Towards a Customer Context driven organization
Introduction
Part I was about the trade-off organizations make between the cost of providing the goods and services and how (in)convenient it is for customers to access it. In other words, which role Customer Experience play and how important it is for an organization to use it as a competitive advantage.
I argued that despite the undeniable centrality of customers to their operations, many organizations struggle to fully align all aspects of their activities and priorities around the customer because of the one of the phenomena called Dominant Logic. A prevailing mindset that shapes the organization's approach to various aspects of its operations.
Please refer to Part I to get acquainted with Dominant Logic (DL) and how I connect DL with Customer Experiences. While part I was mostly about how an organization decides how to operate and where to put focus on, this article is taking the economic perspective into the equation.
The progression of economic value
The dynamic forces of an evolving economy with its continual creative destruction continually innovates offerings. Experiences are commoditized into services, services into goods, and goods into commodities.
The progression of economic value offers differentiation relevant to customer needs to customer value and pricing. The more an offering is tailored, or customized, to meet the specific needs of a customer, the higher the value thus the higher the premium that can be charged for that offering.
The figure below, represents the progression of economic value on the same axis system as I used in figure 1 of Part I. Pine and Gilmore (2011) described product innovation in consumer markets as a multi-staged ‘progression of economic value’ from commodities to goods, to services, to experiences, and more recently, to personal transformations – where a better consumer becomes the product. Investing in one’s self-development has become central to consumer desires, particularly in the wealthier market segment. I refer to research from Pine and Gilmore (2014) to understand the different ‘stages’ of economic value.
Fig 1. Progressing Economic Value
But as Pine and Gilmore (2014) described, the Transformation Economy will be more than mere experiences. Customers will crave something authentic and meaningful - some call it the 'soul' of the business - to which they can connect on the most personal level and, in doing so, undergo an actual sense of transformation. The customer is fully in control and decides what, how, where and when they will be guided. Organizations need to frame their offerings in the context of unlocking potential and broadening horizons while they increasingly invest in value networks. Please read my articles on Experiential Value here: link and here which goes about the conceptualized value of customer value. But for many organizations this is still the ‘far’ future.
In Part I, I already briefly mentioned Customer Dominant Logic (C-D Logic) as an evolving dominant logic principle. C-D logic, as introduced by Heinonen (2015), is a perspective emphasizing how customers embed service in their processes rather than how organizations provide service to customers. You could argue that C-D logic is closely aligned with the premise of the transformation economy. In figure 2 I connect the three different Dominant Logic principles with the progression of economic value using logical argumentation.
Fig 2. Dominant Logic in the context of Value Creation and Economic Value
Ok, but what is the point here?
Well, there is a reason why I bring this up.
The increasing demand for Experiences yields accelerating commoditization across industries. The global low cost of production, the ease of finding alternatives at the touch of a device, and the democratizing force of online information and price transparency have given rise to increasing customer power. In a world of undifferentiated commodities and increasing convenience across every channel to get what they desire, customers are caring less about brands. In fact, they don’t care about features and benefits – they are, after all, pretty much the same anyway.
To stage a true distinctive experience, you have to get customers to value the time they spend with you and increase the willingness-to-pay for your product or service or experience. And obviously, in a way that it is not too expensive to create and deliver. Let me use the example of ride-hailing and how the market evolved.
Traditional cab drivers
Traditional cab drivers face several operational inefficiencies that increases the cost to deliver without increasing the customer’s willingness to pay. Cabs must be in nearly constant use to be profitable, but if run well, ride-hailing companies can achieve significant utilization rates.
Many cab drivers spend a good chunk of their time waiting in line at taxi stands for a passenger. Finding the optimal cab for a customer request requires preparation and for the customer also patience. When found, the cab drives the customer to the location, the passenger must pay, which btw is a waste of time and capacity for the passenger and cab driver, and the cab will continue.
GetTaxi or EasyTaxi
Ride-hailing companies addressing the pain-points of waiting time, optimal vehicle utilization, customer easiness etc. and improving efficiencies, are cap companies who has introduced the use of apps. These apps aim to improve the connection between a passenger and a cab. Enabling customers to order a cab via the app turn every block in town into a virtual taxi stand. Payments are streamlined and as such productivity of the driver is achieved in the form of higher utilization.
Uber
While the first few times a customer use Uber, it may rise to the level of an experience because the car seems to arrive when and where the passenger want as if by magic. The real value proposition is saving the time of hunting down a taxi and then wading through for all the rigmarole it takes to complete the transaction when arrived at the destination. As such this increases the willingness to pay. With Uber the passenger just summon car, get in, and, once it arrives, get out. Nice, easy, convenient – absolutely. With its connectivity to a platform, it also connect ‘unconnected’ parties. Uber act as an orchestrator and connect individually owned vehicles throughout the town to create a virtual fleet and therefore makes it easier for customers to connect with a car closer by. This shortens the wait time and increases the utilization rate.
BlablaBla Car
Blabla car is an example of ride-hailing shifting reducing costs even further. Instead of paying for labor and ownership of the vehicle, all that a passenger needs to pay is the gas. Blablacar leaves pricing at the discretion of the driver which often makes it a ten-fold improvement over traditional ride-hailing. In fact, with this concept of carpooling, Blablacar virtually turns every vehicle on the street as a potential service provider.
