customers. The least flexible would be mass-producing a standardized product or service for a large market. (We talk more about customization in Chapter 10.)
COMPARING MARKET-SHARE AND SHARE-OF-CUSTOMER STRATEGIES
The story goes that in 1996, the executives at Barnes & Noble bookstores invited Jeff Bezos, the founder of a startup named Amazon.com, to lunch, with a proposition. Amazon.com had not yet made any profit (and would not, for its first 28 quarters in a row), so the nice guys at the well-established bookstore offered, as a favor to Jeff, to buy him out—before they launched barnesandnoble.com, the online version of the bookstore chain. They argued that Jeff's relatively unknown brand would not stand up to their highly popular name and that he should make some money on his software and systems. He declined.
How did that turn out? Twenty-five years after that lunch meeting, Barnes & Noble was acquired by Elliott Management Corporation for US$683 million and Amazon.com had a market cap of US$1.7 trillion.5 When he stepped down as Amazon's CEO in 2021, Bezos was the richest man on earth. So whether the lunch ever really took place or not, the story still serves to illustrate the fundamental difference between a very well run product-oriented company (Barnes & Noble, which has stores to populate with products and tries to find customers for those products) and a fairly well run customer-oriented company (Amazon.com, which got us all as customers to buy books and DVDs, and now wants to sell each of us everything). Note: One of this book's authors, who lives in New York City, found the best selection and service from Amazon.com when she was looking for a refrigerator to buy and have installed in her Upper West Side apartment.
A lot can be understood about how traditional, market-driven competition is different from today's customer-driven competition by examining Exhibit 1.3. The direction of success for a traditional aggregate-market enterprise (i.e., a traditional company that sees its customers in markets of aggregate groups) is to acquire more customers (widen the horizontal bar), whereas the direction of success for the customer-driven enterprise is to keep customers longer and grow them bigger (lengthen the vertical bar). The width of the horizontal bar can be thought of as an enterprise's market share—the proportion of total customers who have their needs satisfied by a particular enterprise, or the percentage of total products in an industry sold by this particular firm. But the customer-value enterprise focuses on share of customer— the percentage of this customer's business that a particular firm gets—represented by the height of the vertical bar. Think of it this way: Kellogg's can either sell as many boxes of Corn Flakes as possible to whoever will buy them, even though sometimes Corn Flakes will cannibalize Raisin Bran sales, or Kellogg's can concentrate on making sure its products are on Mrs. Smith's breakfast table every day for the rest of her life, thus representing a steady or growing percentage of that breakfast table's offerings. Toyota can try to sell as many RAV4s as possible, for any price, to anyone who will buy; or it can, by knowing Mrs. Smith better, make sure all the cars in Mrs. Smith's garage are Toyota brands, including the used car she buys for her teenage son, and that Mrs. Smith uses Toyota financing, and gets her service, maintenance, and repairs at Toyota dealerships throughout her driving lifetime.
EXHIBIT 1.3 Objective of Customer Centricity
Although the tasks for growing market share are different from those for building share of customer, the two strategies are not antithetical. A company can simultaneously focus on getting new customers and growing the value of and keeping the customers it already has.6 Customer-strategy enterprises are required to interact with a customer and use that customer's feedback from this interaction to deliver a customized product or service. Market-driven efforts can be strategically effective and even more efficient at meeting individual customer needs when a customer-specific philosophy is conducted on top of them. The customer-driven process is time-dependent and evolutionary, as the product or service is continuously fine-tuned and the customer is increasingly differentiated from other customers.
The principles of a customer-focused business model differ in many ways from mass marketing. Specifically: The aggregate-market enterprise competes by differentiating products, whereas the customer-driven enterprise competes by differentiating customers.
The traditional, aggregate-market enterprise attempts to establish an actual product differentiation (by launching new products or modifying or extending established product lines) or a perceived one (with advertising and public relations). The customer-driven enterprise caters to one customer at a time and relies on differentiating each customer from all the others.
The traditional marketing company, no matter how friendly, ultimately sees customers as adversaries, and vice versa. The company and the customer play a zero-sum game: If the customer gets a discount, the company loses profit margin. Their interests have traditionally been at odds; the customer wants to buy as much product as possible for the lowest price, while the company wants to sell the least product possible for the highest price. If an enterprise and a customer have no relationship prior to a purchase, and they have no relationship following it, then their entire interaction is centered on a single, solitary transaction and the profitability of that transaction. Thus, in a transaction-based, product-centric business model, buyer and seller are adversaries, no matter how much the seller may try not to act the part. In this business model, practically the only assurance a customer has that they can trust the product and service being sold to them is the general reputation of the brand itself.7
By contrast, the customer-based enterprise aligns customer collaboration with profitability. Compare the behaviors that result from both sides if each transaction occurs in the context of a longer-term relationship. For starters, a one-to-one enterprise would likely be willing to fix a problem raised by a single transaction at a loss if the relationship with the customer were profitable long term (see Exhibit 1.4).
EXHIBIT 1.4 Comparison of Market-Share and Share-of-Customer Strategies
| Market-Share Strategy | Share-of-Customer Strategy |
|---|---|
| Treat different products differently. | Treat different customers differently. |
| Maximize the value each product creates. | Maximize the value each customer creates. |
| Focus on each product's attributes and benefits. | Focus on each customer's experience. |
| Differentiate products from competitors. | Differentiate customers from each other. |
| Sell to customers. | Collaborate with customers. |
| Treat customers as on-off switches. | Treat customers as volume dials. |
