer feedbacks?
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12.4 Summary
Evidence-based service offers powerful new ways of thinking about

customer service. Evidence-based practices, when combined with social
listening and analytics, yield measurable benefits in customer service
operations. These practices support the company’s brand image and
achieve a balance between the competitive pressures of reducing costs,
satisfying customers, increasing revenue, and complying with ever-growing
regulations. Transform businesses to become more customer-centric,
simplifying products and service offerings and using vast data resources to
offer more tailored services to customers.
A consumer calls a contact center with a query regarding wrong billing.

This is a demand that can be eliminated by enhancing customer experience
at the billing end. That is, by improving the efficiency of the billing
department where the fault actually lies, billing related queries can be
totally avoided.
The company, thus, need not deploy so many people at the call center to
handle queries relating to billing.
Ultimately, by reducing the number of people, the company can cut costs.
And instead these people can be redeployed at the billing end where the
fault actually lies.
Companies are increasingly realising the importance of this. While some

years ago, they were busy growing, the economic slump today has forced
organisations to literally apply the brakes and invest time and energy on
enhancing customer experiences.
a. What are the various ways to enhance customer experience in service

firms?
b. What are the various customer-centric strategies that companies can

use during slump to improve efficiency?
c. Explain how being customer-centric can enhance customer value.
! !432
Study Questions
1. How can data analytics empower a company to devise a marketing

strategy?
2. How does an old axiom “survival of the fittest” apply to companies

wishing to be successful?
3. In what ways can marketers increase the prospects of success of a

product?
4. What is the data required for evidence-based market research?
5. From 1970s to the 21st century, what transition has taken place as far
as marketing is concerned?
6. Why is benchmarking given so much of an importance for companies to

improve?
7. Do you think by analysing and assessing data will help companies in

tackling competition? Why?
8. A Case Study
A consumer calls a contact center with a query regarding wrong billing.

This is a demand that can be eliminated by enhancing customer experience
at the billing end. That is, by improving the efficiency of the billing
department where the fault actually lies, billing related queries can be
totally avoided.
The company, thus, need not deploy so many people at the call center to
handle queries relating to billing.
Ultimately, by reducing the number of people, the company can cut costs.
And instead these people can be redeployed at the billing end where the
fault actually lies.
! !433
Companies are increasingly realising the importance of this. While some

years ago, they were busy growing, the economic slump today has forced
organisations to literally apply the brakes and invest time and energy on
enhancing customer experiences.
1. What are the various ways to enhance customer experience in service

firms?
2. What are the various Customer Centric strategies that companies can
use during slump to improve efficiency?
3. Explain how being customer centric can enhance customer value
1. Customer service organisations need to put in place a _________

before moving on to establish best-in-class customer service.
(a)Solid service foundation

(b)Flexible workplace schedule
(c)Remedial service issues
(d)Concept of hard sell
2. Many companies pay insufficient attention to innovative, forward-looking

initiatives as a result of which _________.
 
(i)They are still struggling to remedy service issues 
(ii) They enhance the probability of success 
(iii)They cannot exceed customer expectations  
(iv) They cannot influence customer decision-0making
(a)(i), (ii), (iii) and (iv)

(b)(i), (iii) and (iv)
(c)(ii), (iii) and (iv)
(d)(i), (ii) and (iv)
! !434
3. Employee motivation is just not a prerequisite for efficient operations

and high-quality service but so also to retain loyal customers.
(a)True
(b)False
4. In today’s mature and competitive markets, a company’s success in

winning and retaining customers increasingly hinges on _________. 
(i) Its customer service performance 
(ii) Investing in customer service innovations 
(iii) Front-line customer service staff 
(iv) Using quality as a brand differentiator in mature markets
(a)(i), (ii), and (iii)

(b)(ii), (iii) and (iv)
(c)(i), (ii) and (iv)
(d)All of the above
5. Which of the following is not a customer-centric performance measure?
(a)Number of new customers

(b)Repeat customers
(c)Inventory turnover
(d)Customer life time value
Answers:
1. (a), 2. (b), 3. (a), 4. (d), 5. (c).  
! !435
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
! !436
LEADING THROUGH THE MANAGEMENT PROCESS TOWARDS CUSTOMER-CENTRICITY
Chapter 13
LEADING THROUGH THE MANAGEMENT
PROCESS TOWARDS CUSTOMER-
CENTRICITY
Objectives
• Leading strategic change

• More Power to the Customer: A-customer Centric Process
• The Change Management Link to Customer-centricity
• Managing Change towards Better Customer-centricity
Structure:
13.1 Leading Strategic Change for a Customer-centric Culture

13.2 5 Attributes of a Customer-centric Culture
13.3 7 Secrets of Building a Customer-centric Company Culture
13.4 More Power to the Customer: A Customer-centric Process
13.5 The Change Management Link to Customer-centricity
13.6 Managing Change towards Better Customer-centricity
13.7 Summary
! !437
Introduction
Shaping a customer-centric culture in an organisation can be an exciting

and highly challenging undertaking. Exciting, because it can take you on a
unique and rewarding journey offering rich experiences, invaluable insights
and stunning outcomes. And challenging, because – like any change
management initiative – there will be several hurdles to overcome along
the way. In order to successfully navigate this journey, it is critical that the
approach taken is based on sound frameworks and processes. Having a
strong customer-centric framework helps you to identify appropriate
courses of action that will minimize the risks you take, and maximise your
chances of success.
Definition: Change Management
“Change management is the formal process for organisational change,

including a systematic approach and application of knowledge. Change
management means defining and adopting corporate strategies, structures,
procedures, and technologies to deal with change stemming from internal
and external conditions, leading to the ultimate goal of improving
customer-centricity.”
13.1 Leading Strategic Change For A Customer-Centric

Culture
Culture is the glue that holds a complex organisation together. It inspires

loyalty in employees and makes them want to be a part of a team. It
motivates people to do the right thing, not just the easy thing. At
companies with winning cultures, people not only know what they should
do, they know why they should do it. The strongest cultures bind people
together across both hierarchy and geography, guiding them to make the
right decisions and advance the business.
Leaders fail than succeed at creating a winning culture. That’s because

transforming a culture requires influencing people’s deepest beliefs and
most habitual behaviours. One company’s culture may be so sharp in its
focus on cost-efficiencies that it stifles a more customer-centric approach
to new product development.
! !438
Customer-centric businesses need a very different culture to product-

centric businesses. Selling and delivering new solutions often means
recruiting new people with different mindsets – who think less ‘plan and
build’ and more ‘sense and respond’ to react to customer needs.
Sustainable culture transformation requires that the change is all-inclusive.

