Merchant Advance Blog

Blog Article: Product & Customer-Centric Business Models

 

Convention dictates that almost any business can be said to adopt one of two major schools of thought when it comes down to its operational focus: namely, is it customer-centric or product-centric? Thinking about your small business in one way or the other may influence (or reflect) your choices as they relate to goal-setting, internal organization and corporate culture. What follows is a quick primer on these two fundamental styles of doing business and some investigation as to whether the divisions between the two categories may really be as clear-cut as they seem.
 

Product-Centric Business Models

A business with a product-centric business model has a clearly defined goal: to invent or market a product that caters to a certain need, and then to maximize the market share of that product related to any competitors serving the same need. It focuses on development of one product at a time, and attempts to sell that product to the greatest number of people that it can. In order to move forward, companies of this type generally focus heavily on research and development of new products that will better serve the specific need that they can meet. A product-centric business may be greatly challenged or threatened if it focuses too much of its business model on one idea without adjusting for obsolescence or shifting trends in the market: take Kodak, for example, whose product (film and development equipment) remained the core of their business until the advent of digital camera technology effectively rendered any further development (no pun intended) of said product irrelevant.

Customer-Centric Business Models

The customer-centric business sets a very different goal: rather than achieving maximum market share by selling a given item or service to as many people as possible, it generates methods of maximizing the value of each customer by meeting many of their needs (with many diverse products.) Given the concerns noted above about product-centric models and their vulnerability to rapid change, the prevailing general recommendation seems to be that businesses ought to shift toward customer-centric models. Forward movement and development in customer-centric businesses is driven by the need to find out more insights about the customer, their needs, patterns, predilections and habits. Because of this, many internet-based businesses with access to large amounts of customer data can become very influential – data, of course, being widely regarded as the emerging currency of the online world. Google, for example, may be the most successful customer-driven business in the world due to its access to vast amounts of data about each user’s browsing habits.

The Artisan’s Dilemma

So: what happens when the lines start to blur a bit? What questions can we ask about businesses operating one one side of the spectrum or the other? Small businesses are often advised to find their niche and work to its strengths: in other words, to specialize. The case for specialization as a product-centric endeavour looks strong: it also correlates with the rise of “artisanal” and “craft” business identities. Your business can display that it, and only it, makes the highest-quality solution aimed at a given customer need, be it for a delicious beer or a well-made bed frame. This strategy works well with a personal, local or otherwise “crafted” component driving its marketing appeal. Having stated this, can we conclude that a focus on craftsmanship necessarily equates to product-centrism? Perhaps not. The perennial issue faced by cottage industry businesses is competition from bigger, cheaper, more available sources of a similar, if not quite as high-quality, product. It becomes very difficult for even the most craft-dedicated business to create acceptable value per item sold or to gain significant market share when faced with this type of competition. A small business of this type simply must do research into the market, both to find the ideal (if smaller) group of customers that it can appeal to the most, and to understand what other needs its can meet for its customers through use of existing skills. Take, for example, a local builder of guitar effects pedals known to your blogger. He only builds three models at most where larger companies could build and market tens and tens simultaneously, and he produces these few effects by hand to very high standards. It didn’t take long for this builder to realize that his ideal customer was likely a guitarist with an avid eye for new and different technology, as well as a specific understanding of electronics and its relationship to sound quality. As such, he has branched out in order to offer services that this type of client would likely benefit from: amplifier repair and modification, guitar electronics repair and so on. He posts each new build or repair to a variety of social media platforms, highlighting the quality of his work as well as the endorsement of the artists who are his customers. By using his broader skill set to fulfil a greater number of needs for customers who he already knows are likely to have those needs, he has moved toward a more customer-centric business model without losing the appeal of having a well-made and uniquely crafted set of core products. When your business combines a compelling, unique product or service with the means to find just the right customers, and uses the tools provided by social media and web connectivity to reach out directly to those customers to help meet their needs and evolve along with them, you can travel in a customer-centric direction without compromising your individual skills and strengths.

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