As if it wasn’t already difficult enough, the pandemic lockdown restrictions have greatly benefited the digital behemoths at the expense of other large and small businesses. The likes of Amazon and Google, already muscled in on every conceivable market or service, seem to be becoming not so much businesses as essential utilities. How can the rest of us compete?
In their new book, Choose Your Customer, Jonathan Byrnes, a Senior Lecturer at MIT, and John Wass, previously of Staples and CEO of Profit Isle, seek to level the playing field—or at least reduce the incline—with a series of customer driven strategies to help leaders develop targeted quality-service businesses which the digital giants won’t be able to match.
It is not clear whether the data collecting advantages, price-setting algorithms, or the activities of Amazon Marketplace are or should be subject to competition law. While national governments and international bodies such as the EU and OECD may look to legal or other devices to reign in the phenomenal growth and power of the digital giants, it seems unlikely anything will curtail their negative affect on other businesses anytime soon. What is more, the buying public would not appreciate any diminution of the services the likes of Amazon, Alibaba and Google provide.
Many companies striving to succeed today will already have a good online presence, be investing in data analytics, and no doubt have been forced by digital giant competition to cut prices and up their digital marketing spend—but may still be losing market share and seeing profits shrink. Byrnes and Wass see a positive way out of this dilemma. It starts by fully understanding the dynamics that have moved advanced economies out of the product driven ‘Age of Mass Markets’—characterized by large homogeneous markets, massive economies of scale, and price/cost uniformity—into the new customer first ‘Age of Diverse Markets’—characterized by heterogeneous markets often fragmented down to the individual customer.
With this understanding the solution they propose involves rethinking financial reporting and profit analysis. They suggest that the traditional, widely used, ‘gross margin’ metric, typically based on aggregated information, is too inaccurate to record actual net profit. Rather, to succeed in the new era, armed with modern data analytical tools, each individual transaction and each customer can and should be precisely assessed for profitability.
In the Age of Mass Markets all revenues and all sales were seen to be good and all costs bad. In this new era the focus needs to be on servicing ‘peak customers’—who are loyal and less price sensitive—and avoiding ‘profit drain customers.’ The core objective of the new era business should be to maximize profitable growth in carefully chosen market segments and not to maximize sales revenue from wherever. This way the company can provide exceptional services and experiences that truly matches the evolving and rapidly changing needs of their selected customers, at a level that the digital giants and their automated systems will not be able replicate.
Using examples of companies who have got this right, from Baxter Healthcare to the Spanish retailer Zara, the authors offer a clear methodology for transforming businesses to this new paradigm. For this they suggest three imperatives. First choose the customers where you can be best at creating winning customer value. Secondly, align the company’s structure, processes, and capabilities to provide sustained value to the targeted customer group. And finally, manage by coordinating at all levels to address diverse, segmented, even customer specific demands from increasingly divergent customers.
Choose Your Customer in setting a trajectory for business success in the Age of Diverse Markets offers a important template for competing successfully against the digital giants.
‘Choose Your Customer: How to Compete Against the Digital Giants and Thrive,’ Jonathan L. S. Byrnes and John S. Wass. Published by McGraw-Hill, May 2021, ISBN 978-1-264-25709-6