Hence, for such a cultural transformation to happen, top management,
departments and employees must be all aligned to the goals, values and
strategy of the company, and each employee needs to have a clear ‘line of
sight’ to the customer. (Figure 13.1). Lou Gerstner, the former Chairman
of IBM put it: “Culture isn’t just one aspect of the game—it is the game.”
The front-line is where sustained cultural change can have the greatest
impact on a company’s performance. It takes strong leadership at every
level of an organisation, determination and a willingness to make culture a
top priority.
When terrorists attacked the Indian city of Mumbai in 2008, employees of

the Taj Mumbai displayed uncommon valour. They placed the safety of
guests over their own well-being, thereby risking—and, in some cases,
sacrificing—their lives. Deshpandé, of Harvard Business School, and Raina,
of the HBS India Research Center in Mumbai, demonstrate that this
behaviour was not merely a crisis response. It was instead a manifestation
of the Taj Group’s deeply rooted customer-centric culture that, the authors
argue, other companies can emulate, both in extreme circumstances and
during periods of normalcy.
The key ingredients of this Taj-style customer-centricity include:
a. A values-driven recruitment system that emphasises integrity and duty

over talent and skills;
b. Training of customer ambassadors who serve the guest first and the
company second; and
c. A recognition-as-reward system that values well-earned plaudits—from

customers, colleagues, and immediate supervisors—over money and
advancement.
! !439
Each of the three elements has important features and nuances to

highlight customer centricity.
!
Figure 13.1: Customer - Centric Culture
Case Study
The part of the Siemens’ business strategy that relates to people

management is referred to as People Excellence. At the heart of People
Excellence is the building of a high performance customer-centric culture.
Nothing helps an individual more than to be given responsibility and to
know they are trusted.
Feeling part of a successful team is part of the engagement process.

Individuals who feel valued want to contribute to the success of the
organisation.
For Siemens, people, like its technology and innovation, are a source of
competitive advantage. To make the most of this advantage, Siemens
makes sure that its employees work on developing the company’s heritage
of innovation.
! !440
Siemens believes that there are many ways to make people feel valued and
engaged. These range from a pat on the back, a personal letter or a special
mention in a meeting, to a promotion or a higher salary.
Activity A
1. How does an organisational culture make a difference in its goal of being

customer-centric?
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13.2 5 Attributes of a Customer-Centric Culture
Who’s the most important person at your organisation? If you answered

“the CEO,” think again. It’s the customer!
Without the customer, you are out of business. Being mindful of that fact,
just keeping it top of mind can go a long way toward achieving a customer-
centric culture. If your sincere goal is to meet customers’ needs, you are
moving in the right direction.
But, of course, it takes more than that. Successful companies come and
go, but the ones that tend to stay around are customer-centric to the
core.
Here are five attributes they share:
1. A sense of purpose and passion

There is a link between organisations that instill a sense of purpose and
their long-term success, according to research from Deloitte. Those that
always aim to treat customers well, tend to succeed. It is not about
transactions, but about building relationships that exceed expectations…
and being passionate about it.
2. Buy-in at all levels

While it is laudable for management to aim for a customer-centric culture,
it would not happen without buy-in from all employees. Likewise, even if
! !441
employees aim to meet customer needs, they need management support

to consistently deliver great service. The most successful companies
regularly rejuvenate, with team training and staff development that keep
everyone on the customer-centric track.
3. Shared goals and rewards

Some people perform well under pressure and competition, others prefer
collaboration, but most respond well to shared goals and rewards. It is a
happy medium between putting employees against each other for
recognition and avoiding recognition altogether.
At the higher level of biological organisation, groups compete with groups,

favouring cooperative social traits among members of the same group. And
when your teams reach a shared goal, it only makes sense to share the
rewards!
4. Sincerity and trust

These attributes are at the heart of partnerships, contracts, relationships,
and dealings between people and institutions.
Trust comes from deep within organisational rules and process execution,
and when trust is strong and real, sincere care for customers follows easily.
5. Long-term commitment
It is one thing to practice customer-centric behaviours and actions for one
transaction. But you do want your customers to come back, right? To make
sure this happens, all staff must be focused on the big picture of caring for
customers and retaining them for the long haul. If you help Mr. Jones with
his product needs today, but neglect him tomorrow, what have you
achieved?
! !442
13.3 7 Secrets Of Building A Customer-Centric Company

Culture
Here is list of seven steps for creating a customer-centric culture at your

company. These work as a company culture consultant; found them to be
central to creating a corporate customer service culture that is devoted
from top to bottom to the customer experience.
1. Articulate your central philosophy in just a few words, a

few meaningful words. That is right: a company’s culture can begin with
words, but those words need to represent a decision; something you
actually stand for, a decision then expressed in the clearest, and ideally
fewest, words. Find a central operating principle. Think of the Ritz-
Carlton’s “We are Ladies and Gentlemen serving Ladies and Gentlemen,”
or Mayo Clinic’s “The needs of the patient come first.”
2. Elaborate on your central philosophy with a brief list of core

values. A list short enough that every employee can understand,
memorize, and internalize it, yet long enough to be meaningful. Your
core values should cover how customers, employees, and vendors
should be treated at all times.
3. Reinforce your commitment to these values continually. You may

want to go as far as to devote five minutes every morning you stress
one value, or an aspect of one value, at your departmental meeting. If
that is too often for your business reality or sensibilities, do it weekly.
But do not save it for the annual company picnic. Annual anything is the
enemy of “core”.
4. Make it visual. The above-mentioned Ritz-Carlton has “credo cards”—

laminated accordion-fold cards that each employee carries during work
hours. The brand’s entire core beliefs, plus shared basics of guest and
employee interactions, fit on that card. Zappos highlights one of its core
values on each box it ships out. And sometimes “visual” does not mean
words at all. One way that FedEx shows that safety is a core value is via
the orange shoulder belts in its vans: Everyone can see from twenty-five
yards away that the driver’s wearing a belt. 
! !443
5. Make your philosophy the focus of orientation. That way, if safety

is one of your core values and you stress this at orientation, on day two,
when the new employee’s co-worker tells him “In this restaurant, we
stack the high chairs in front of the emergency exit when we need more
room to do our prep work”. The new employee will experience cognitive
dissonance and work on a way to align the actions of the company with
the core values they are supposed to reflect.
6. Train, support, hire, and, if necessary, use discipline to enforce

