By Amit Saharia
Organizations have, until now, formulated their business strategies with the overriding objective of maximizing enterprise value, shareholder return, revenue, profit, or a combination thereof. This design principle seems to be rapidly changing, placing the customer at the heart of the strategic objective function. The advent of this new approach can be largely attributed to start-ups, which put the customer at the center and build their strategies around them, as opposed to traditional approaches to strategy formulation where the customer is primarily considered the last step of a linear value. chain. Regardless of new age or traditional, B2B or B2C, organizations routinely adopt a revolutionary “customer obsessed” approach to future strategies, as opposed to an evolutionary approach. Several of the market ecosystem players we witness, although distinct in terms of their respective value propositions, have a sharp customer focus as a common foundation. The growing acceptance of this new guiding principle is becoming evident with the many examples of native client setups springing up around us, who despite heavy losses, boast super normal business valuations on the back of their credit formulas. customer acquisition. However, many skeptics argue that these inflated valuations are a function of initial hype cycles and cite examples of entities where valuations have fallen over time, leading to a steep loss in value. While their assessment holds true for most startups (given the abysmal success rate!), I think those that are able to make the cut (unicorns or soonicorns for that matter), offer something more. Perhaps a closer look can help reveal the same and enrich this debate.
Going deeper, I observe that it is not only the uniqueness of the customer value proposition, but also its “resilience” that determines the intrinsic value that organizations carry. In addition to being unique, if the value proposition also has a “strategic hook”, it helps ensure customer buy-in. Empirically speaking, the setups that lost value over time are mostly those where the value propositions, while fresh, didn’t hit that hook. There are several examples where early entity valuations were supported by the infusion of significant investment to “buy” market share, but given that their value propositions lacked the essential hook to build customer loyalty , they eventually lost investor confidence and as a result eroded their enterprise value. .
But what exactly is this strategic hook? Let’s take a few examples of actors (or archetypes of actors) who have deployed commercial strategies (and successfully!) to respond to a desire, a preference or a sensitive point of a customer, as well as a strong hook related strategy.
The majority of food delivery service players have multiplied in a relatively short period of time, thanks to strategies that involve the customer themselves in their travel plan. Today, a customer can order quickly, reliably and securely from a wide range of outlets by paying minimal delivery charges. The user interface provides the strategic hook in terms of exact driver location and delivery time. This transparent and efficient service empowers customers and ensures adherence.
Several traditional automotive OEMs are rapidly shifting their product portfolios towards alternative fuel technologies. Achieving the lowest total cost of ownership for the customer is proving to be the keystone of its strategic moves. In my opinion, their strategic hook is not only to meet TCO requirements today, but to build an agile, efficient, differentiated and integrated back-end that promises the same in the future as well.
A credit provider focused on working capital lending to SMEs, also provides a platform for matching supply and demand of raw materials for their manufacturing businesses. By cutting out the middleman, the supplier is able to pass on significant discounts to SMEs. In the event that the customer defaults on their credit commitments, they are removed from any future transactions on the portal (and therefore blocked from benefiting from additional discounts). The entire business model is based on a strategic hook that builds and retains 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 challenging task. Unlike the “shareholder” who is a one-dimensional entity driven largely by monetary returns, the “customer” is multi-dimensional with multiple 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 prerequisite to identify your distinct customer value proposition and, more importantly, your strategic hook!
The author is President, Group Strategy, Hinduja Group