Digital Shift puts the Customer into Power Position

iStock_000034071002_Small_Shoots_Growing_From_MoneyIn the digital era shift, the sole purpose of business still remains – to create a customer. That is someone or an entity that will find value in the goods and services created or distributed and be prepared to transact for their consumption. However, there is a lot of talk across the changing business environment that the customer is now gaining more control over the business proposition by securing a direct stake in how a business structures and outputs to make its money. Well that is true across some industry sectors – but not so for all – yet! It is only a matter of time before lagging industries also begin to feel the direct effects of the changing structural environment and the customer’s place in it.

Losing sight of the customer in their power position shift while choosing to not explore and navigate new waters for different ways and new markets, will make businesses more susceptible to the risks associated with the digital rolling ‘ripple’ effects. That is until it hits a ‘tipping point’ that then sets-off a major and irreversible change industry-wide. This is when businesses and their industry sectors are faced with the prospect of becoming digitally disrupted – they have lost sight of their customers and have no new markets in play to ensure the continuing economic viability of its business model.

Therefore, understanding the dynamic nature of the changing customer power position is critical for business in maintaining a strong proposition in the evolving digital evolution.

What Makes an Industry More Susceptible to Customer Power?

An industry becomes more susceptible to customer power when its barrier creating ‘toll’ points and ‘filter’ channels are placed directly under fire (or just simply ignored) by artfully using the strings of digital. Integrating digital allows for the same customer to be directly connected to another supply source linked by a transaction gateway enabling the monetisation of the deal – minus the tolls and the filtered information. These emerging economic models (referred to as start-ups) are agile in the way that they can shift and shape to maximise their revenue potential by aligning to fulfil customer wants – ‘to want more and pay less’. This is key because the customer now knows they can have their ‘wants’ fulfilled with a service they ‘need’. Further they have the connected means to locate a provider who will provide it at their fingertips when they choose to access them – thus now making their ‘want’ a ‘demand’ that needs to be responded to by a business if they are going to keep their existing customers while also positioning to attract new customers.

In the customer’s search for a potential suitor, the emerging business models become visible because they can position themselves between the industry’s traditional players and their linked customers by providing a ‘latch’ service that previously kept the industry doors locked – secured by tolls and one-way orchestration. Further this agility along with the mastering of the digital tools allows the emerging business models to capture another game-changing element – the customer’s ‘latch’ service data that can then in-turn slowly disconnect (starve) the traditional industry service provider from an important first-hand business intelligence source. Also importantly this puts the emerging suitor in a power control position as they can then choose to redistribute the ‘latch’ data and its linked value benefits to other industry competitors (not contained by borders) that are seeking further value-add through creative and distributive activity.

This is a game that has just begun in the finance sector with emerging business models now positioning in-front of the larger banking institutions that have previously used the levers of size and volume to control ‘latch’ services such as payments and lending. Further as the finance industry deploys its resources across more digital interfaces, it essentially becomes a data business. Hence to be starved out of a direct raw data input will have some impact on the traditional institution’s decision-making potential to fulfil a customer’s need.  So as with other industry sectors, size and volume in the financial sector will in turn potentially become a weakness as it limits the ability to reshape and re-position in its quest to create a customer.

The traditional businesses, such as the large banks, are products in many respects of the industrial age where communication was one-way and barriers have been built over many years protected by legislation and from the accumulation of size and mass. The levers and inbuilt tolls that have become an entrenched part of these traditional business models allowed them to become big employers of people and embed incentive structures shaped around volume and numbers. Hence to be able to move with the newly required agility; indicators are starting to show that this is not a business model structure that will now survive the forces of the newly gained customer power where tolls and filtered communication are no longer seen or respected as part of a service that delivers a better customer experience.

What is the Momentum of Customer Power?

