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One of the biggest challenges that start-ups face is to ensure that their offering is perceived to be uniquely different from other alternatives in the marketplace. In today’s hyper-competitive world, this is extremely difficult. Without a patent, any product in the marketplace that enjoys some level of success will draw a host of imitators. The consequences can be severe, as without differentiation, there will be pressure on prices and margins, along with challenges in customer retention. Ultimately, this can lead to the downward spiral of price wars and bankruptcies.
One approach that has the potential to differentiate any start-up’s offering—even in the face of imitators—is to recognize that product purchase is just one part of a larger customer journey. In other words, when a customer buys a particular product, there would have been a series of actions by the customer “before” the actual purchase, and there will be a set of actions by the customer “after” the purchase.
For example, in the case of say, a start-up focused on home delivery of groceries, there are actions that would be relevant “before” placing the grocery order on the website (for example, a memory trigger to buy groceries, the choice of what groceries to buy, the search to make optimal choices, etc.) and “after” placing the order (for example, time when groceries arrive, storage after arrival, disposal after cooking, etc.). The possibilities of having an impact on the customer with services and products that relate to the before and after the purchase of the product can be substantial.
By focusing on the end-to-end customer journey, the entrepreneur can open up multiple touch points that can be addressed to help differentiate the offering, and make it more difficult for others to imitate the overall experience.
Ultimately all start-ups must accept the fact that they may have little choice but to get into the customer experience business, if they have to survive and succeed in the long term. The likelihood of being able to offer a differentiated product without embracing the broader customer journey is very small.
The critics of this approach say that it requires start-ups to do too many things in areas in which they have little knowledge and expertise, and thus they are likely to lose focus. Yes, it is true that they will have to give up focus on the specific product offering; however, their focus will have to increase on the customer, which is what really matters. And, there are no traffic jams on the extra mile they go for the customer.
Consider what Jeff Bezos had to say on this issue: “Companies get skills-focused, instead of customer-needs focused. When (companies) think about extending their business into some new area, the first question is ‘why should we do that—we don’t have any skills in that area.’ That approach puts a finite lifetime on a company, because the world changes, and what used to be cutting-edge skills have turned into something your customers may not need any more. A much more stable strategy is to start with ‘what do my customers need? Then do an inventory of the gaps in your skills. Kindle is a great example. If we set our strategy by what our skills happen to be rather than by what our customers need, we never would have done it. We had to go out and hire people who know how to build hardware devices and create a whole new competency for the company.”
More significantly, there is empirical evidence that this approach has substantial advantages. Researchers at McKinsey & Co. find systematic advantages to focusing on customer journeys. According to McKinsey, “Those that provide the customer with the best experience from start to finish along the journey can expect to enhance customer satisfaction, improve sales and retention, reduce end-to-end service cost, and strengthen employee satisfaction.”
For a start-up, the first step to differentiation is to recognize and understand the numerous touch points on the customer journey. These could include search, selection, delivery, payment, financing, installation, storage, repair, and disposal. To be effective, this exercise must be exhaustively done from the customer’s perspective, attempting to understand how customers navigate through these touch points, by focusing on their needs and expectations at each touch point. It should also be apparent that many of the touch points are inter-dependent on each other and this means that choosing one touch point at the expense of another may not be acceptable, as they could affect each other. It is useful to note that what ultimately matters is the customer’s overall experience on the complete journey, and a few poor performing touch points can adversely affect the overall experience.
Today, most start-ups focus on customer transactions, not customer journeys. In a world of parity products, and me-too offerings, the focus on the customer transactions must shift to customer journeys. After all, what’s the alternative? Compete in a world of commodity products, struggling to avoid the downward spiral of price wars? Even if the start-up is a first mover with a pioneering new product, by not embracing the full customer journey, the door will be left open for second-but-better entrants who will provide differentiated offerings, by taking advantage of the various touch points available on the customer journey.
Arun Pereira is a faculty member at the Indian School of Business, and executive director of ISB’s Centre for Learning and Management Practice.