Conclusion – Shifting competitive advantage
If an organization can provide their products and services more efficiently while increasing the willingness to pay from their customers, they will most likely gain a competitive advantage over the competition. In Fig 3. you’ll notice that Uber lowers the costs to create & deliver a compelling ride-hailing experience while increasing the willingness to pay from the customer. But don’t think that Uber is an endless success story. Uber was not able to win specific markets like China. And once an organization shown the world a new trick, other organizations will imitate.
Traditional cab organizations often have a Goods Dominant logic (G-D logic) mindset. Their approach is particularly effective when their primary value to the customer lies in the quality, availability, and reliability of the product, the ride from A to B. By focusing on these elements, cab organizations can ensure that their rides are consistently available and meet the high standards expected by customers. This approach helps build trust and loyalty among consumers
Taxi apps, Uber and BlablaCar approach emphasizes the co-creation of value through service and relationships rather than focusing solely on the tangible product, the ride. They collaborate with customers to understand their specific needs and tailer their product to better serve them and enable their customers to make informed decisions by providing detailed product information, usage tips, and benefits. This is a great example of Service Dominant Logic (S-D logic)
Fig 3. Shifting the competitive advantage
It is not about Good or Bad, one mindset or the other, it is a matter of sustaining your competitive advantage.
This article is not about what is right or wrong. A good dominant logic can perfectly fit your organizations competitive advantage while in other markets or industries a service dominant logic could be better. But as Peter Drucker (1954:37) already argued in the 50’s.
There is only one valid definition of business purpose, that is to create a customer.
It requires organizations to keep working on a customer-centric approach that goes beyond just the product or service itself. To differentiate and remain competitive, organizations should invest in deeply understanding and integrating into the customer’s life. By personalizing interactions, co-creating value, enhancing customer experiences, and building long-term relationships, organization can stage more memorized experiences fostering deeper loyalty and satisfaction.
A path forward to a Customer Dominant Logic mindset in your organization
Moving to Customer-Dominant Logic requires a shift in focus from providing services that enhance the product to deeply integrating into the customer's life and context. See below some high level directions an organization can take to make this transition.
Conduct thorough qualitative and quantitative research to understand customers' lifestyles, needs, challenges, and preferences and create detailed customer personas that capture the diversity of your customer base. When ready, map out the entire customer journey, identifying touchpoints, pain points, and opportunities for deeper engagement.
Establish regular feedback mechanisms, such as surveys, focus groups, and customer panels and involve customers in the development and refinement of products and services through beta testing, pilot programs, and innovation workshops.
Leverage customer data to personalize interactions and recommendations. Use data analytics and machine learning to predict customer needs and preferences.
Ensure a consistent and seamless experience across all journey stages, touchpoints and experience partners (See https://www.patrickburggraaf.me/customer-experience-explained?utm_source=linkedin&utm_medium=social&utm_campaign=embracecxpartII&utm_content=textlink) and train customer service teams to be empathetic, proactive, and capable of resolving issues in a way that prioritizes the customer’s context and experience.
Develop loyalty programs that reward customers not just for purchases but for engagement and advocacy and foster a sense of community among customers through forums, social media groups, and in-person events.
Offer complementary services and resources that provide additional value and provide educational content that helps customers get the most out of your products and services.
And finally, maintain transparent communication about product changes, service interruptions, and company policies and ensure all business practices are ethical and aligned with customer values, building trust and loyalty.
References
Drucker, P. F. (1954). The practice of management. New York: Harper & Brothers.
Helkkula, A., Kelleher, C., & Pihlström, M. (2012). Characterizing value as an experience: implications for service researchers and managers. Journal of service research, 15(1), 59-75.
Markey, Rob, “Are You Undervaluing Your Customers?,” Harvard Business Review, January-February 2020. https://hbr.org/2020/01/are-you-undervaluing-your-customers.
Prahalad, C.K. (2004), The blinders of dominant logic, Long Range Planning, 37, 171-179
Pine, B. J., & Gilmore, J. H. (2011). The experience economy. Harvard Business Press.
Pine II, B. J., & Gilmore, J. H. (2014). A leader's guide to innovation in the experience economy. Strategy & Leadership, 42(1), 24-29.
Siggelkow, N., & Terwiesch, C. (2019). Connected strategy: Building continuous customer relationships for competitive advantage. Harvard Business Press.
Vargo, S. L., & Lusch, R. F. (2011). It's all B2B...and beyond: Toward a systems perspective of the market. Industrial Marketing Management, 40(2), 181-187.
Customer Experience Elasticity
My hypothesis is that when Customer Experience exceeds a certain threshold, the impact on profitable growth is lost. Which means that the optimal profitable growth from Customer Experience can be reached using the mid-point between two points. This requires research and this article set the initial context for this and drop some research questions on the concept of Customer Experience Elasticity
Conscious or unconscious Digital Customer Experiences
In this article I argue that there is a great opportunity for organizations to create consious breaks in the customer journey.
Conclusion Paper Digital Customer Experience Elasticity
Download here the full paper of the three articles on Digital Customer Experience Elasticity