what’s important to you. A core values statement is two-dimensional
until you bring it to life with the right people and energetic guidance.
“Maintaining a culture is like raising a teenager,” says Ray Davis,
President and CEO of Umpqua Bank, a the Pacific-Northwest-based US
retail bank that is consistently top rated for service. “You’re constantly
checking in. What are you doing? Where are you going? Who are you
hanging out with?” And, sometimes, you have to use some tough love
when that teenager is acting up in ways that do not support the culture
you are working to build.
! !444
7. Include the wider world. Your people want to be part of an

organisation with a sense of purpose. Pizza parties and overtime pay
and even, believe it or not, stock options only go so far. More
inspirational: A version of a corporate “triple bottom line,” such as
Southwest’s “Performance – People – Planet” commitment and annual
report card. Or Ritz-Carlton’s “Community Footprints” social and
environmental responsibility program. Or the story Umpqua Bank
Regional VP Michele Livingston shared, about her employees visiting the
homes of disabled customers to help them fill out their paperwork. Now
that is really something.
Example: Commit to a Customer-centric Culture
Two years ago, Amazon, as a business that runs 24/7 in five continents, told
the world about its bold goal to become Earth’s most customer-centric
company.
Since then, the company has revolutionised the way that it manages customer
concerns from a business-first approach to a customer-first approach, enabling
customers to have requests handled in an efficient and personalised manner.
Amazon enables customers to decide how and when you want to be contacted
through email, phone or instant messages.
In an interview regarding customer-centricity in the online payment space,

Patrick Gautier, VP of external payments at Amazon, said recently that most
payments and commerce companies do not have a customer-first mentality yet.
He explained:
“Everybody will always say we start with the customer, etc., but then you hear
it in the language. They use the lingo of the industry – the language of the
insiders, not the lingo the consumer would use. The consumer does not
understand the lingo. The customer gets lost in that.”
Gautier says the solution starts with customer insight. It begins with talking to
the right people about the right topics. “We need to think a little less about
payments and a little more about the people who are transacting,” he added.
So far, Amazon’s strategy of instilling a customer-centric culture seems to be

paying off. The company’s stock price has doubled in the past 12 months, and
investors continue to love this exceptional company.
!
! !445
13.2 More Power to the Customer: A Customer-Centric

Process
Customers hold the power in their preferences with products. They are
more connected, vocal, and on the lookout for better products than ever
before. They don’t just want to spend their money. Today’s consumers
want to be understood as people. They are looking for superior products
and value for money. And if they don’t find that in one product, they simply
move on to another. It’s much easier for consumers to switch products or
use multiple products for their monetary needs than it was in the past. This
newly empowered customer base makes for an uncertain future for many
companies, which in the past were primarily focused inward.
A time of uncertainty is also a time of opportunity. Consumers will reward

companies with their loyalty and recommendations if they meet their needs
and help them as promoters. Companies can increase their profitability by
balancing their customers’ needs and expectations with the costs of doing
business. This means providing better products, services, and prices, while
also improving cross-sell ratios and internal efficiencies. This makes being
relevant more important than ever. Customer management became one of
the most critical components to economic survival and sustainable growth.
Apple competes on innovation, and its production and delivery functions

reflect that strategy. When the company was nearing the launch of its
iPhone, it made a last-minute decision to switch from plastic screens to
glass screens because leaders thought this would make a bigger splash.
So, Apple’s production and delivery functions had to quickly source the
glass for the screens and totally change the production plan. If efficiency
had been Apple’s overall strategic priority, it wouldn’t have made that last-
minute change.
Activity B
2. Do you agree that more power to the customer means more business to
the companies? Why?
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! !446
13.5 The Change Management Link to Customer-Centricity
The connection between customer-centricity and change management is no

coincidence. Companies are changing to focus on building relationships
with existing customers through customer-focused operating models. Done
right, they will increase revenue while decreasing costs, creating
sustainable growth. Customer-centric activities around acquisition,
retention, attrition prevention, and share-of-customer programs can have a
positive impact on revenue and long-term strength.
To prepare for customer-centricity, companies must follow a 6-step

process.
1. Recognise the scale of the change: The first challenge one must
overcome is to get a sense of how significant a change to customer-
centricity is. This move, while being not only beneficial, but authorised
by a customer research body, is nothing less than an extensive and
thorough examination of every aspect of your business.
2. Gather all customer insight in one place – and extend your

capacity to track relevant data: Many companies have an uneven
customer insight function. That won’t work for a customer-centric
business. To be successful, one must get rid of the separate silos of
customer information and begin to assess all available data at one
place, in one time.
3. Organisations must change: To be a customer-centric company,

internal organisation must change, and companies must deliver a more
holistic experience for the customer on the outside. Marketing and
communications departments must collaborate more.
4. Build consensus internally – sell customer-centricity to your

colleagues: There is significant internal engagement necessary to build
acceptance of, and excitement in, customer centric business practices.
Management plays an essential part in making the changes happen; it
empowers the ‘doing’. Leadership inspires the transition, it is what
energises people and sustains a change in behaviour and approach.
Leadership engages the hearts and minds of staff. (Figure 13.2).
Management must recognise the degree of commitment that’s
! !447
necessary from leaders in the organisation to affect the degree of

change necessary to be successful.
Activity C
3. Why do companies need to change to become customer-centric?

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Figure 13.2: Sell Customer-centricity to Your Colleagues
Back in 1981, British Airways brought on board a new chairperson. When

this chairperson started, he noticed that the company was very inefficient
and was wasting a lot of valuable resources. To make the organisation
more profitable, this chairperson decided to restructure the entire
organisation. He realised that the best way to do this was through a
change methodology management plan.
Systematically, the company began reducing its workforce. But, before this
was done, through his change management leadership, the chairman gave
the company the reasons for the restructuring and privatisation of the
! !448
company in order to prepare them for the upcoming change. Thus, through
leadership and communication, he directed his company through a difficult
time that could have been disastrous without effective change
management resistance communication.
5. Making direct contact with customers, regularly: When leaders are

truly committed to being more customer-centric, they will demand more
voice-of-customer feedback. This might mean attending focus groups
and research sessions personally, or interviewing customers directly. It
could involve mystery shopping their firm, and their competitors’ firms.
6. Accumulating expertise in customer-centricity: Leaders committed

to more customer-oriented practices at a firm will do things like
attending conferences and training sessions, benchmarking with
customer-centric firms, and sharing best practices with other business
units or affiliated companies.
Activity D
4. How can leadership bring about a change in the management process?

