THIS CASE STUDY illustrates the difference between wanting to be customer-centric and actually being it. It also shows what happens when organisations defend their current products and existing business model, instead of proactively adapting to changing customer-needs.
In The Thrive Cycle: Unlock The Adaptive Organisation Within, I talk a lot about putting customers first and show how a customer-centric strategy is critical to becoming more adaptive. While many of today's leaders acknowledge that putting 'the customer' at the centre of their organisation is important, it's often much hard than it sounds. One of the ways in which an organisation shows it's true colours in this area can be seen when the needs of its target customers change. The following example shows how.
First, some background.
The average Australian eats 125 eggs (or 7.2kg) per year. Consumption is higher in the US and UK at approximately 230 and 175 eggs per annum respectively.
If you are an egg producer, differentiation is difficult. To the average consumer, an egg is an egg. As a consequence, competition has historically centred upon egg size and price. In recent years however, an interesting development has occurred.
Housing birds in cages is the most efficient and profitable method of egg production. However, for the birds, this practice results in poor quality of life and suffering. Thanks to consumer groups and animal welfare agencies, consumers have become increasingly concerned about the health and well-being of the chickens producing the eggs (and not just the product). This has sparked changing social attitudes towards egg production techniques with buyer behaviour favouring eggs that have been produced in a more humane way. As a consequence, consumers have moved away from caged-eggs towards those labelled 'free-range'.
"65% of Australian consumers buy free-range eggs and almost 70% do so to support better animal welfare" (Choice, 2014)
When this shift in consumer attitudes initially occurred, it placed egg producers and retailers in a quandary. Should they continue to focus on product and price alone or focus on creating maximum customer value by addressing the issues they considered to be important.
The initial responses from many producers showed that old habits die hard and competing on price and product features are hard habits to break. In this way, many companies presented themselves as meeting customer-needs (ie. offering more animal-friendly eggs) but in reality, price and profit were the key drivers. Some strategies included:
Deceit - In 2015, a study found that consumers were paying almost double for eggs labelled 'free-range' when only 25% of producers could prove they were meeting the free-range guidelines (Choice, 2015). One producer was recently fined $250,000 for deceptive advertising.
Muddying the waters - Using technicalities and vague language so consumers don't really know what they're buying. Producers used terms like 'Cage Free' and 'Barn Laid' to make it sound like it was a significant improvement for the birds, when it wasn't. In 2016, Consumer Affairs Ministers met to agree the standards required to label eggs as 'free-range'. While the standard of 'No more than 1500 birds per hectare' was proposed by welfare groups, large retailers and egg producers lobbied for the ratio to be much higher and it was eventually set at 10,000. This way consumers would perceive they were buying a more humane product (ie. better conditions for chickens). While the 'free-range' birds were better off than the caged alternatives, they still had poor conditions compared to what the welfare groups had proposed. In reality, they were not roaming free as most consumers perceived it. (Choice, 2015)
Today's businesses are constantly challenged by more agile competitors, emerging technologies and more powerful consumers. This makes customer-centricity a necessity not a nice-to-have. This means companies need to be customer-centric and proactively respond to changing needs, not just aspire to be it. When it comes to free-range eggs, ALDI learned this lesson the hard way.
In 2016, the supermarket giant became the target of a social media campaign when it refused to follow other retailers (eg. Coles, Woolworths) and phase-out cage-eggs. Angry customers bombarded the company's Facebook page demanding ALDI change its purchasing policies. After much brand damage, the company succumbed and announced its intention to phase-out caged-eggs by 2025. Other companies that experienced similar customer back-lash included Subway, McDonalds and Nestle - all changed their policies. In each case, these organisations were playing catch-up trying to 'win back' the loyalty of their unhappy customers, not creating life-long advocates by proactively adapting to changed needs.
But enough about eggs and chickens, what are the key lessons to take away? With most of 2017 still ahead and even more change galloping over the horizon, here are five key things to remember.
Never under-estimate the power of your customers
Customer-centricity means pre-empting what's important to your customers, and taking appropriate action. It doesn't mean reacting when customers complain or protest about things you should have addressed in the first place
If your organisation doesn't adapt to your customer's changing needs, someone else will
If your strategy is not driven by creating or protecting customer-value, chances are it's eroding it
If you want a more adaptive organisation, it needs to place your customer at the centre of it
If you'd like to learn more about creating a customer-centric strategy and building an organisation that can deliver it, check-out The Thrive Cycle: Unlock The Adaptive Organisation Within.
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ABOUT THE AUTHOR:
Kate Christiansen has spent 20 years adapting large organisations to strategic change. She partners with CEOs and their Executive Teams to develop the clarity, capability and confidence needed for superior adaptive performance. Kate is author of The Thrive Cycle: Unlock The Adaptive Organisation Within. To discover more, visit www.thethrivecycle.com