By Amit Saharia
Organisations have, until now, formulated their corporate strategies with the overarching objective of maximising enterprise value, shareholder return, revenues, profits, or a combination of these. This design principle appears to be transforming rapidly, by placing the customer in the core of the strategic objective function. The advent of this new approach can be attributed largely to start-ups, which place the customer at the center and build their strategies around it, as opposed to the traditional strategy formulation approaches where customer is mostly viewed as the last leg of a linear value chain. Irrespective of new age or traditional, B2B or B2C, organisations are steadily adopting a revolutionary “customer-obsessed” approach to future strategies as opposed to an evolutionary one. Several of the market ecosystem plays that we are witnessing, while distinct in terms of their respective value propositions, have sharp customer focus as a common underpinning. The growing acceptance of this new guiding principle is becoming evident with the numerous instances of customer native set ups mushrooming around us, which despite incurring heavy losses, boast of super normal enterprise valuations on the back of their customer acquisition formulas. However, many sceptics claim that these bloated valuations are a function of initial hype cycles and cite examples of entities where valuations have gone south over time, further leading to a steep value loss. While their assessment is true for most start-ups (given the abysmal hit rate!), I think those that are able to make the cut (the unicorns or soonicorns for that matter), offer something more. A closer look can perhaps help reveal the same and enrich this debate.
Delving deeper, I observe that it is not just the uniqueness of the customer value proposition but also the “resilience” of it that drives the intrinsic value that organisations carry. In addition to being unique, if the value proposition also carries a “strategic hook”, then it aids in securing customer stickiness. Empirically speaking, the set ups which have lost value over time, are primarily the ones where the value propositions while fresh, fell short of this very hook. There are several examples where early valuations of entities were backed with infusion of large investments to “buy” market shares but given their value propositions lacked the essential hook to retain the customer, they eventually lost investor confidence and as a result, eroded their enterprise value.
But what exactly is this strategic hook? Let us take a few instances of players (or player archetypes) that have deployed business strategies (and successfully so!), to address a customer desire, preference, or pain point, along with a strong strategic hook attached to it.
Majority of food delivery service players have grown multi-fold in a relatively short time frame, on the back of strategies that make the very customer participate in their journey plan. A customer today can order quickly, reliably, and safely from a wide range of outlets by paying minimal delivery fees. The user interface provides the strategic hook in terms of the exact driver location and delivery time. This transparent and efficient service empowers customers and ensures stickiness.
Several traditional automotive OEMs are rapidly gearing product portfolios towards alternate fuel technologies. Meeting lowest total cost of ownership for the customer is turning out to be the most critical linchpin for their strategic moves. In my view, their strategic hook lies in not just meeting the TCO requirements today, but building an agile, efficient, differentiated and integrated back end which promises the same in the future as well.
A credit provider focused on working capital loans to SMEs, also provides a supply demand matching platform for raw material commodities for their manufacturing businesses. By eliminating intermediaries, the provider is able to pass on considerable discounts to the SMEs. In the event, that the customer defaults on credit instalments, he/she is withdrawn from any future transactions on the portal (and hence blocked from availing discounts any further). The entire business model is based on a strategic hook that helps build and retain the right profile of non-defaulting customers.
Defining strategies based on unique customer value propositions and strategic hooks, given today’s market dynamics and competitive intensity, is an extremely complex and uphill task. Contrary to “shareholder” which is a uni-dimensional entity guided largely by monetary returns, “customer”, is multi-dimensional with several layered characteristics in terms of demographics, behavior, desires, preferences and most importantly, pain points. It therefore becomes imperative to first understand the nature of this variable, as a necessary pre-requisite to identifying your distinct customer value proposition and even more importantly, your strategic hook!
The author is President, group strategy, Hinduja Group
