Formerly silent consumers; critics and even producers today. How companies can leverage the new power of customers.
The rods register brightness and the cones distinguish colors. There is a relationship between stimulus intensity and visual reaction time, which is why advertising often uses bright colors.
Humans are hunters. The eyes are aligned to look ahead; the movements are perfectly synchronized to catch prey as quickly as possible. Once the prey is in focus, human hunters let nothing distract them. But today, the prey has changed: Now, we hunt mostly for bargains.
People take over 80 percent of their information about the world through their eyes. Yet they are continuously being bombarded by acoustic, olfactory, and gustatory impressions. Being able to stand out in this sensory storm is the most important job of the modern firm.
There are now more than seven billion people in the world and each is unique. And in their role as customers, they are also complicated, sometimes even contradictory. Customers claim multiple roles for themselves today. They are no longer consumers who silently open their wallets or purses. Increasingly, they are also designers, multipliers, critics, or even investors.
Customers have never been as well informed as they are today and have never revealed as much information about themselves. Just as people in 3-D printing studios can have perfect busts of themselves made, so too is there a doppelgänger for each person in the digital world, created through our daily online activities. Tracking and monitoring software save our every click and search request, advertising banners follow users from website-to-website. Regardless of whether it’s gender, approximate age, level of education, or financial status—companies are well informed about their target audience.
Digital technologies are shaking the foundation of the customer-company relationship, which has long been considered secure. The tectonic plates are not only shifting in individual corporate areas or special industries or regions, but rather, along the entire value chain. Market research companies and trend consultants have given this phenomenon various names. Sometimes the talk is of “empowered customers” or, even, “the age of the customer.” What is the best way to deal with this new power factor in commercial life? This is the question that every company department, from product development and sales through to marketing, must ask themselves to ensure that the company continues to act successfully into the future. One thing is certain: none of the individual divisions will be operating in the future exactly as they did in the past.
Until recently, for example, a company’s product development labs were top-secret areas. The fear of industrial espionage and imitations led to development activity behind locked doors and non-disclosure agreements with employees. The effort to ensure secrecy is understandable, but is also the result of a basic fallacy. After all, aside from market research, customers do not come into contact with the car, article of clothing, or smartphone until the very end of the process: the point of sale. There, they decide whether they like the product. Or not.
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A simple example of how one can tap into the creativity of the masses is the Lego Ideas website. The building block manufacturer happens to be the world’s largest toy corporation. On its website, fans can upload their own models and vote on the ideas of others—more than 30,000 of which have already been collected on the database. If enough positive votes are submitted, Lego will produce the kit and the inventor will even receive one percent of the profit the company makes on it. At least 10,000 votes are required. More than 25 kits, from the Beatles’ Yellow Submarine to the International Space Station have been created via this system since the website went live. Users feel that their hobby is being taken seriously—more than one million of them have already registered on the platform. And the Lego Group is pleased about permanent user engagement and products for which positive customer feedback is virtually guaranteed. “It would be easy to arrogantly assume that everyone is familiar with our brand,” says Peter Kim, Vice President of Digital Consumer Engagement at Lego. “But we must always ask what our customers want and what we have to do to satisfy them.”
Lego’s solution is called co-creation, or crowdsourced innovation. It turns product development on its head: instead of “business to consumer,” ideas can now also flow from “consumer to business.” But to do this, the right conditions must be created, for example through the ISPO Open Innovation platform, which has been operated by the leading international sports network ISPO since 2013. It brings consumers and brands together to develop and test new, innovative products. Tobias Gröber, Executive Director Business Unit Consumer Goods and responsible for ISPO Group, knows just how important customer feedback is. “Productive innovation suggestions are submitted for every ISPO Open Innovation project. For prototype tests in particular, the feedback from the project is also implemented directly,” explains Gröber.
