Product focused and production oriented companies tend to believe their competitive advantages lie in sourcing, production, logistics and product feature innovation. However, these activities are more and more often being commoditized or outsourced, while ”downstream” activities closer to the customer – such as building trust and influencing and changing your customers purchase critera – has become more and more attractive to build customer value and lasting differentiation.
Harvard Business Review has in their last issue given the author of Tilt: Shifting Your Strategy from Products to Customers (Niraj Dawar) quite some space.
Niraj Dawar has a fair point that Marketing most definitely can be strategy. Even more so, it can be more successful to focus on customer centered activities close to the customer than focusing on the back end.
Having heard that Marketing Is Dead by financial scholars just a few years back, Dawar’s conclusions feels fresh, logical and very relevant in the fast paced and highly competitive environment of today. However, customer orientation as concept isn’t new at all. The strong focus on short term profits and optimizing the back end during so many years however seem to have put customer centricity on hold in many companies.
Dawar doesn’t specifically play on the customer centricity terminology. Rather than giving customers what they say they want (in qualitiative and quantitative studies), he means that it is more about teaching the customers new purchase criteria.
Dawar suspects that the very low level of successful product innovations in todays businesses is a result of companies generally not knowing enough about their customers, but says that it is also a result of companies not shaping their customers’ purchase criteria when introducing new products. He also means that innovation shouldn’t only happen on the product side, especially as we have seen many examples where it is hugely successful on more “downstream activities” close to the customer. In general he argues, focus must change from upstream to downstream activities for companies to be successful:
“To compete effectively, companies must shift from upstream to downstream activities, emphasizing how they define their competitive set, influence customers’ purchase criteria, innovate to solve customer problems, and build advantage by accumulating customer data and harnessing network effect.” (1)
As a conclusion, the key strategic question of today isn’t “What else can we make?”, but rather “What else can we do for our customers?”. This also means that the future is even more about the heart and soul of your brand and how consumers perceive your brand and promises. Add to that the importance of “teaching” your customers the new buying criteria for launched innovations.
I would never go as far as to say that “upstream” activities are dead. They are essential to any business, even if they don’t work as differentiators and sustainable competitive advantage. Optimized production, logistics and processes however help release necessary capital to invest in “downstream” (customer oriented) efforts. And the circle is closed.
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