By Greg Banks
Transition from Product- to Customer-Based by “Going Horizontal”
Remember the book Men are from Mars, Women are from Venus? The author, John Gray, made a compelling case about the fundamental differences between men and women. There are also fundamental differences between managing based upon products, and managing based upon customers. We could even say, “Products are from Planet Vertical, Customers are from Planet Horizontal.”
Customers don’t run their lives “vertically,” like most companies. Customers run their lives “horizontally,” that is, day by day, week by week. When they need and want a product, they act, on their schedule, on their terms. And they do so with more choices, more information, more decision-making tools, more access, more channels — and more power over the seller — than ever before.
Product-based metrics, such as “available capacity,” will always remain critical. But customer-based metrics, revolving around concepts such as “lifetime value,” must become primary, as noted in the chart below.
To survive and thrive, your entire company must transition to manage primarily around customers.
That’s why I call it: Going Horizontal.
If you have begun this transition already, and many have, congratulations. This article may help you stick with it. If you have not yet begun this transition, this article may help you get started.
Your Bottom Line Will Improve by Going Horizontal
In my experience of transitioning more than a dozen major companies to customer-based metrics and management, the majority have enjoyed a very large and recurring payout for their efforts. They acquire customers for less, and keep them longer, versus competitors, and they improved their organizations along the way.
Now, it takes planets many months, even years, to revolve around our sun. Similarly, this transition to customer-based takes time. But the payout for going horizontal makes the transition well worth the wait. By year two or three, most companies experience greater recurring annual revenue and/or profits across the entire company,or at least a primary business unit, between 4 percent and 17 percent.
A Multi-Cycle Process
Going horizontal is a multi-cycle process, which is a fancy way of saying: You need to stick with it. Here are the key steps in the process:
Within Each New Cycle (Starting with 1)
- Consolidate metrics around customers. Metrics for customers, products, and finances typically conflict. The first step, for most companies: consolidate the metrics around customers. As an example, “year-one margin” is often a good choice for Cycle 1, as a precursor to more advanced metrics such as “lifetime value.”
- Assign accountability. Make someone responsible for improving the customer-based metrics for each cycle. As an example, if historically your year-one margin for newly acquired customers totaled $100K, you want an improvement to, say, $120K. And you will need someone accountable for this improvement, across products, across departments. This type of accountability will to lead to growth and ROI, as well as positive organizational adaptation.
- Drive the improvements based upon customer motives and behaviors. You know the parts in your product. Do you know the hearts of your customers? Do they purchase for logical — or emotional — reasons? Which horizontal pathways bring your customers to their next purchase decision? Do they decide every hour, week, or year? And how do you gain favor at these decision points? This is a complex topic on its own; suffice it to say here: you can learn and gain incrementally.
Across All Cycles (1-N)
Keep repeating A, B, and C above. Make each cycle bigger and better. Drive improvements in profit and growth, and tighten the customer metrics and the understanding of motives and behaviors, and hone the process. After four-to-six cycles, you can improve the growth and profit of your entire company.
The chart below shows a multi-cycle plan based on this process.
How One Large Company Reached Planet Horizontal — At Light Speed!
One of the fastest transitions I’ve been a part of took place at a large bank in the late 1990s. You may remember the business era as “the first Internet boom.”
The bank established a vision to transition from vertical (managing around products such as checking, saving, lending) — to horizontal (managing around customer groups such as high-value, high propensity, etc.), over roughly six-cycles (18-24 months). We then made very specific plans for Cycle 1 …
… And then we ran into a storm of galactic proportions.
We were in the middle of process Step C (customer motives and behaviors), when we pieced together something very troubling: Highest-value customers (who we had only weeks earlier defined and identified) were defecting at almost 40 percent per year — mostly in favor of internet services from smaller banks.
While the bank had a robust IT-driven, Internet-banking solution in development, it required another 18 months to deploy through their thousands of branches. And in the meantime smaller, nimbler competitors were stealing their best customers.
We went into warp speed!
We manually built an Internet-banking solution for the small number of highest-value customers. We mimicked the IT project, but we didn’t wait for the efficiency of automation. We turned Cycle 1 into a race to provide at-par Internet-banking.
And it worked!
In Cycle 1, we reduced churn by roughly half. And we accelerated our flight to Planet Horizontal. The bank took action to “never be surprised like that again” by appointing a new senior executive in charge of highest-value customers. In only 10 short months we were flying horizontally!
Use Planet Horizontal’s Gravity To Your Advantage
If you are considering sponsoring a transition from vertical to horizontal, I encourage you to do so. Let me offer you a couple final tips, on how to use “gravity” to your advantage:
- Planet Horizontal is getting closer every day. Pressure is building on all companies to go horizontal. As an example, the phenomenon of social networking should convince even the most change-resistant that the customer is now fully in charge.
- You can start as small as you want. One of the great things about a multi-cycle process is that it takes pressure off Cycle 1. You can generate momentum and financial success in a small part of your company before you invite large swaths of colleagues.
Keep an eye on those Customers from Planet Horizontal, as they will ultimately decide your company’s fate.
Greg Banks is a writer and consultant on generating recurring marketing- and customer-driven growth and ROI. Greg has helped companies such as P&G, Bank of America, Sprint-Nextel, AT&T, Allstate, and Roche reach their full potential. You can read more about Greg at https://www.linkedin.com/in/gregoryobanks or contact him at email@example.com.