“Most businesses think about direct-to-consumer (D2C) as a cost strategy. If they cut out the middlemen, they think they can get more margin.”
That’s Ben Gaddis, CEO of full-service agency T3. During his 13-year tenure, he’s worked with countless high-profile retail clients like 7-Eleven, The Home Depot, and Pizza Hut. The most common mistake he’s seen when companies experiment with direct-to-consumer (D2C) is approaching it from a purely financial perspective.
Optimizing for financial gains usually means relegating customer experience to a second-order consideration. The consequences of that mistake come into sharp focus when you compare how consumers perceive D2C businesses.
“Customers think about building relationships with brands that are like them,” explains Gaddis. “They look for companies that make their lives easier and allow them to customize their experience.”
A transactional approach to D2C is like swimming against the current. It positions your strategy in opposition to your customers’ wants and needs. This is not to blame organizations, though, because the deck is stacked against them.
As academics Jagdish Sheth, Rajendra Sisodia, and Arun Sharma highlight, the marketing industry is mid-transformation. First came the mass-market era when product orientation reigned supreme. Next, we saw segmentation across large cohorts and later niches. Only very recently have companies begun thinking about single customers and customer-centricity.
Much of our management apparatus is leftover from previous eras. Without addressing the outmoded foundation, customer-centric transformations are doomed to fail and D2C companies are destined to fall back on secure, if unproductive, transactional strategies.
In their paper ‘The Path to Customer Centricity,’ marketing academics Denish Shah, Roland Rust, A. Parasuraman, Richard Staelin, and George Day highlight four organizational barriers to transformation along with proposed solutions for each.
#1 Culture → leadership commitment
Culture is a multilayered phenomenon. At its core, you have values that “express enduring preferences.” They’re the core principles upon which a company operates. For example, one of Warby Parker’s values is “Green is good.” The company strives to reduce its carbon emissions and prides itself on being one of the only carbon-neutral eyewear brands in the world.
Beyond values, you find norms. These are shared beliefs about appropriate or expected behaviors. In product-centric organizations, these tend to revolve around the product, technology, and process. Another dated norm relates to “ownership” of the customer. Traditionally, sales “owned” the customer. That sense of proprietariness stymies information sharing and hurts cross-functional collaboration.
Changing something as intangible as culture is immensely challenging. The academics suggest that cultural change follows behavioral change.
The most impactful way to affect a culture change is by modeling expected behaviors at the top.
They offer three steps all businesses should take to signal a customer-first paradigm:
- Emphasize your quality of service and customer relations
- Increase the time spent visiting customers and listening to their point of view
- Highlight customer and market issues during strategy reviews
Customer-centric organizations aggressively socialize these principles through their senior management. For example, Home Depot requires all its board members to make daylong trips to a dozen stores, meet with customers, and present their findings.
#2 Structure → organizational realignment
During the rapid industrialization after World War II, companies learned to rely on functional departments. Research and development invented new products and services. Marketing attracted buyers and customers. Sales closed deals. Customer service fielded questions, queries, and complaints. Finance balanced the books. While focused, functional architecture creates knowledge, data, and collaborative silos.
“Such a structure is not conducive to customer-centricity as each product/sales manager may end up pushing different product offerings to the same customer without first determining what the customer’s true needs are,” wrote Shah, Rust, Parasuraman, Staelin, and Day.
Even though most D2C businesses emerged long after the mass-market era, they still carry the baggage of companies that came before.
Organizational realignment is a holistic challenge but there’s a natural starting point: marketing. The quintet suggests transforming marketing into a horizontal function that sits across the entire company. Instead of mimicking the old intra-departmental silos of the past (communications, paid media, lead generation, owned media, community, partnerships, and others), design a new team structure around “natural workflows and core processes.” This is another way of saying, coordinate work around user journeys. Build cross-functional teams around customer acquisition, growth, and retention.
#3 Processes → systems and process support
In their paper, “A Strategic Framework for Customer Relationship Management,’ marketing researchers Adrian Payne and Pennie Frow identified five generic processes necessary for customer-centric operations:
- Strategy development process: Craft a business strategy and customer strategy.
- Value creation process: Translate strategy into programs that extract and deliver value.
- Multichannel integration process: Determine the optimal combination of channels and ensure customers receive positive experiences across all of them.
- Information management process: Collect, collate, and use customer data and information from all customer touchpoints to generate insights.
- Performance assessment process: Monitor the organization’s performance and shareholder results.
These processes are inherently cross-functional. Consider information management at a D2C homeware brand. They may store marketing data in their MAP, buying behavior data in their eCommerce platform, and financial data in their subscription payment service. If the business has siloed teams, unifying that data isn’t just a technical problem—it’s cultural, interpersonal, and political.
To support customer-centricity, D2C businesses need to establish horizontal departments and processes. That horizontal philosophy needs to take into account all customer-touching workflows.
“The horizontal mindset is essential to be able to include all processes and activities that contribute toward value creation for the customer,” wrote Shah, Rust, Parasuraman, Staelin, and Day. “Because these processes and capabilities would typically span across different vertical functional groups, firms may need to redefine new horizontally aligned processes that are focused toward superior value creation.”
#4 Financial metrics → revised financial metrics
As Peter Drucker’s management mantra states: If you can’t measure it, you can’t improve it. The problem is that most industry-standard metrics are product-centric. The efficiency, productivity, and profit metrics that still dominate management discussions are ill-suited to customer centricity’s outcomes: customer satisfaction, loyalty, advocacy, and reduced price insensitivity, among others. Can a D2C business measure its customer loyalty with profit margins? Of course not.
Instead of promoting customer-centric projects, financial metrics tend to lead managers toward initiatives that impact P&L in immediate future, like outsourcing customer service and offshoring production. Consideration for customer experience happens much later, if at all.
D2C brands undergoing a customer-centricity transformation must refresh their financial metrics. They must elevate metrics like customer equity, customer satisfaction, and customer advocacy above (or at least on par with) the tried-and-true financial KPIs that came before.
Transformations require strong foundations
More than being undeniably attractive, customer centricity – as a value and a mission – is essential. It creates a deeper understanding of your customers’ perceptions, needs, and challenges. Placing your customers as the focal point of all decisions removes the guesswork and creates clarity. It promises enhanced customer experience, stronger customer loyalty, and more revenue.
But leaders should not try to run before they can walk. Launching into a transformation without dismantling your structural blockers will doom your initiative to fail.
To embed and operationalize customer-centricity, you must recognize the four organizational barriers: culture, structure, processes, and financial metrics. By studying all four and intentionally addressing them in your organization, you can create a rock-solid foundation for change management. From there, you can drive sustainable change. You can pull your organization out of the product-centric doldrums and into the customer-centric era.