The momentum of customer power is mobilised by a ‘movement’ and not the technology. This is a very important point. However, the societal shaped ‘movement’ gains momentum through the acceptance and engagement of the technology’s combined effects that culminate to become a competitive force across industry sectors. As the ‘movement’ builds it pushes the newly formed digital driven competitive force up the adoption curve attracting more players creating an even fiercer competitor battleground as more customers engage to demand their preferred offering. A good example of this is in the taxi industry with the entrant business models such as Uber and Lyft amongst other more regionally focused players; beginning to engage customers with another way to fulfil their ‘need’ of getting from one place to the next without the embedded tolls and barriers to block the customer’s ability to fulfil their ‘want’ – to want more and pay less. The traditional taxi and commuter businesses built the industry walls too high with embedded tolls that then in turn built other internally feeding toll chains preserved with enclosed systems and regulation that in the end have nothing to do with providing a better customer service. Thus the purpose of the industry structure has been lost – to create a network structure that enables its industry players to create a customer. Hence the newly engaged digital forces (in the shape of new business models) are reconnecting to the customer through the understanding of their ‘need’ – to get from one place to the next – with a new supply source and a transaction gateway enabling the customer to have their ‘wants’ fulfilled exercising their newly connected customer power position of ‘choice’.

But it doesn’t stop there. As the customer demands more and emerging digital business models bring more possibilities to the way ‘needs’ can be met without the tolls imposed by a centralised industry structure; the momentum of the ‘movement’ begins to shatter long-standing segments.  This brings the complexity of functioning in a dynamic market that becomes ‘niche’ allowing for all tastes and preferences to be fulfilled in different ways; playing havoc with the traditional product lifecycle and the life of fads and fashions.  But the customer is gaining a taste and the ‘movement’ is behind the changing shape of the demand.

The retail and travel industries are good examples of this with many digital business models combining to be a competitive force in the way the customer ‘wants’ are being met. The travel industry has seen the emergence of new models such Airbnb and other service aggregators along with information disseminators such as Trip Advisor combining to shape new competitive dynamics with the customer having a direct input into trust and reputation rating systems. The competitive force will only further gather momentum and place more pressure on the traditional business models that gain volume and reach through the physical distribution of outlets and rewarding on incentive structures. The customer is now armed with a rich-source of information and empowered to make choices without the tolls (less friction).

The ‘movement’ is also changing the face of retail with its breaking of traditionally controlled value chains, channels and carefully orchestrated marketing messages. The customer now has more information to base judgements and resulting actions on. Their choices are now cultivated by tapping into: social network real-time influencers; feature and benefit comparison sources; a greater array of substitute options; and, rolling reputation rating systems giving a window into the customer experience. Thus they are now more empowered to choose how they should perceive the value attributes and then decide what they are worth without the filters and tolls.

Industries such as retail are now only limited by having something that a customer will find some value in with a positive service experience across borders and time-zones supported by a transaction gateway facilitating different currency denominations. Digital has given the opportunity for people to trade with scale. And the niche markets opened up by the ‘movement’ are giving great opportunity to the local craftsman and the international retailer alike.

The Risk of Building Digital Walls to Preserve the Customer You Have.

With the push to integrate technology into business systems to achieve efficiency and benefit gains for value-add potential; the risk lies in over-investing and building digital walls that will only hold the late majority and laggard customers with an end-date to their potential of providing productive ways for a business to make its money.

While building technology capability makes a lot of sense from a performance improvement perspective and maybe consistent with an industry network trend; the future potential will be about where a business is standing in terms of the customer that leads the ‘movement’. And they may not be within the digital walls.

The digital era ‘customer trap’ is staying on the continuous improvement path and bench-marking with the industry trend. This is also compounded further by the ‘data trap’. A performance dashboard that is fixated on the industrial age performance norms of customer averages and volume maximisers that have no material bearing on creating a customer for the future; will expose the business to negative digital effects and their consequences.

Thus, in an environment where data will place an increasingly important role in decision-making and future-shaping potential, it will be paramount that the source and integrity of inputted decision-making data is known before it can play a material role in accessing the power potential of the customer. Thus, if the data roots are not understood, then don’t value it in the quest to create a customer.

Therefore, creating a customer in the digital environment will not necessarily be about building higher digital barriers; but to understand who is leading the movement and who is right behind them – because the rest may follow no matter what technology investment has been made.

When a ‘movement’ becomes mobilised, it then becomes very real and that is when the power of the digitally connected customer affects the economic potential of business models. Not the technology.