Board rooms in most companies focus on investors and innovation – they spend inordinate time on stock prices, activist investors, and technology and pay little attention to changing customer needs. But technology is not the driver of business disruption and innovation alone is a distraction, not a solution. It’s customers that drive business success or failure – and whoever meets their needs best will get their business. Those needs are changing so rapidly that an entirely new approach is needed.
As millennials replace retiring boomers to become the biggest buying group worldwide, changing demographics are disrupting entire industries. For example, packaged goods industry revenue and profit are declining due to millennials’ demand for healthy fresh foods. In response, boards at these companies have been changing CEOs and leadership teams – but that isn’t working. While they reshuffle, nimble newcomers are capturing their market share. It’s time for boards to think differently and put customers first. If they don’t, their companies will go out of business.
Look what happened to Filene’s Basement. It was a Boston institution — tourists even came to watch customers digging through the messy bins of designer clothes. But by 2011, the famous bargain basement closed forever, like many other department stores around the country. Though people blame Amazon and online retailing for the demise of these once-popular stores, the real reason is that customers’ needs are changing and department stores don’t meet them anymore. The old ways of attracting customers — flashy storefronts, big sales, and standard merchandise no longer work.
Retailers that are slow to bring new designs to market, can’t help with style questions and lack tailors to fit clothes — or charge extra for styling and tailoring — will never be popular with Millennials. This generation doesn’t have much disposable income. Millennials would rather shop at stores that charge less and address their needs better than department stores do — so they choose upstart companies. And customer needs in all industries are changing just as much — look at how Uber and Lyft disrupted the taxi and black car companies worldwide.
This 180-degree change in customer needs requires companies to take an entirely different approach. To take an example from just one industry: the automotive industry is still trying to sell customers new cars every year, based on new features. But as car-sharing replaces car ownership, that’s not going to work, no matter what upgrades new models have. Do passengers care if an Uber car is self-driving? All they want is a comfortable, safe ride in a clean car with a pleasant driver. But the car companies keep pushing self-driving vehicles. And across industries, it’s the same: companies push products and services that don’t match customer needs.
What can leaders do?
Most leaders are compensated with stock and stock options, and concentrate on pleasing investors. To avoid disruption, these leaders will have to shift their focus to customer needs – not investors or competitors. It takes a new way of thinking about everything in a company – centering on meeting new customer needs, from strategy to operations to organization structure. And that new approach needs to follow these steps.
Step 1: Focus on customer needs
Understanding customers’ needs is the first and most crucial step in dealing with disruption — and many companies don’t try hard enough to reach that understanding. They focus on what their customers tell them they want. As Steve Jobs said: “Some people say, ‘Give the customers what they want.’ But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d asked customers what they wanted, they would have told me, ‘A faster horse!’ ‘People don’t know what they want until you show it to them. That’s why I never rely on market research. Our task is to read things that are not yet on the page.”
Not everyone can be as brilliant (or as lucky) as Steve Jobs was in doing this, but any company that tries can understand what’s driving customers’ statements, and companies that don’t do this will fail. Companies have to figure out both the drives behind the needs and think outside the box to meet them.
However, there is an important distinction. Customer needs are not similar across segments. They vary by country and geography. While customers in developed countries are happy to buy ever expensive iPhones, those in developing countries are embracing affordable products from China. Different demographics have different needs.
Step 2: Develop customer focus strategies
To avoid disruption, it’s not enough to understand customer needs — you must devise strategies to address them. Consider Chobani’s explosive growth. Understanding that customers want healthy food and will pay twice as much for Greek yogurt, Chobani’s founder, Hamdi Ulukaya, bought a dairy factory from Kraft. Chobani immediately became popular with health-conscious customers. Hamdi scaled quickly and catered to the growing demand, building a big warehouse across the road from its plant and another big plant in Idaho. The ability to meet customers’ growing demand for healthy food made Chobani grow. Its U.S. Yogurt market share increased from 7% in 2010 to 22% in 2016, while Danone’s and Yoplait’s shares declined, as the figure below shows. The company soon expanded into international markets.