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.