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13.6 Managing Change towards Better Customer-Centricity
The most successful change management programs have two leading

qualities: strong leadership and good advance planning. While strong
leadership seems to be more important in a situation in which the company
isn’t under pressure to change, advance planning is essential regardless of
the reason that the customer-centricity program began. Companies faced
with either a threat to their existence or a clear imperative to change, such
as plummeting rates of customer retention or a risky post-merger
integration, were able to quickly rally the organisation around a customer-
led goal.
! !449
However, when organisations reach their original goal, they sometimes find
it difficult to move up to the next stage of customer-centricity, since
customer capabilities are not yet firmly embedded in the culture. This is
particularly problematic when the value of a customer-centric strategy has
not been clearly defined and embedded in organisational goals. (Figure
13.3).
!
Figure 13.3: Managing Change
Activity E
5. What are the limitations companies come across while managing

changes for customer- centric goals?
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Questions to be asked for a clear vision to meet the goals:
1. Is the goal for customer centricity clear?

2. Has the vision been translated into a financial goal?
3. Has the organisation identified proof points to measure success at each
stage of the transformation?
4. Are the organisation’s leaders demonstrating how the customer-centric
strategy will deliver growth in the organisation?
Successful companies have different approaches in implementing

customer-centricity, with programs of varying duration, emphasis, and
objective. What was common to their success was commitment from the
leadership that this was more than a passing fad—it was a critical part of
! !450
the strategy to secure profitable growth. These companies backed up their

vision with clearly articulated financial outcomes of the strategy, even if
these financial benefits were expressed at the outset as theories that need
to be validated through controlled experimentations. Doing so gave the
organisation a clear signal that this change of direction will endure,
improving the odds that the change will succeed.
The second element that successful customer-centric companies have in

common is that they have implemented an operating model that breaks
down functional boundaries, allowing information to move freely and the
organisation’s people to quickly respond to customer feedback.
There are five steps to doing so:
1. Shift the organisation’s focus to hearing the voice of the

customer: Companies use a variety of methods to improve their customer
listening, including walking in the customer’s shoes for a day, having
executives work on the front line in call centers and retail outlets, bringing
customers into the organisation to tell their stories, and establishing
customer advice panels in which small groups of customers provide
ongoing input into new products or service developments.
They also use more traditional methods, such as customer focus groups
and feedback from customer-facing staff, to learn more about their
customers’ needs. To develop true customer intuition, winning companies
increasingly cut boundaries between themselves and their customers and
suppliers. Many such companies use models, in which customers,
suppliers, and the customer-centric organisation collaborate, sharing ideas
and feedback and working together to improve the offering to customers.
This level of openness can be hugely powerful, both in terms of insights
gathered and customer relationships built.
Tata Docomo solicited its employees, suppliers, and customers for ideas
about how to improve service. This process had a high success rate, with
thousands of ideas generating 25 truly high potential opportunities in a
matter of weeks, rather than the months that an internal team could have
spent brainstorming ideas.
! !451
2. Clarify decision rights: Opening up the organisation to learn more

about what customers need is only of value if the organisation is clear
about who makes decisions based on this information. Decision rights
clarity is important for all effective organisations, but for organisations
adopting a customer-centric strategy it is absolutely critical, for at least
two reasons.
First, poorly managed decision rights mean that the rich customer insight
the organisation has accessed will go unused. Product designers will
continue to make decisions on product features in isolation from operations
managers adapting customer service standards, separate from marketing
teams changing promotions and brand positioning. Acting on customer
insight typically requires greater cross-functional collaboration than an
internally focused product or service development effort. Decision rights
must be clear to avoid having cross-functional decision making either slow
the process down while consensus is reached or duplicate effort (and cost)
as each function continues to operate in isolation.
This requires the organisation to first understand what the critical decisions
are, then define who is accountable for making these decisions versus
those that provide information to support the decision-making process.
The second reason it is important to adjust decision-making rights when

adopting a customer-centric strategy is that little knowledge can be
dangerous. Although the most effective customer-centric organisations
understand the importance of moving decision- making close to the front-
line staff to customise marketing and communication for customers, they
also recognize that offering front-line staff to take decisions over pricing,
credit assessment, and service delivery can increase margin pressure,
credit risk, and operational complexity if they are not qualified for it. For
example, a bank branch manager may have the authority to run a
marketing campaign to specifically meet the needs of his customers multi-
lingual communications in areas with diverse populations or retirement
seminars in areas with large numbers of retirees—but not change the
products offered or the credit rules that apply
! !452
Activity F
6. In what way can a manager bring about a change to benefit customers?

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3. Group customers into meaningful and actionable segments:

Customer segmentation allows the organisation to move from developing
one-size-fits-all products to creating unique customer value propositions,
based on behaviour rather than mere statistical data of the population.
These unique offerings make creative use of specific product and service
bundles for customer segments.
Grouping customers together helps organisations better understand

specific customer needs and develop value propositions to profitably target
these segments—but it can never be perfect. The best customer-centric
organisations are moving beyond segmentation to understand what
individual customers need.
HDFC Bank built up such a rich picture of its customers that it was able to
offer products and services with features and pricing to fit their individual
profiles while they were talking with a branch teller or call center agent.
This targeted approach helped the bank increase sales in key products
such as loans in personal, housing, and vehicles.
4. Align metrics and incentives: Tracking and monitoring consumer

response to product performance and service levels—and communicating
the result—is a critical part of creating repeat purchases by customers and
maintaining the momentum for a change to a customer-centric
perspective. In the best customer-centric companies, employee incentives
and customer metrics are all truly aligned to drive customer profitability.
Management of companies should realise that creating a specific customer-

focused senior executive role is a powerful way to align efforts to profitably
meet customer needs and ensure that the customer’s voice is heard in
executive decision-making. In doing so, companies highlighted the
importance of the customer function as having an equal role as the
! !453
marketing or sales functions, which typically have their own mandate and
profit and loss responsibility.
A clear vision, strong leadership, and an operating model tuned to deliver a

customer-centric strategy will ultimately be ineffective—and may add more
cost into the business—if changes aren’t also made in business enablers.
Business enablers are the people, processes, and technology that operate
within the business on a day-to-day basis.
5. People, Product architecture, Innovation processes and

