Editor's Note: Take a look at our featured best practice, Pricing Strategy (38-slide PowerPoint presentation). Pricing Strategy is a core pillar of Marketing and Product Strategy. It is 1 of the 4 Ps of Marketing (also known as the Marketing Mix - Product, Price, Placement, and Promotion). As such, knowing how to properly price your product is extremely important to the commercial success and viability of [read more]
Product Strategy: Key Challenges to Tackle while Implementing Smart Customization
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Customers, these days, demand ever-higher levels of personalized products and services to suit their needs. Their demand is grounded on technological disruption and access to up-to-date information. They believe that in an economy characterized by disruption and operational innovation—that makes customization possible—they have an excellent chance of getting customized offerings from the suppliers.
Thus, Product Strategy needs to evolve and become more robust, accordingly, to keep up changing customer needs and demands.
However, Leadership at most supplier organizations believe that a strong focus of attention is the key to keeping rivals at bay and realizing amazing revenues. But the approach has its own shortcomings, as a focused market, geography, value proposition, or segment becomes replete after a while.
To serve customers’ fragmented needs, companies often outstretch the optimum level of complexity in their systems and portfolios while striving for customization. Organizations need to aim for and harmonize multiple points of focus to keep up with the fragmented demand of their customers.
Leading firms are offering bespoke solutions to customers to drive growth through Smart Customization—i.e., by tailoring business streams and aligning strategies with customer value.
With rising demands for customized offerings by the customers, organizations need to gauge the value that customization offers to their customers against the complexity costs they can charge them, in order to achieve higher growth and profit margins than their competition.
Studies have revealed remarkable dissimilarities between enterprises in terms of their approach towards customized client requirements. Those organizations that offer transient solutions to customer demands can be referred to as “simple customizers.” Whereas, firms that transform and bring their customer strategies and implementation plans in line with the specific customers’ requirements are the “smart customizers.”
Improved focus on the specific needs of customer segments helps boost the market share. Research on various large organizations reveals that smart customizers have a consistent focus on 3 best practices:
- A clear appreciation of the value that customization allows to their customers;
- Constant transformation towards the point at which customization adds value to both the clients and the organization;
- And modification of business models based on customers’ demands to provide value at lower costs.
Typically, there is often a two-to-one performance difference between “Smart Customizers” and “Simple Customizers.”
Implementing Smart Customization isn’t as easy as it sounds. A Booz Allen Hamilton study of product and service companies—conducted in North America and Europe for over 6 months—revealed that customization programs at around two-third of the companies failed to improve their revenues or profits, and most customization initiatives added to organizational complexity. These initiatives typically draw the emphasis of sales and marketing units off of the real value-added propositions and the most profitable customers, and direct disproportionate investments that fail to boost revenue.
- Cost of Complexity
- Valueless Variety
- Value Creation and Delivery Alignment
Now, let’s discuss the first challenge of Smart Customization in further detail.
Cost of Complexity
Organizational structure, operations or value propositions start out simpler but get complex over time. There are two reasons attributed to organizations’ decision to add complexity to their product or service portfolio: to create value for a customer segment, or in response to rivals’ moves.
The challenges of increasing complexity stay obscured from majority of the organizations. These challenges may include:
- Balancing customers’ requirements for variety in offerings with the escalating costs of complying with their needs
- Neglecting to update the decisions about the markets served and how to serve them
- Falling short of targeting customer demands accurately
- Inability to provide sustained value to existing customers
- Failure to develop a thorough understanding of the cost drivers
- Inability to differentiate between easy and difficult customization programs.
A customization program that does not acknowledge these challenges results in diverting resources away from top priority initiatives and further squeezing top-line and bottom-line figures.
Interested in learning more about Smart Customization and the challenge that value creation and delivery alignment presents while implementing it? You can download an editable PowerPoint on Key Challenges of Smart Customization here on the Flevy documents marketplace.
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About Mark BridgesMark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
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