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Consumer Power: Threats and opportunities from this new dynamic

The airline and car sectors are waging a continuing war to take out costs associated with “customer servicing.” Others, such as Dell, EA, GE’s Healthcare Division, are creating “from the ground-up” bu…

The airline and car sectors are waging a continuing war to take out costs associated with “customer servicing.” Others, such as Dell, EA, GE’s Healthcare Division, are creating “from the ground-up” business models that enable the customer to do some of the “servicing.” For innovation, many organizations are discovering that customers have lots of ideas and most are quite happy to provide them gratis. The trick is to ask the right questions and have an internal information management system to identify and exploit the winners.

The digital market place is finally validating the oft-cited claim that “the customer is king,” (The Economist, April 2, 2005). In today’s market place, customers have the power to pick and choose as never before, and with real-time effects. This is changing the way the world shops and the way consumers learn about products. Advertising spending has recovered strongly from the post-tech slump of 2001, and is evolving into new strategies. A growing proportion of advertising is shifting from mainstream media such as TV, radio and print, to new media such as direct mail, public relations, promotions, sponsorship and product placement. Strong brands (e.g. Starbucks, Apple, Dell) are cross-selling to create opportunities in other sectors. Growth in Internet use is also creating new avenues for retailers to connect to consumers. Google is beginning to work like an ad agency and Amazon uses behavioural targeting. “Local search” could become the next big money-spinner and online journals (blogs) will evolve further into information sources for consumers. Successful businesses now realize that consumers must be treated like real people – people who are finding an increasing number of ways to block-out unwanted ad messages. However, advertisers are still inclined to view their business as some form of warfare, with terms like “ad campaign,” “consumer targets,” and “hits.” These shifts clearly have implications for paper and packaging.

GE, Staples, P&G, Electronic Arts and BMW are among a growing number of companies turning to consumers for their innovation needs (Eric Von Hippel MIT “Democratizing Innovation”). BMW provides design tools to let customers develop ideas for incorporating telematics into their cars. EA provides programming tools for its customers and works their creations into new games. Similarly Lego is (belatedly) exploiting hacker-innovation for their “Mindstorms” robot. In the process, file sharing, the bane of the media sector, is finding new uses for innovation networking. Harnessing customer innovation requires new techniques. One of these is the identification and nurturing of an inner sanctum of outside customer innovators. The new model for innovation is that customers seem willing to donate their creativity freely; they respond to rewards such as prestige and recognition. A variant of this is the use of freelance inventors for which there are several websites.

Why is this important?

Functions associated with customer servicing can go the same way as middle management and office assistants. While many organizations are downsizing traditional R&D, they must still retain a critical mass of internal innovation capacity that will now have a new role in engaging the creative consumers and organizing the large volumes of incoming information. A recent Booz Allen survey (strategy+business Spring 2005) has found the following traits for companies that are successful at turning customers’ ideas into innovations:

Vigorous market research of customer needs.

Internal linkage processes that connect technology and market functions.

Seeking a deeper understanding of customer behaviour and motivations.

What comes next? Consumer power may be best tracked through three industry sectors: packaged goods, consumer electronics and cars. For the rest of us, there are two critical questions: “How empathetic are you with your customers and their customers? Are you organized to utilize customer input for innovation?”

Alan Procter is an international consultant and strategic adviser. He can be reached through www.alanprocter.com