What do Blockbuster Video, Sears, and the railroad industry have in common?
They all lead to a trip down memory lane. A lone store in Bend, Oregon is Blockbuster’s only remaining location. Sears is closing up shop around the world, with 142 locations reportedly on the chopping block. And, as Theodore Levitt famously explained in his 1960 article Marketing Myopia, the railroad industry of the 1950s was but a shadow of its prime a hundred years prior.
These ships sunk for one common reason: They each operated from a product-centric mindset instead of a customer-centric one.
As Levitt explains:
“The railroads serve as an example of an industry whose failure to grow is due to a limited market view. Those behind the railroads are in trouble not because the need for passenger transportation has declined or even because that need has been filled by cars, airplanes, and other modes of transport. Rather, the industry is failing because those behind it assumed they were in the railroad business rather than the transportation business. They were railroad oriented instead of transportation oriented, product oriented instead of customer oriented.”
Similarly, Blockbuster operated as a video rental company rather than an entertainment company – even after Netflix revolutionized and disrupted the industry. While Sears has attempted to ditch its traditional product-centric approach in recent years, the damage has already been done; what was once a revolutionary giant in the retail industry is now (almost) a relic of the past.
A product-centric mindset is profitable short term, but the key to long-lived success is focusing on your customers’ needs. We’ll explain the key differences between a product-centric and customer-centric mindset, and determine why shifting toward the latter is important for a sustainable business model.
Product Centricity vs. Customer Centricity: What are the Main Differences?
Product-centric companies operate with one goal in mind: Sell products, make money.
Product-centric companies typically look to sales and acquisition metrics over customer satisfaction to measure success. These companies focus on creating new products or adding features to current products to drive sales. For the most part, developing new offerings or features revolves around a purely internal conclusion of “what the customer wants.”
This approach was the driving force behind these well-known fails: Crystal Pepsi, Nintendo’s Virtual Boy, and Amazon’s Fire Phone. While each of these products was “new” and “exciting,” the novelty alone wasn’t enough for consumers, who abandoned the products immediately.
Customer-centric organizations operate with the sole purpose of serving the customer. They see customer satisfaction as their prime motivator, and understand that a continued focus on providing value is the best way to keep them coming back again and again.
Had Blockbuster realized its true purpose was to entertain customers by enabling them to watch movies (rather than operating as a video rental store), it may have been able to weather the Netflix storm. Instead, it stuck to a product-centric approach – and is now relegated to the nostalgia shelf. Trends come and go, but companies that focus on meeting their customers’ needs will be able to transcend those trends and remain successful.
Red Ocean vs. Blue Ocean
In Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne explain that companies have a choice between operating in a “blue ocean” or a “red ocean” marketplace.(Source)
Product-centric companies often assume that red oceans are the place to be. Since these companies are focused on creating better and more advanced products, their modus operandi is to dive into an already-existing market where demand is high, attempting to stand out from the crowd with a superior product.
The problem is that every other company within the red ocean market uses the same strategy. This leads to competing companies trying to outdo one another with their products, barely considering whether or not the consumer stands to gain much. When demand for the product dissipates, these product-centric companies won’t have much more to offer. They’ll have to wait until the next trend comes along before they can get business booming again.
Customer-centric companies opt for the blue ocean approach and create trends themselves. They work tirelessly to discover new ways to provide value to new and existing customers alike – often working to solve problems these consumers didn’t even know they had.
Once a customer-centric company creates a new market, copycat competitors are bound to show up – turning the blue ocean red. But our innovative customer-centric company has the advantage for two main reasons:
- As the creator of a soon-to-be-saturated market, they’ll still experience more success than their copycat competitors
- Since creating markets is their MO, they’ll always be able to move on once a market becomes less profitable
Acquisition Focus vs. Retention Focus
Overall, product-focused companies concentrate more on gaining customers than keeping them, while customer-centric companies work to keep their most valuable customers on board for as long as possible.
Product-focused brands sell to those who need a given product at a specific point in time. Unfortunately, this means they’ll spend most of their time looking to acquire new customers once a new trend rolls around. Similarly, product-centric companies can’t typically make repeat sales until they come up with a new product that may or may not provide much more value.
Customer-centric companies aim to create and maintain a loyal following by building products and services that truly provide value to their customers. They look to their target audiences’ needs before the development stage. Since these companies continuously win their fans over, word of mouth carries more weight and acquiring new customers takes less effort.
Uncertainty and Stagnancy vs. Confident Evolution
Product-centric companies tend to operate under a cloud of uncertainty at all times. Since their products’ value lives and dies with market trends, they’re at the mercy of the customer’s demand. Once demand dies down, it’s “back to the drawing board” to figure out what’s next.
Such companies often end up gambling on their prediction of the next trend. If they’re right, they stand to make a good amount of money. If they’re wrong, they can go bust. The worst-case scenario is when product-centric companies don’t evolve at all. Blockbuster failed to recognize that Friday night movie renting from a brick-and-mortar had come to an end.
Customer-centric companies know that trends will change, wane, and evolve over time. Had Netflix never been founded, we might still be renting our physical movies and video games from the local Blockbuster. But even if these companies aren’t the reason for a change in the tides, they know their customers will always seek value and that it’s up to the company to figure out how to provide it.
As the novelty of Netflix’s original mail-in service wore off, for example, the company didn’t just give up and pack up shop. Instead, the team figured out an even more convenient way to deliver content to customers.
The bottom line:
While their demands do change over time, people will always have a need for valuable products and services. It makes sense to continue evolving your company’s offerings with an eye on what they actually want – rather than just out-innovating the nearest competitor.
This is part one of a two-part series on the importance of customer centricity. Stick around for the next discussion on everything that goes into making the shift toward becoming a customer-centric organization.