We must always ask what our customers want and what we have to do to satisfy them.Peter Kim, Lego Group
And so the customer is no longer engaged at the end of the product life cycle, but rather, at the very beginning: He or she becomes a partner. This enables a change in perspective, helps to uncover hidden customer needs, and to break through business myopia to generate new ideas. In this way, manufacturers can tap into a sheer inexhaustible reservoir: Over 60,000 sports enthusiasts from more than 60 countries have already registered on the platform and they have written hundreds of test reports for every individual project. “Even without incentives, there is always a base of community members who actively participate in the projects,” says Gröber. “Their motivation lies in the opportunity to test new products and, in particular, the chance to enter into a dialog with the brand.” At the same time, the tagline “Co-developed by customers” is a key sales argument. “We were able to prove that integrating customers into the development process brings clear benefits for companies,” Gröber adds. The participating companies have given exclusively positive feedback.
Once the prototype has been developed and tested, it goes into production. New technologies such as 3-D printing also provide unprecedented opportunities. 3-D printing has already become a standard industrial process. In comparison to conventional production processes such as milling and casting, it has the advantages of greater precision and, at the same time, greater flexibility. For example, before production, the machinery does not need to be changed over. This permits product individualization even if large numbers of pieces are involved.
Individualized mass-produced goods —that may sound contradictory, but only at first glance. The extent to which the core product is affected fluctuates greatly. Personalization has many faces. A can of soda with one’s own name printed on it, custom granola, or a jar of Nutella with a personal message: Customers can now add a personal note to many everyday products. “Product personalization is an important trend. In the future, more and more products will accommodate it,” says Jens Rothenstein from IFH Köln, a commerce and wholesale research institute. Many renowned companies have already jumped on the bandwagon. It is a way of differentiating a company from its competitors and, at the same time, encourages customer loyalty.
In a study conducted by the management consulting firm Deloitte every fifth respondent said they were willing to pay more for personalized products—up to 20 percent more, to be precise. And almost as important: almost one-quarter of study participants would also be willing to provide data about themselves for product personalization. Distinction is a valuable commodity. Self-presentation has always been one of the drivers of consumption but today exclusiveness does not mean the most expensive or rare product, but rather, one that is the most unique.
Even small product modifications can be wildly successful. Take Coca-Cola for example: In its “Share a Coke” program, the manufacturer puts the customer’s name on the bottle instead of its own brand name. The result is one of the biggest success stories in recent marketing history. The traffic on the company’s Facebook page surged upward by 870 percent and its turnover and sales grew by four and three percent, respectively.
Our sense of smell, also called olfactory perception, basically originates in the olfactory receptors located in the nasal cavity. Companies leverage different needs in scent marketing.
The earlier personalization occurs in the product development process, the more expensive it is. In other words: It takes less effort to print a different first name on a label than it does to customize a running shoe. But that is exactly what will happen at adidas in the future. The AlphaEdge 4D looks more like a prop from a science-fiction film. The shoe’s interior is also futuristic because the insole is produced using a special printing process that permits maximum personalization.
It will soon be possible to adapt the insole to the wearer’s foot shape, weight, and special wishes. And reportedly, the 3-D printing process is relatively fast. A gigantic factory with lots of different materials and production steps is not necessary. Instead, a new shoe can be printed at the point of sale and bonded to the prefabricated outer material. For example, an analysis of the customer’s running style with personalized production directly in the adidas store will be possible. What was originally considered to be a concept only, it now “gives us the opportunity to completely rethink our production processes and create a data-driven experience that sets new standards when it comes to performance and convenience,” says Klaus Rolshoven, Design Director Future at adidas.
We are truly not far from the utopian idea that 3-D printing will one day turn consumers into producers. For now the trend in taking another direction, and that is: Have it printed instead of printing it yourself. Start-ups such as Shapeways from the Netherlands have offered a print-on-demand service for many years. Designers can upload their designs onto the Internet platform, then customers select the material and size, and receive their product in the mail. Every month, more than 140,000 new designs are added to the platform.
The only question remaining is, how do all these goods reach customers? The last mile that the package has to travel is always the most labor-intensive and costly. More than half of all shipping costs arise here. And the majority of recipients are often not home when their package is delivered. “While 40 percent of deliveries used to be to consumers, today more than half of all packages are delivered to private households,” says Jürgen Schröder, Senior Partner at McKinsey and a logistics and postal services expert. In the USA, Amazon is experimenting with a key system that gives delivery personnel access to customer homes in order to leave parcels there.
