Of chickens and pigs: A customer-based view of business strategy (Part III)

After looking at the customer, the business has to develop a value proposition, that is, how it helps customers to solve their problems. Whatever model a business works with, the value proposition has to be compelling.

For the Locust business, because customers are elusive though many, it can offer bundled solutions to a set of problems in order to attract customers, knowing very well that it cannot please everyone.

 The chicken business provides on-going solutions, for example subscription to a newspaper or cable service.  Pig businesses focus on providing solutions that are clear and decisive.

The Black Widow business offers solutions that the customer initiates. It is a full participant in the customer’s search for solutions to a problem.       

After the value proposition, a business needs to look at its resources and capabilities (core competencies) to support the value proposition.

Star argues that the triangle depicting the nature of a business are its strategic DNA especially in terms of competitive strategy. The customer is “the center of competitive strategy…. The customer determines the winner of all competitive battles” (p. 47).

Competitive strategy is thus not a product-oriented or resources and capabilities function. These are necessary but not sufficient elements. Products are part of the value proposition while resources and capabilities support that value proposition.

The “traditional” perspective places competitors and the market or the industry at the center of the business strategy at the expense of what all the competitors are really fighting for: customers. The goal of any business, especially the Chicken and Locust businesses is “to accumulate customers”.

This involves the acquisition of new customers, the retention of current ones, and the reacquisition of lost ones.  For chicken businesses in particular, “customers are annuities, a stream of future revenues and earnings” (p. 53). So, attaining structural advantage through customer acquisition and retention is a critical goal. 

Once the customers are well defined, then the value proposition will add to competitive advantage by offering a service that is both inimitable and non-substitutable. The advantage may come from the “product, innovation, or process” (p. 63).

In fact, competitive advantage requires both elements at the base of the triangle: value proposition and resources & capabilities (core competencies).  The ultimate ways of succeeding, however, is to start with the customer and his or her problems and then follow with a compelling value proposition and the resources to implement it.

In terms of competitive strategy, if business models are centered on customers, then the businesses should focus on winning customers, without whom “there are neither revenues nor earnings” (p.49).

For the chicken model, the focus should be on retaining existing customers and adding new ones through the fulfillment of the value proposition, capacity expansion and innovation. In addition, the Chicken business can try to sell other services or products to the existing pool of customers.

For Pig businesses, whose customer pool is volatile, strategies may include doing small projects between big ones, building client competencies to deliver more than one service to a limited pool, or securing long engagements if the customer’s business fits these.

For example, if you are a construction company, if you fail to win big government or private bids, you can do small projects until you win new pig projects. Long engagements can take the form of road maintenance for several years.

Locusts businesses have first-time and return customers. Because there is no guarantee that customers will return, this model requires retaining current customers (for example through loyalty programs), adding new customers, and striving to reacquire lost customers.

These can be done through innovation, marketing, new products, and expansion into new places not served before.

Black Widow businesses have limited customers, sometimes even just one customer, for example companies that supply specific parts to a car manufacturer. Avoiding the loss of the client thus becomes imperative by having adequate core competencies. In fact, the customer requires the Black Widow business to have these.

Whatever the model, companies that hold competitive advantage are those that have superior resources and capabilities to support the value proposition that the customers embrace and that cannot be copied by the competition. 

To develop a good value proposition requires the business to ask and engage the customers on a continuing basis. That is why more and more companies around the globe now have Chief Customer Officers (CCOs).

Their job descriptions include leading companies’ efforts in managing customer relationships. Customers are viewed as intangible assets.

Many corporate entities are diversified and thus operate multiple, interconnected models and multiple revenue streams with multiple customer pools. Diversification is one of the corporate ways of managing the unavoidable changes dictated by the pace of technology.

It also helps to overcome any structural disadvantages that might come with the initial business models.

Star gives the example of a florist business that can encompass three models: Locust, Pig, and Chicken. The Locust business would have retail clients coming to the store, calling, or using the internet to place their orders. The Pig business would involve the florist providing flowers to special events such as weddings and other occasional events.

The Chicken business would have the florist provide floral arrangements on a regular, contractual basis to churches, restaurants, and other institutions.

To be continued…

The writer is a Professor at the State University of New York College at Buffalo

The views expressed in this article are of the author.

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