Technology: Transforming an organisation from a product-push to a
customer-pull orientation has a significant impact on the capabilities,
behaviours, and attitude required of staff, particularly those in customer-
facing roles. Transforming to a customer-centric culture can be a long
journey; this is the most challenging part of their transformation. The
transformation often require changes to the competencies and behaviours
that staff need, the recruiting process, learning approaches, and
performance management systems.
A risk for customer-centric organisations is that the incremental revenue

earned by better targeting customers will be eroded by a higher cost
structure. Organisations should listen to customer needs and develop a lot
of products that customers are willing to purchase at a price that will earn
them a profit.
With a clear vision, financial goals, a redesigned operating model, and

people and process enablers in place, an organisation embarking on a
customer-centric transformation is in a good position to clearly articulate
what customer data is needed to make profitable customer-centric
decisions. The goal should be to capture and link customer data in a way
that allows profitability to be tracked at a customer level. This allows the
organisation to make the right cost vs. revenue trade-offs for different
customer groups, test new innovations with small groups of customers,
track the impact on the bottom line, and glean insight from customers’
past behavioural patterns.
When the joint CEOs at Wipro suddenly quit, a massive restructure was on
the cards, one of the first things the company’s 150 business heads did
was hit the story board.
! !454
Instead of shooting off a general circular to bewildered employees about

the sudden change at the top, the business heads were asked to shoot a
short film — aided by specially-invited advertising professionals — to allay
employees’ fears about an uncertain future. “We decided to convey the
message through a video format, which we thought would work better,”
says Abhijit Bhaduri, Chief Learning Officer at Wipro.
Some 500 of the top leaders were quickly briefed, and webcasts and
intranet dialogues arranged, to reach out to overseas Wipro employees as
well. All in a short span of time. "The move changed the reporting structure
of over 40,000 employees, and we had to work fast to prevent any water-
cooler conversations that might fuel doubts,” says Bhaduri. “It was
extremely complex, since we were dealing with diverse markets and
employees of different nationalities.”
The people behind the quick and effective damage control were part of an
entirely new entity at Wipro: A change management team. Cobbled
together from members of the HR and some other departments, this is a
unique band of firefighters which gets to work at the first hint of trouble.
Activity G
7. What changes can be brought about to improve employee performance?

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! !455
13.7 Summary
Customers increasingly expect companies to have a much better

understanding of them as individuals, as well as more timely appreciation
of their specific needs. To satisfy this new breed of demanding and
empowered customers, companies must have the right processes and
information available to deliver customised and targeted product and
service offerings that keep them engaged and loyal.
If organisations do not adequately meet these expectations, they will find it

increasingly difficult to attract talent and, more important, deliver quality
customer experiences that drive behaviours conducive to business success.
Study Questions
1. What changes are necessary for making an organisation customer-

centric?
2. What could be the reasons that sometimes change strategies fail?
3. Do you believe that by reducing the workforce is always a good

strategy? Why?
4. What is the role of culture that encourages innovation?
5. In what way can a new leader bring about a change in customer-

centricity?
6. Why is so much of an importance given to employee feedback?
7. If the role of a decision-maker is not clearly defined, what could be the

pitfalls for the growth of the company?
8. It is said that it is more profitable to retain a customer than go through

the process of acquiring one. What are your views regarding this
statement?
! !456
1. The communications management plan is a document which includes

descriptions of _________.
(a)Project level performance reports

(b)Activity level status reports
(c)Stakeholder communication requirements
(d)Responsibility
2. _________ are usually not a manifestation of unique organisational

cultures and styles.
(a)Shared visions, values, norms, beliefs, and expectations

(b)Individual traits and attitudes of co-workers
(c)Views of authority relationships
(d)Policies, methods, and procedures
3. As project manager, you decided to arrange a team meeting to identify

and analyse lessons learned from quality control with stakeholders.
What should you do with them?
(a)Document them and make them part of the historical database for
the project and the performing organisation.
(b)Discuss them with management and make sure that they remain
otherwise confidential.
(c)Publish them in the corporate newsletter.
(d)Follow your strategic decisions, independent from lessons learned.
These decisions have been made and should be implemented
whatever the outcomes are.
4. How should change management be planned for?
(a)Changes are generally not predictable, therefore planning for change

management cannot be reasonable.
(b)Planning for change management should be done while the various
change control processes are being applied.
(c)Change management can be planned in a set of management plans
or a specific change management plan.
! !457
(d)Changes are a sign of bad planning. One should avoid changes during
a project, thus eliminating the need to manage them.
5. How does a project management team stay in touch with the work and
the attitudes of project team members?
(a)By observation and communication

(b)Using closed questions during team meetings
(c)Through third-party assessments
(d)Through the team members’ functional managers
6. A customer is requiring a minor scope change and expects you to do

this without delays and additional costs. You believe that you have
adequate authorisation to make the decision by yourself, but you are
not quite sure. What should be your next steps?
(a)A requested change is always an opportunity to get more money paid

by the customer and to secretly solve schedule and quality problems.
You should make some reasonable estimates on time, costs, risks
etc. and then add a nice margin on top of that to calculate the new
price.
(b)Customer satisfaction is your top priority. The customer gives you an

opportunity to increase their satisfaction, which you should use to the
maximum benefit. Most project managers have contingencies to
cover risks; these can be used to pay the additional costs.
(c)Before making a decision you should have a look at the customer’s

parking lot. If you find there many expensive, new models, it is likely
that you can use the requested change to increase the profit from the
contract. Otherwise you should reject the request.
(d)Handle the request according to the integrated change control

processes described in your management plans. Then make a
decision together with the appropriate change control body, whether
the increased customer satisfaction will be worth the extra costs,
work, risks etc.
! !458
7. What should managers consider before conducting a performance-

evaluation interview with a project team member?
(a)Which management fallacies can most easily be delegated to the

worker?
(b)How can discussion of the manager’s leadership style be avoided?
(c)Has the employee been provided with sufficient instructions and work
tools?
(d)How can dispute related to unsatisfactory performance be avoided?
8. During human resource planning, you identified that your team

members are not sufficiently qualified for their tasks. Which may be an
appropriate solution to this problem?
(a)Reduce level of effort

(b)Develop a training plan
(c)Plan quality audits
(d)Plan quality inspections
9. What is not true for change requests?
(a)Change requests should always be handled in a controlled and

integrative fashion.
(b)Change requests surpassing the formal change control processes can
lead to scope creep.
(c)Professionally managed, change requests can help improving a
project and resolving emerging problems.
(d)Change requests are always a sign of bad planning and should be
avoided therefore.
10.Which statement describes best the meaning of leadership?
(a)Ensuring predictability in an uncertain environment