At the same time, there is no end in sight to delivery volume growth. Every day, 12 million packages are shipped in Germany alone, according to a study by the logistics industry association BIEK. Logistics companies are now experimenting with delivery hubs in which goods are no longer distributed from large warehouses but go into interim storage in the final destination city district. Another promising approach uses electrified cargo cycles. Twenty-first-century package logistics must become more climate-friendly, quieter, and cleaner while relieving the traffic situation in chronically overcrowded inner cities.
The box-shaped delivery robots that have been roaming the streets of several large cities such as Hamburg and San Francisco for some time now have a more modern feel. Delivery drones continue to figure in the strategy plans of logistic firms, and slowly, seem to be moving from “vision of the future” to reality. Wing, another subsidiary of Alphabet, Google's parent company, launched a test run in the state of Virginia in fall 2019. The drone equipped with 14 rotors is able to reach speeds of up to 75 mph at an altitude of 400 feet and promises door-to-door delivery for smaller packages. Selected packages from the package service FedEx and the pharmacy chain Walgreens can already be delivered. “We predict that by 2025, around 80 percent of packages can be delivered by machines,” says McKinsey expert Schröder.
But products are not the only factor that must be rethought—distribution models also play a role. Direct-to-consumer commerce has becoming more and more popular as a way of achieving better market penetration, particularly for young brands. It allows companies to bypass retailers as middlemen to contact their customers directly. It may seem paradoxical that in a world where virtually all concerns and businesses are digitally communicated, more emphasis is placed on direct contact. But the model is attractive because brands that rely on middlemen avoid premiums, and can offer their products more cheaply than their competitors without sacrificing quality. At the same time, they have complete control over distribution and visibility.
Of course, time is also a critical factor in distribution. Same-day delivery is no longer a courtesy; customers expect it as standard. People who order something online want to hold it in their hands as soon as possible. Obviously, all aspects of shipment and delivery are critical factors for successful e-commerce. Customers who have good delivery experiences can be used as a very strong marketing force. By contrast, 37 percent of online consumers who have unsatisfactory delivery experiences on a portal never shop there again.
We predict that by 2025, around 80 percent of packages can be delivered by machines.Jürgen Schröder, McKinsey
Obviously, there should always be people who still make their purchases in the analog world. Indeed, the majority of total retail revenue in Germany—which amounts to more than EUR 432 billion—is generated in brick-and-mortar shops. But that sector’s growth has hit a plateau. As a Nielsen study indicates, people primarily rely on efficient purchasing. They research the best prices and products on the Internet before making a purchase. If they do go into a department store, they go in and out as quickly as possible. All of those factors pose an enormous challenge to stationary retailing. In the USA, they have already started to speak about the “retail apocalypse.” Recently, almost twice as many stores have closed as newly opened.
That was not always the case. “The customer is king” is something the early department store moguls of the mid-19th century —such as Marshall Field, John Wanamaker, and Harry Gordon Selfridge—knew. And it was important that their customers felt like kings at all times. Shortly before Selfridge opened in London, the store founder said: “A business that opens every day should be as magnificent and, in a certain way, uplifting as a church or museum.” Temples of consumption in the truest sense of the words were created. Classical columns, gigantic display windows, and elaborately decorated doors gave the buildings an air of sophistication and impressed customers. Consumption went from a necessity of life to a haptic experience that created pleasure. “I want them to enjoy light and warmth, colors and forms, and the feeling of fine fabrics,” proclaimed Selfridge. “Excite the mind, and the hand will reach for the pocket,” was another one of his favorite sayings. Nowadays, stained glass windows or marble walls are not enough to delight the customer. Before, consumers were satisfied by things that were “nice-to-have”. But over time that has evolved into intensified consumer demands. And they are not afraid to loudly voice their dissatisfaction either. According to a study by strategy consultants Simon-Kucher & Partners, more than three-quarters of respondents have submitted a rating online and almost the same number think that online ratings are important or very important when making purchasing decisions. At the same time, just under half of responding companies view product ratings as “very important.” And only 15 percent have a specific strategy on how to deal with the “ratings economy.”
