From The Production Concept to Consumer-Centricity

Marketing has been evolving from a traditional approach that has come to be called  the production concept toward what we sometimes hear called customer-centricity.

The Production Concept: The production concept is effectively a ‘make and sell’ approach heavily geared towards production synergies where production efficiencies and costs per unit of production are the core drivers. As consumers since the industrial revolution traditionally bought what was available from a producer, a producer’s market prevailed, and proved a highly successful strategy for achieving economies of scale for products with built-in demand. You might characterize the approach as “build it and they will come.”

Metrics Myopia: The major limitation with the production concept is that an organisation can lose touch with the marketplace and changing consumer preferences in responding too narrowly to ROI metrics. Of course, performance measures are vital. However, the tendency to tweak ROI metrics through improved efficiencies and product push/promotion strategies risks losing sight of the real ultimate objective of satisfying customer needs.

The Customer-Centric Concept

Since the 19th Century the marketing environment – specifically consumer preferences – have evolved rapidly. In the 21st Century, consumers have never been better informed, more educated and more diverse in their demands – consumers know what they want and are in a position to call the shots.  According to technology futurist , in the Huffington Post:

It is imperative that organisations adapt to these significant structural changes to the marketplace, and be able to “identify what consumers want, and be able to respond by delivering what consumers want, when they want it, and at a better price than the competitors – this is the crux of the consumer-centric marketing philosophy.”

The Problem With What They Want When They Want It

This raises the problem: how can you possibly anticipate what consumers want quickly enough to provide it when they want it? Shortening the production cycle just may not be good enough when the product life cycle is itself growing shorter.

Customer’s rapid demands and quickly changing business environment are putting pressures on producers/providers for quicker response and shorter cycle times.

Just In Time Production

In the production world, one way to ensure quick turnaround is by holding inventory. Since inventory costs can easily become expensive, a wiser approach to make production move quickly enough to be able to adapt to changing customer demands is the JUST IN TIME (JIT) philosophy.

In JIT workers are multifunctional and are required to perform different tasks. Machines are also multifunction and are arranged in small U-shaped work cells that enable parts to processed in a continuous flow through the cell. Workers produce parts one at a time within cells and transport those parts between cells in small lots. Environment is kept clean and free of waste so that any unusual occurrence are visible. Schedules are prepared only for the final assembly line, in which several different models are assembled at the same line. Requirements for the component parts and sub assemblies are then pulled through the system. The “PULL” element of JIT will not work unless production is uniform and lot sizes are low. Pull system is also used to order material from suppliers (fewer in numbers usually). (Abbas, 2005) They make be requested to make multiple deliveries of the same item in the same day, so the manufacturing system must be flexible.

As there is little buffer inventory between the workstations, so the quality must be high and efforts are made to prevent machine breakdowns. When all these things are taken into consideration, system produces high-quality goods, quickly and at low cost. This system is also being able to respond to changes in customer demands.

Insight

Improving the production and distribution process to produce and deliver more goods and services in the most organized way possible goes hand in hand with consumer insights. By looking into identifying changing customers’ environments and expectations, one can be ready to design products and services to best satisfy their changing needs and meet their expectations. Productivity improvements can then focus on both value creation and on minimization of inputs.

From Insight to Foresight

Facebook’s huge IPO is something that could not have been anticipated just a few years ago. That’s because most of the things people do today on Facebook were impossible to do two years ago.

YouTube, also huge today, was not very big five years ago. Again, this is because we didn’t have the technology then – we didn’t have storage, processing power, and bandwidth to make streaming video a pleasant or even a usable experience. Today, it’s an amazing experience. But tomorrow, it may be obsolete. Here’s why. According to :

All this is possible today because we are at the base of a curve of unprecedented transformational change powered by the exponential advances in processing power, storage, and bandwidth. These three drivers are accelerating at such a rapid pace that, even though companies like Facebook, YouTube, and Skype are adding amazing amounts of revenue that were impossible to do just two years ago, when you look forward two years from now, it’s an even bigger deal than it is today.