(b)Sustaining an ongoing business over a long period of time
(c)Adhering to publicised standards and procedures
(d)Developing a vision and strategy and motivating people
Answers:
1. (c), 2. (b), 3. (a), 4. (c), 5. (a), 6. (d), 7 (c), 8. (b), 9. (d), 10. (d).  
! !459
REFERENCE MATERIAL
chapter
Summary
PPT
MCQ
Video Lecture
! !460
CUSTOMER-CENTRIC: CASE STUDIES
Case Study 1
Procter & Gamble: Using Customer Insights to Grow in Emerging

Markets
Procter & Gamble is hitching a big part of its growth strategy to “$2-a-day
consumers” in emerging markets. As noted in the Fortune article reporting
this move, CEO Robert McDonald wants to acquire 800 million new
customers by 2015! To do that, he’s focused on Asia and Africa, where per
capita spending on P&G products is only $1-3 per year. P&G has discovered
that the key to unlocking this largely unexplored wealth of consumers is
not cutting costs, pricing accurately, or distributing to rural markets.
Instead, the real challenge is to gain meaningful and predictive customer
insights that will enable P&G execute these growth strategies with impact.
In strategy speak, growth strategies have to be married with a
complementary customer insights capability.
P&G learned the hard way that operating under untested assumptions
about customer needs can be costly. Its razor launch in India failed
because the company tested the razor with Indian men at MIT, instead of
India, where lack of access to water made it a painful and ineffective
product. Today, P&G is taking steps to learn about emerging market
customers in ways that will yield insights that create value for the
customer and for P&G.
At the heart of such strategies lies a simple notion—observation creates

insights. As an example, water scarcity in Lanzhou, China makes lathering
shampoo impractical for women with long hair. So why not cut it shorter?
In-home observation by P&G revealed customer Wei Xiao Yan’s adamant
belief that women “should have long hair.” Yan had long used laundry
detergent to wash her hair for years rather than trim it! Understanding
these types of motivations behind consumer behaviour is crucial to P&G’s
ability to satisfy customer needs. In Wei’s case, P&G found that leave-in
conditioner served two needs—it softened her hair and conserved water.
Additionally, the company is opening an R&D facility in Beijing to
coordinate research efforts among all of its units. This facility also includes
! !461
a hutong, or a simulated Chinese home, where researchers can observe

customers interacting with products.
While surveys and experiments can produce useful insights, direct

observation provides a rich understanding of how and why customers use
products. Unique and difficult to imitate ideas are much more likely to pop
up in observation. As another example, in the West, hair dye functions as a
personal care luxury, but researchers learned that developing world
consumers use it to make job seekers presentable for employment
opportunities. Given this, reducing the price and the amount of water
necessary for such dyes will be key to the success of these products.
The late management scholar C.K. Prahalad advocated serving these

“bottom of the pyramid” customers. He knew, as P&G is finding out, that
competitive advantage in such endeavors will be sharply divided between
two types of companies—those that know how to understand these
customers well and how to use these insights to drive growth strategies
and those that don’t.  
! !462
Case Study 2
The Flipkart Story
Many Indians today are embracing e-retailing with enthusiasm. Popular

portals such as Flipkart are spearheading the conversion of offline shoppers
into online bargain hunters. Adds Naveed, as an afterthought, “I felt
Flipkart was the best option as the transaction was easy, and the variety of
products was a bonus.” For Flipkart, this means the unlocking of a vast
audience waiting to experience the joys and comfort of shopping online.
Sachin Bansal, CEO and one of the co-founders of Flipkart (the other being
Binny Bansal), is an ardent believer in the merits of customer service. “A
simple desire to create a tailor-made product for the Indian consumer has
grown into something beyond what we imagined,” Sachin muses. A quick
glance at Flipkart’s timeline shows it was to start as a price comparison
platform, but there weren’t enough e-commerce sites to compare. So, both
the Bansals, who were colleagues at IIT-Delhi, and then at Amazon.com,
thought, “why not start an e-commerce site?” That was the genesis of
Flipkart. From an initial investment of $8,000, this humble seed of desire
has germinated into a $100 million e-retailing favourite. The founders’
passion for the consumer Internet space manifests itself in the brand,
which is synonymous with customer service and satisfaction. ‘Don’t count
your customers before they smile’ is the company’s operating mantra, and
it’s a mantra they’re applying successfully alright!
E-commerce: Good to Go?
The concept of e-commerce is downloading at a fairly rapid pace in the

psyche of the Indian consumer. In the metros, shortage of time is a big
driver for online shopping. On the other hand, accessibility to a variety of
products makes audiences from smaller towns and cities opt for the online
route. Major retailers face challenges in stocking their stores adequately.
Often, customers are unable to purchase items of their choice, thus
prompting them to resort to e-retailers. “For books, I usually prefer
shopping from physical stores, but so far, only Flipkart has managed to
supply me with Manga, Japanese literature, that’s otherwise difficult to
find. Plus, it’s often cheaper to buy online. I’m definitely going to be a
regular on their site,” enthuses Riddhima Toshniwal, a content writer from
Raipur.
! !463
Such experiences explain the growing popularity of Flipkart in the non-

metro regions as well. “We will close 2011-2012 with over $100 million in
revenue. By 2015, we want to clock in $1 billion, but looking at present
trends, we may be able to do it sooner,” states Binny, Flipkart's COO. This
statement doesn't seem far-fetched; a quick overview of India’s Internet
penetration shows a user base of approximately 100 million. The
Government’s National Broadband Plan, pegged at $4.5 billion, proposes to
connect nearly 160 million additional Internet users by 2014. The spread,
and subsequent adoption of e-commerce, thus, only seems logical. With
several reputed brick-and-mortar retailers also offering online services, it
seems natural the trend of shopping remotely will scale up substantially.
“The value proposition in either formats of retailing, physical and online, is
different. It's the experience of touch-and-feel that makes physical
shopping exciting. In the online context, convenience and comfort takes
over. There’s ample scope for both to grow,” Sachin avers.
The Devil Lies in the Detail
A robust back-end is a vital pre-requisite for an online business to survive,

since once the customer completes her transaction, it’s this back-end that
connects the dots. Flipkart began operations on the consignment model —
goods were procured from suppliers on demand, based on the orders
received through the website. However, eventually, the books-to-
electronics e-shop adopted the warehouse model. The company has its
own warehouses, and maintains its own inventory. Sales projection
determines the inventory, and the available inventory accounts for the
sales made; it's a self-feeding cycle of sorts. “Nearly 60% to 70% of
deliveries take place through our own network,” states Sachin, who thinks
such a model provides for better control over the entire logistics
management practice.
On the operational front, issues faced by the company pertain to delay in