In the digital world, our tactile sense has become more important. When everything is digital, haptic things become special.
Yet proactive, positive online reputation management has now become one of the most important disciplines in communication departments. It is how companies can encounter negative criticism in public before it gathers momentum. Just one an unnoticed Instagram or blog post from an influencer can get the ball rolling. The potential results? The share price drops, journalists storm the press office, and thousands of people begin boycotting the company.
The so-called “empowered customer” is provisionally the final stage in the customer’s evolutionary development. Social media platforms and an Internet-compatible device that is always within reach have made the words and opinions of today’s customers more powerful than ever before. Attention spans are growing shorter, the number of options is rising, brand loyalty is shrinking and the next better offer is only a click away.
Companies must be able to react to customer needs virtually and in real time. For this reason, the experts agree that brands and products can no longer be the focus of the message. Instead, the customer is the focus. Customer-centricity is the magic word that is upending marketing fundamentals that have been considered irrevocable for decades. At the same time, the demand to be personally addressed is also rising. Sending standard birthday e-mails is no longer considered sufficient customer communication. Instead, the right content must reach the right customer at the right time. The effort is worth it: Well-executed personalization can increase marketing ROI five- or eightfold and sales by up to 10 percent.
Auditory perception takes place between the hearing and pain thresholds. Music’s perceptual range is broader than that of language.
No wonder, then, that the marketing departments of the world are undergoing continual technical upgrades. Jake Sorofman, Research Vice President at the management consulting Gartner Group, estimates that almost as much technological investment is being made in marketing departments as in IT. Consequently, technology investment is responsible for more than one-quarter of all marketing budgets.
However, his colleague at Gartner, Brent Adamson, warns about implementing the modern tools blindly and unsystematically. Instead, companies must ask how big data and marketing technology can be used to help them “slip into the role of the customer”. The aim is to find out how customers think and what they feel. And to ask how their own efforts help customers to solve a problem or improve their lives.
“Ultimately, customers do not want to be shown that companies know them. They want to be helped,” says Adamson. To show that companies know customers without offering any help can in fact cause enormous damage. Inadequate personalization can backfire, is the conclusion of another study. It found that three-quarters of all respondents feel harassed by the brands and companies that fill up their e-mail inboxes. More than two-thirds of participants answered that they have unfollowed brands, closed user accounts or unsubscribed after being inappropriately contacted on social media channels.
Customers have more power over good and bad than voters.Stewart Brand, Autor and Entrpreneur
But expectations of companies go far beyond their core business. The eco-entrepreneur and author Steward Brand sensed this as early as the 1970s, when he said: “Customers have more power over good and bad than voters.” Today, his assumption can be confirmed empirically. According to one survey, four out of five respondents believe that brands have the ability to ensure stability in uncertain times and three-quarters of them answered that they expect companies to take clear positions when it comes to important social and societal issues. In other words, it’s not enough to have a good product in your portfolio. It must also stand for something important.
“Brands have become mediators between rapid innovation, on the one hand, and conscious ethics and regulation, on the other. As a result, brands are now required to function as stabilizing factors more than ever,” says Bianca Eichner, General Manager at the We Deutschland brand agency, which carried out the study. But this evolution also includes an opportunity for companies. “To know how the perceptions, positions, and needs of customers change from year to year allows companies to recognize more precisely what they have to do to reach their key stakeholders,” adds Eichner.
One thing is certain: Customers will not relinquish their new power. And of course, this “new world order” is complex, and full of change and risks. Nevertheless, brands should not perceive their newly empowered customers as potential threats. Instead, they should embrace this new opportunity. Companies that accept these changes have the chance to communicate their values and products more effectively. The customers of tomorrow are no longer mere customers. Instead, they are partners who can strengthen a company’s own message.
By Michael Moorstedt. The article was first published in our Messe München Magazine 02/2019.