Choose your customers strategically

Have you ever complained about a service or product at your most favorite firm’s Facebook page? Nowadays, we live in a complex world with an overload of choices. This results in different types of customers with their own specific demands, but it is hard to comply with every single niche. Firms are confronted to choose which type of customers they want to serve. This is the reason whether you feel neglected by your favorite firm or not.

In this article you will understand why a particular firm has a legitimate reason to turn down your requests and ideas. First, a theoretical part will be discussed. Followed up by a practical implication. At last, a discussion point is stated.

A framework called ‘Strategic Value Assessment (SVA)’ is elaborated in the article “Strategic Value Assessment and Explorative Learning Opportunities with Customers” by Nijssen et al. (2012). Initially, it starts with the innovator’s dilemma, i.e. firm struggles between the choice of responding to customers’ requests and protecting the long-term competitive position. Consequently, SVA provides a priori assessment of partner selection within the dynamic environment we live in. Why is SVA beneficial? A collaboration with every single customer is very costly and do not add value to the firm. Such a perspective best guarantees that the selected collaboration will bring strategic value, and specifically, allow for taking in new knowledge that stimulates new business development. It will safeguard new, exploratory learning that will materialize in future cash flow and revenue.

figure 1

In figure 1, a figure with all the variables and hypothesized relations are disclosed. The dependent variable “explorative learning” is the ability to extract knowledge from the collaboration with a customer and develop technological extensions and turn it into appealing new products for new markets and customers.

Secondly, ‘intensity of collaboration’ increases the involvement and interaction between the two parties. As a result, the two parties become more familiar with each other. Therefore, familiarity increases the chance of exchanging knowledge.

Thirdly, ‘lead users’ are a source of radical new product ideas. Without SVA the firm cannot distinguish the good and bad projects. However, with SVA, the firm chooses only the product ideas of lead users and avenue to future growth.

Lastly, under conditions of strong ‘dependence’, firms pursue short-term sales and profits by collaborating with customers that reduces the strategic and long-term effectiveness of the collaboration which results in focusing mainly on existing products and neglects developing new products for potential customers and markets.

Testing these variables with a sample of Dutch SME’s consisting a total of 136 firms provides the following insights:

  1. SVA has a positive impact on explorative learning which is beneficial to the firm for retaining a competitive advantage and sound future revenues. Also SVA has a directly influence on lead users and intensity of collaboration.
  2. Implementing SVA as a framework increases the likelihood that a firm will collaborate with its lead users.
  3. Reflecting partner selection at the start of the project (a.k.a. fuzzy-front end) of a new product development process evades the dependency problem. SVA prevents becoming too committed to only one option in an early stage rather than exploring all the potential opportunities.
  4. SVA can be used to distinguish the good ideas from the bad ones. It may serve as a justification to reject less promising new product venues suggested by current customers.

A practical implication:

Today, co-creation is a common phenomenon and widely discussed in the literature. However, refusing a customer and its requests put the relation between the two parties in jeopardy. Therefore, the short-term profits of the firm might decrease. If the firm raises awareness of the SVA as a motivation for the firm’s move, the customer’s understanding increases. Hence, this may preserve the relationship.

Discussion statement:

A limitation of this paper is the focus on Dutch SME’s which are relatively small in comparison with Amazon, Google or Apple. Assume the sample includes financial unconstrained high tech firms with a higher budget for R&D projects in combination with customer collaboration. The sample in the paper involved an average of 33 FTEs and 96% of all firms have 1 to 99 employees.

At the firm’s perspective, is it a good decision to implement SVA and deliberately pursue only the requests of lead users instead of the plebs?

My opinion:

I think it would be a matter of business strategy that the firm pursues. Choosing between focus strategy and an industry wide target strategy.

Nijssen, E.J, Hillebrand, B, de Jong, J.P.J, & Kemp, R.G.M. (2012). Strategic Value Assessment and Explorative Learning Opportunities with Customers. Journal of Product Innovation Management, 29, 91–n/a. doi:10.1111/j.1540-5885.2012.00960.x

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