deliveries, or faulty products. As a customer-centric organisation, none of
these issues can remain unresolved for long. “We face significant
challenges in reverse logistics. It’s a big task to track unsuccessful orders,
which are quite costly to manage,” he continues. Hence, Flipkart stresses
on customer service — it aligns with the firm’s philosophy of ‘making better
our service promise’. Binny pitches in saying, “Bigger investments in our
supply chain and technology will enable larger warehouses and increased
! !464
process automation. Our bigger objective is to redefine the way India

shops.”
Consistent customer service is the hallmark of Flipkart. The founders don’t

think discounts can replace the customer’s satisfaction of being serviced
promptly and efficiently. Similarly, the trust-building exercise is accorded a
lot of importance. Flipkart connects with customers in real-time, through
Facebook and Twitter. Yes, honesty is the best policy for this e-commerce
trailblazer. “We’ve trained our customer service executives to take spot
decisions. Addressing customer concerns and owning up to our mistakes
reassure customers we have their best interests at heart. In our business,
delivery drives delight,” Sachin articulates.
Kart’apulting into the Future
Positive word-of-mouth gives Flipkart an edge on the customer side of the

business. Backstage, the story’s no different. Their recent acquisition of
Letsbuy.com will result in a faster expansion rate. Binny’s long-term
outlook includes scaling up the firm’s self-delivery network, and alliancing
with like-minded businesses. “We are open to partnerships that’ll help us
attain our goals,” he signs off. Both the founders are happy to see
increased venture capital participation in the e-commerce space, which,
according to Sachin, “still needs lots of investment to bolster its back-end.”
Like a typical entrepreneur, he opines innovation is the key to the

company’s success. Extending services like cash-on-delivery and credit
card payment at doorstep were introduced to provide ample choice and
comfort to customers. Now, the attempt is to widen Flipkart’s reach in the
digital domain through Flyte, the portal’s recently launched paid music
download service. Customers can buy music in MP3 format from over 700
genres, and 55 languages. The files, which are digital rights management
(DRM) free, can be played without any restrictions on any type of device
and for an unlimited number of times.
Innovation is just one aspect of the business universe. Today, the premise
of any business, traditional or modern, rests on its ability to harness data,
which prompts the question, how does Flipkart utilise its data to generate
consumer insights? Since the industry is still in infancy, there is no history
one can to refer to. Gathering and analysing data, hence, becomes crucial
for planning the business’s future course of action. This practice, in a way,
! !465
adds to the ‘surprise and delight' factor for customers, because they’re
then treated to offers that are most suited and relevant to their
preferences. Sachin reiterates, “All our efforts are invested in matching
customers’ expectations, and we’ll do our best to bring e-commerce into
the forefront.”
In this industry, the scope for growth is immense, as is the risk of failure.
Consulting firm Technopak Advisors estimates India’s digital economy at
$600 million currently, with the potential to balloon to $70 billion by 2020.
K. Vaitheeswaran, e-commerce veteran, and Founder and CEO,
Indiaplaza.com, one of India’s earliest, compares the vertical to a hard-
fought marathon. “It’s not like a 100-metre dash. Globally, we operate on
the lowest margins, but we’re still seeing real growth.” There’s still no
formula for 100% success. Flipkart is running the marathon with ample
support from private equity players such as Accel Partners and Tiger
Global, which have collectively invested $150 million in the entity so far.
Although profits after tax remain negative, the company’s valuation is
soaring thanks to eager participation of these private equity players. The
acquisition of Letsbuy.com signals FlipKart's ambitions to capture the
domestic online market. A burgeoning consumer class, coupled with a
rising web-literate population and zealous venture capital funding may just
propel Flipkart to become India’s answer to Amazon.com!
Uncovering India’s online avatar is a fascinating process. Only those

companies that can successfully engage customers through novel ideas,
quality products and seamless services will flourish. May be it is sheer
genius, or simple common sense the e-retail hero has been able to
accomplish all this during its formative years. Summing up the Flipkart
experience, Abhishek Asthana, a marketing student from Pune, has
dedicated an ode to the portal. He tweaks the famous MasterCard
campaign to sound something like “There are some things you can’t buy
online… For everything else, there’s Flipkart!”
! !466
Case Study 3
Yes Bank: Banking on Customer-centricity
YES BANK, India’s fourth largest private sector bank, is the outcome of the
professional and entrepreneurial commitment of its founder, Rana Kapoor
and his top management team, to establish a high quality, customer-
centric, service-driven, private Indian Bank catering to the future
businesses of India. YES BANK has exemplified ‘creating and sharing value’
for all its stakeholders, and has created a differentiated banking
paradigm.
Since inception, the bank has adopted international best practices, the
highest standards of service quality and operational excellence, and offers
comprehensive and customised banking and financial solutions to all its
valued customers. YES BANK has a knowledge-driven approach to banking,
and a superior and consistent customer experience for its retail, corporate
and emerging corporate banking clients.
YES BANK is steadily evolving as the professionals’ bank of India with the
vision of building the best quality bank of the world in India by 2015. The
bank has been recognised amongst the top and the fastest growing banks
in various Indian banking league tables by prestigious media houses and
global advisory firms.
Today, Says Rana Kapoor “we are one of the leading banks in providing
trade finance services, offering a gamut of products for exports, imports
and domestic trade”. We are valued for providing customised solutions to
optimise financial supply chain through our dedicated team of trade finance
experts. Our in-depth understanding of the customer’s business and
superior delivery models has helped us achieve valuable customer
satisfaction. Further, we provide a comprehensive suite of trade services
which is backed up by stringent SLA, robust processes, execution capability
and defined turnaround times. Our strategic tie-ups with international
correspondent banks have also helped us gain a global footprint. We are
the fourth largest private sector bank in India and our growth is one of the
highest in the industry”. 
! !467
Case Study 4
Tata Teleservices. The Customer is King
Telco TTSL, believes in top-class customer services
Tata Teleservices (TTSL) is part of the Tata Group. The company provides
basic telephony services and complements and competes with Bharat
Sanchar Nigam (BSNL) in the circles it operates in.
With a significant presence across the telecom value chain and the
synergies after the acquisition of VSNL by the Tata Group, TTSL is planning
to expand the range of its coverage and services; advanced communication
solutions now include seamless integration of voice, video, data and IP
systems. As a basic telephone services provider, TTSL provides the
backbone for India’s corporate leaders such as GE Capital, Wipro,
Magnacom, Citicorp Overseas software (now called Orbitech), Dr. Reddy’s
Labs, Standard Chartered Bank, Motorola India Electronics, TCS and
Satyam, in addition to servicing the telecom needs of retail customers.
After putting in place the required equipment and infrastructure, TTSL was
committed to setting up a customer-centric solution that would cater to the
varied needs of its vast customer base. “Oracle E-Business Suite has
played an important role in helping TTSL meet its customer service needs,”
says S Ramakrishnan, Managing Director, Tata Teleservices.
Catalyst for Change
In order to build its customer base, the TTSL management understood the
need to have robust infrastructure in place to ensure quality customer
service. This was to be a key differentiator for TTSL in the competitive
landscape it was operating in. This was also a compelling need for the
private sector service provider, as customer expectations were very high.
The TTSL management had the foresight to realise the potential of

