For any company with a strong tradition of leading innovation through superior product development, it faces the risk of a product-centric mindset. Consider, for example, companies in the machine-tooling industry in Germany and Switzerland, where systems with impressive scientific and technological features hit the markets, but customers don’t always have an appetite for buying them. Not surprisingly, many of these companies either closed shop or were sold to more commercially oriented competitors or investors.
What Is a Customer-Centric Mindset?
A customer-centric mindset is one in which all company activities are geared toward supporting the customer’s success at a profit rather than focusing on the market or competitors. It involves constant customer conversations, identifying strategic insights and delivering a mutually beneficial outcome for both the company and the customer.
This is exactly what a product-centric mindset is — a strategy to build newer and more advanced products regardless of market demand. Coupled with a misconstrued sense of pride in their products and a somewhat falsely arrogant belief that their products’ superiority will create a market can be a very dangerous position. Because, in the end, the market is a true mirror of real customer demands.
As for the fate of many unsuccessful product-centric companies, the customer always wins and is always right, leading to a sales growth that never comes.
Advantages of a Customer-Centric Approach
The reason it is hard to be customer-centric, especially in a business-to-business (B2B) market, is because it requires a shift from a product-centric mindset that companies often fall into. The product-centric mindset is based on establishing a product-market fit with their customers. The underlying hypothesis is that the stronger your product-market fit is, the bigger the mutually beneficial outcomes.
The product-market fit is not a customer-centric approach because it only focuses on an isolated part in the business relationship, and it excludes mutually beneficial outcomes. By definition, a product-market fit is designed to maximize the seller outcome. Indeed, many organizations struggle to exploit mutually beneficial outcomes. The reasons for these struggles are manifold, but our research shows there are just two main reasons:
- One or both sides are not looking at the big picture but are focused on the old fashioned volume-price negotiation, causing relationship breakdowns.
- The efforts to achieve mutual benefits are not aligned due to conflicting priorities, hindering the move from breakdowns to breakthroughs.
That’s what one of our clients, a supplier of industrial process automation solutions we call Checkmate to protect its identity, experienced. Eager to create a lasting impression in its markets, Checkmate distributed a high-end, expensive-to-produce brochure pointing out the many applications the company could serve with its high-quality solutions. The crucial part of the brochure said this: “We define a strategic business relationship between our customers and Checkmate as a long-term commitment dedicated to lowering costs and increasing revenues for both companies.” To the surprise of Checkmate, customer feedback was not as positive as expected. Customers weren’t buying its customer-centricity. One customer said: “You could be doing five times the business with us if you got your act together. You work with most of our organization but focus on nothing of relevance to us!”
What a quote! On the one hand, it pointed out the future business potential Checkmate had. But on the other hand, it addressed a hidden flaw in the supplier’s approach. While the brochure was printed with all the best intentions, and the promise of mutual benefits sounded appealing, the supplier did not walk the talk. Checkmate did not change its product-centric view and still applied old-school, inside-out sales tactics.
Limitations of a Product-Centric Approach
While the idea of the product-market fit has appeal, it also has clear limitations. For many companies in the business-to-business domain, the product-market fit stands and falls with the correct identification and targeting of the right customers whose needs best fit what they have, their existing products and services. They then develop a polished value proposition, which they communicate aggressively to the market. The focus is solely on what a company’s products can do for the customer and make the transaction. Missing from this approach is what Checkmate promised but didn’t deliver: how two parties can create value together. This is a classic dead-end on an organization’s path to customer-centricity. And the question about how much value could be created beyond the notorious product-market fit and what would happen if the perspective on selling value were expanded to creating value remains to be answered.
Our work with leading global companies needing help to create growth despite their best strategic expertise made us realize that this struggle results from a too-narrow point of view. We found that the traditional strategic perspective in B2B sales was still centered around seeing business customers as a movie audience. The supplier companies were like the production houses, where creating the movie was their process and the movie itself was their product. This led to the most important business customers being involved only in customer feedback or customer satisfaction survey stages, with the supplier companies fervently hoping that their movie would create a breakthrough at the box office and that the audience would love it. If that didn’t happen, strategic thinking at best was guiding them to create new kinds of movies (new products) or find a new audience (new markets) that would appreciate their existing products.
What we saw, though, was that the companies that were not struggling to create growth were not making movies in isolation. They were doing it differently. Their business customers were hardly just an audience; they were an integral part of the movie production process. After all, the business customers are the firms, not the individuals, so they have the resources and strategies to create tangible outcomes. They have the know-how on the industry, markets, and products, including the awareness of emerging technologies and innovation megatrends. They have the best view of competitors, especially if they are part of their share of wallet for the overall revenue. They know the gaps in business models and operational effectiveness of their supplier firm. And finally, they want to unlock growth just as much as their supplier does. But to unlock growth, companies must be able and willing to meet one precondition, and that is to escape the proverbial buyer-seller trap.
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Reprinted by permission of Harvard Business Review Press. Adapted from TRIPLE FIT STRATEGY: How to Build Lasting Customer Relationships and Boost Growth by Christoph Senn and Mehak Gandhi. Copyright 2024 Harvard Business School Publishing Corporation. All rights reserved.
