The KSeeker

In Search of Knowledge…

Notes from Marketing Gurus – Customer Centricity

Posted by Girish Krishnan on June 18, 2006

This post is taken from my notes taken on August 14th, 2006 at ISB

— The Principle of Refrigerator – Students who do their MBA from a cool place (Kellog's) would stay fesh for a long time as compared to other places!! – Dipak Jain

This is from a talk by Professor Dipak Jain who is the current dean of the Kellogg School of Management at Pennsylvania.Dean Jain received his B.S. in 1976 for Mathematics and Statistics, and his M.S. in 1978 for Mathematical Statistics from Gauhati University, India. He received his M.S. in 1986 for Management Science and his Ph.D. in 1987 for Marketing from University of Texas. He joined the Kellogg school in 1987 teaching Marketing research and became the Dean in 2001, which is a phenomenal achivement that every Indian can be proud of.

He talked about Customer Centricity in Marketing which is nothing but the customer making informed choices. Today's customer is more informed than his predecessors and companies need to really get this into their brains. Try sending a package through Fed Ex Standard(before the clearing time) which costs $9. It makes it to the destination at the same time (before 10am the next day)as a the FedEx Priority services which costs $13. The reason is that it is not a efficient thing for operations to treat packages from the two services differently. Eventhough some people understand this caveat, the Priority Services enjoy a huge customer base from big knowledge companies like the Mckinseys, the ATKearneys etc. The crux here lies here in the fact the customer feels happy that he is treated as a priority customer and Fed Ex exploits on this!! There is also the underlying fact that the customer can get a better value from the markets if he receives the mail before 10am.When someone guarantees this for you, you sense a value add. The big question is that when products and services become same globally, as it is happening right now, how could we think of creating differentiation?

The Market Response Strategy could consist of Redefining the Market, Resegmenting the Market and creating the Sandwich effect. Thumb rules which could be applied here include the fact that customers don't switch unless there is more than a 15-25% difference in price and we could easily charge a 5-10% extra than our competitors. We are our own biggest competitors and if we can get the customer to pay more for what we offer, we would be better off. Its also time to define businesses in terms of metrics which point towards the successful performance of customers. This would reflect on the true value add we are giving to the customer. For FedEx this would read something like "We help you plan your day better"!!. Any company needs to focus on the customer resources and satisfy their needs in terms of managing the time of their resources better.

"Price is transparent but value is opaque". How do we create a Sandwich? We should move in the direction of our strength or towards the "Core value proposition". As it is always better that we cannibalize our own product than leaving it for others to gobble up, try to modify our current product as the other alternative. Remember that the most difficult part in any business is to get a customer (read acquisition costs vs retention costs).

The whole concept can be explained with the stories of war between Fed Ex and USPS. FedEx improved on all the three dimensions of service (Speed,Reliablity,Quality) when they came out with a flat rate service ($12 to anywhere in US). A shocked USPS responded with the Express Mail for $8.95. Before any substantial effect could happen, Fed Ex split its services – Standard (@ $9.00) and Priority (@ $13.00) and then imposed a killer blow with giving Tracking facility to its customers. Two effects happened because of this..Fed Ex's own $12 customers upgraded to the $13 service and USPS's express customers also migrated to FedEx standard.The surprising end to the whole episode happened when USPS outsourced its Express Service to Fed Ex and sold off all its planes retaining just two of them. Further more they came up with a 2 lbs @ $2.35(?) service which served a different target segment altogether. Here also, people scaled up just like they did in the case of Fed Ex. There is full consolidation in the postal business with both players catering to different segments and the bond is visible in the form of a Fed Ex drop box in each US post office!!.

Professor Jain suggests that a Mindset shift in marketing is happening with the movement of the Product/Service mentality to a Total Customer Experience and the rechristening of Product Life Cycle as a Customer Life Cycle. To help in making this transition,it will be useful to think of the transition of Knowledge from Data to Information to Insights. Another way of looking at this definition is to view the Outcome as the sight and the process which led to that outcome as the insight.

Future predictions by Professor Jain

  • Industries which will do extremely well in the next ten years will be in the business of
    • Customer Well Being (Healthcare and wealthcare)
    • Customer Engagement (Media and Entertainment)
    • Customer Hospitality (Tourism,Restuarent)
  • Airline Industry in India will consolidate..Problems for airlines in US likely to happen here also
  • More ROMEO model businesses (ROMEO – Retired Old Men Eating Out — Restuarents have a fast food counter as well as a sit in)
  • Next move for Fed Exs of the world is to get the package delivered before 5 am — to give the customer an advantage to do global businesses.

Read "Freakonomics" … why did the crime rate in US come down in the ninetees?

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