leveraging customer interaction to attract, maintain and enhance the
lifetime value of the customer. The growth and wide acceptance of the
service presented TTSL with an excellent opportunity to use customer
interaction to enhance customer relationships as well as leverage the
opportunity to upsell and cross-sell new products and offerings. To meet
! !468
the strategic objectives of the customer care experience, there was a need
to have integrated processes and systems in place to:
1. Ensure that customers could access and get information about various
services easily.
2. Provide quick and accurate resolution of customer requests.
3. Meet all the commitments.
4. Get things right the first time, all the time.
5. Constantly find ways to reduce costs and increase productivity to

generate and safeguard company revenues and profitability.
6. Ensure that every interaction with the customer results in delight,

produces joy and enhances the customer’s relationship with TTSL.
Translating the corporate mission was a challenging task. TTSL realised

very early that a customer-centric strategy required robust and scalable
tools. There was also a need to align all processes towards customer-
centricity ethics and also to ensure that this got translated into faster,
quicker and better service levels. 
! !469
Case Study 5
Whirlpool India
Whirlpool of India Ltd. (WIL) set out to capture the Indian market with its
customer-centric approach. The company gained leadership in the direct-
cool refrigerator segment with a significant share in the washing machine
market. However, with the entry of the Korean conglomerates – LG and
Samsung, WIL’s rise to success came to a halt. Competing for the same
market space, these Korean players offered a host of technologically
superior products at affordable rates through a strong countrywide
network.
Promoted aggressively and backed by a customer care service to please

Indian customers, these products took away the market share from WIL in
less than a decade. The Korean companies redefined the customer service
in the home appliances segment. To make a come-back into the Indian
market, WIL, under the direction of its new Vice President, Marketing,
Shantanu Das Gupta, geared up to focus on offering innovative products.
To create a brand recall, the company hired celebrity couple Kajol and Ajay
Devgan as brand ambassadors. After 3 years in the red, WIL finally
witnessed a net operating profit in 2008. However, with its market share
still trailing behind its competitors, the case questions the sustainability of
WIL’s turnaround
! !470

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Program Design and Advisory Team

Prof. B.N. Chatterjee Mr. Manish Pitke

Prof. Kanu Doshi Prof. B.N. Chatterjee

Prof. Dr. V.H. Iyer Mr. Smitesh Bhosale

Prof. B.N. Chatterjee Prof. Vineel Bhurke

Prof. Venkat lyer Dr. Pravin Kumar Agrawal

Prof. Dr. Pradeep Pendse Mrs. Margaret Vas

Prof. Sandeep Kelkar Mr. Anuj Pandey

Prof. Dr. Swapna Pradhan Course Editor

Prof. Bijoy B. Bhattacharyya Prof. B.N. Chatterjee

Mr. P.M. Bendre Course Coordinators

Mr. Ajay Prabhu Ms. Kirti Sampat

Mr. A.S. Pillai Mr. Kishor Tamhankar

COPYRIGHT © by Prin. L.N. Welingkar Institute of Management Development & Research.

NOT FOR SALE. FOR PRIVATE CIRCULATION ONLY.

Chapter Chapter Name Page No.

1 Customer-centricity: Why Now More than Ever! 4-46

11 Transform Business Processes through Business 379-413

12 Evidence-based Customer-centric Service 414-436

Customer-Centric: Case Studies 461-470

After going through the chapter, students should be able to understand:

In order to be a successful and viable firm, a company must have a

1.2 What is customer-centricity?

1. Customer-centric means putting the customer at the center of

2. Customer-centric means designing your products from the customer’s

3. Customer-centric means designing your sales process to make it easy

4. Customer-centric means providing customer service that's easy for the

5. Creating a customer-centric culture is all about understanding your

Figure 1.1: Customer- Centricity

Put simply, customer experience is the sum total of relationships a

To succeed in this multi-touch-point world, businesses must indeed shift

Exceeding expectations of the customers helps ensure superior customer

IBM is an example of how a company switches from product to customer

1. What does it mean to be “customer-centric”?

1.3 Why is Customer-Centricity So Important?

Companies today are shifting their focus to stimulating organic growth.

Being customer-centric is about knowing your customer well, responding to

Companies recognise the importance of an effective customer relationship

Firms that have managed to successfully traverse the path to customer-

In the General Electric Aircraft Engine Business Group’s attempts to

1.4 What Customer Centricity Is Not!

It is also important to understand what customer-centricity is not, so you

a. Customer-centricity is not the sole responsibility of the contact center.

Not the Sole Responsibility of the Contact Center

contact center. Airline passengers form their opinions from interactions

Not a Commitment to Delight Every Customer

Not a Set of Technologies and Solutions

Customer-centricity is a mindset. It’s a way of thinking that puts the

2. Why can customers be wrong sometimes?

1.5 Customer-Centric Characteristics

Customer-centric is nothing new, but it is becoming increasingly important

Customer-centric organizations keep the customer lifetime value of their

Rather, customer-centric organisations have the following characteristics:

a. Use customer data to better understand and segment the customer

In most market sectors, there is an abundance of suppliers. So, it is the

Successful businesses are the ones that manage to create a customer

So How Can You Create Delighted and Devoted Customers?

1. Are quick: Their speed of response to enquiries, queries and

3. Exceed expectations: They go that ‘extra mile’ to ‘exceed’ their

4. Do it consistently: By exceeding their customers’ expectations, they

5. Deal with disappointment: Things go wrong in all businesses (even