So you have to ask yourself, “As an organization, am I being left out of this new revenue generation, or am I going to start paying attention to the exponential changes in processing power, storage, and bandwidth and what that allows me to do?”

From Knowing Today’s Needs  to Anticipating Tomorrow’s

Marketers should anticipate the impact that these technologies are having on them, and anticipate what new revenues can be created when the currently impossible becomes possible.

Increased Digital Marketing Spend: In line with this, social media marketing spend is predicted to nearly triple over five years. A February 2012 poll of CMOs conducted by Duke University’s Fuqua School of Business found that respondents estimated their marketing budgets would grow 8.1% over the coming 12 months.

Much of the growth in marketing spending will be directed to online efforts, with spending expected to climb 12.8% over the next year, while respondents predicted ad budgets for traditional channels would drop 0.8% during the period. eMarketer estimates digital ad spending, including paid ads on the internet as well as mobile search and display advertising, will rise 23.3% this year, while traditional budgets other than TV will remain largely stagnant. Social network ad spending in the US is expected to grow 43% during the period. Marketers are beginning to recognize the potential of digital’s ability to corner a mass audience while also providing targeting advertising and better analytics.

Change in Marketing Spending According to US Marketers, by Type, Feb 2010-Feb 2012

Social media campaigns will see a significant influx of dollars, with marketers allocating 7.4% of their overall budgets to social media in the current year, and expecting that figure to almost triple by 2017 to 19.5%.

Social Media Marketing Spending by US B2B and B2C Marketers, by Sector, Aug 2009-Feb 2012 (% of total marketing budget)

Change Agents Needed: However, CMOs see social media as a category that currently exists largely outside of their companies’ overall marketing strategies. About 18% of those polled said social media had not yet been incorporated into broader marketing plans, while only 7% thought social media efforts had been well-integrated into their marketing strategy, with the balance falling somewhere between those two poles. Clearly, agents of change are needed to move the company’s vision from meeting current needs to anticipating future opportunity.

Best Practice: Likewise, if demographic trends indicate that your product won’t quite fit the needs of customers in the short-term future, shouldn’t you begin the work of evaluating product and marketing solutions to address them ahead of the competition.

An example from my own experience is the 3-year CDSC (Contingent Deferred Sales Charge) Deferred Variable Annuity.  While I was working for a Variable Annuity provider that was traditionally a market follower, I anticipated a growing need that our current Variable Annuity products would not meet. The typical annuity surrender charge meant that consumers would need to keep their money locked up for at least 7 years to avoid being hit with a surrender charge when accessing their money. However, an increasing number of boomers were preparing to retire within a 3 to 5 year window.  One answer was to design a sound product with a 3 year surrender change. Having identified the market opportunity, I conducted an analysis to evaluate whether demand would be sufficient, whether there was a viable profit margin, and whether the product could be marketed through our existing channels. As a result, we were able to be first to market with a lucrative revenues-increasing product.

Takeaway: In an attempt to be customer-centric, we tend to ask customers, “What would you like?” and then we give it to them. But you also have to understand that customers will not always be able to anticipate their needs. One reason is that they don’t yet know what’s ahead in their futures. For example, they don’t know what’s technically possible or what will be desirable to them as the environment changes. Nobody ever asked for an iPod, an iPhone, or an iPad – and Apple has done quite well with them. Another reason is that

For this reason, Facebook and LinkedIn are providing an alternative to email, even though one asked them for it.  And now a lot of people are cutting back their email use and communicating through these media.  Facebook and Linked in had the foresight to anticipate what was possible and gave it to consumers before they even asked.

Snap! principle of anticipating customer needs:

Instead of just asking customers, “What would you like?” you have to focus on “What would customers really want to do if they only knew they could do it? 

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