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Kay Plantes is an MIT-trained economist, business strategy consultant, columnist and author. Business model innovation, strategic leadership and smart economic policies are her professional passions. A former Madison, WI resident, Kay now resides in San Diego, CA. The views on her blog are not those of her employer, IBM.

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November 26th, 2013

Business-to-individual business models will win out in the Connected Customer Era

In the Connected Customer Era, personalization will become a requirement for success. Start early and you'll gain advantage. (Photo courtesy if Creativedoxfoto.)

Dealing with the move from the Industrial Era to the Digital Era was tough for many companies. And now we are in the middle of yet another transformation of comparable magnitude. Today’s customers, clients and consumers are instrumented, interconnected, intelligent, engaged, informed and empowered. They want companies they buy from to interact with them on their terms and personalize marketing offers and customer support. They even want personalized products and services. It’s called the Connected Customer Era.

Early adopters of quality improvement methods in the Industrial Era gained competitive advantage. In the movement to the Digital Era, early adopters of automated, efficient back-offices and strong web presences won. As the Digital Era matured, traditional strategies to maintain margins – cost containment, product innovation, branding and marketing communications – became far less effective because they did little to nothing to offset the multiple forces that accelerated commoditization in the Digital Era. Many leadership teams experienced their own “Kodak Moment” by failing to transition their business models fast enough to address Digital Era market realities.

What’s needed in this new era? To secure competitive advantage as we move into the Connected Customer Era, you must redesign your business models, processes, systems and even culture to serve each customer as a market of one – an individual that you know versus a member of a uniform target market described by its averages.

Customers have always preferred personalization, but it was too expensive. Their desire for personalization is finally realistic because software solutions enable organizations to know each customer as an individual, and software and manufacturing technologies enable us to customize the offering and experience at every customer touch point. Just as companies that stuck with poor quality and historic business models in earlier eras got disrupted, companies that continue to treat a customer as a non-differentiated member of a uniform target market will be disrupted in the new era. Think Amazon versus Walmart.

The new era has significant implications for business model design.  In the Connected Customer Era, value promises must be tailored to the customer’s unique needs and revenue models and value chains individualized to maximize customer value at every customer touch point, leading to loyalty-building customer experiences. This does not mean that strategy decisions about the business as a whole remain unimportant – in fact, business model, platform and ecosystem design decisions remain paramount in the Connected Customer Era. They establish the parameters within which business models for individual customers are designed, helping organizations avoid complexity that reduces customer value. These decisions also serve to build a scalable, profitable operating system that makes customer-centric business models profitable and hard to copy by competitors. The ability to personalize the iPhone thru apps, design your own jeans, or (with Google’s Moto) phone provide early models.

In the Digital Era, back offices were automated and innovation was largely internal or with suppliers. In the Connected Customer Era, front offices – everything touching the customer – will be digitized and open innovation models with customers will dominate.

The cultural demands of the Connected Customer Era will be great. Each employee and customer becomes a vital component in personalized value chains, demanding far more collaboration internally and with customers than in years past. All employees, not just the sales and marketing department, are now part of the marketing message. Furthermore, with customers having more of a window into companies, and the ability to share positive and negative reviews with others through social media, a company’s culture must authentically align with its brand promise.

The need to become a B2I – Business to Individual ­– company holds true even if, as a B2B company, you have a small customer base. You must engage in two-way conversations with a larger set of decision makers, influencers and users in your target market about broader topics, surfacing fresh ideas about unmet needs and opportunities. You prevent disruption by designing individualized value propositions and value chains that maximize value at every touch point. And you proactively build the hard-to-copy platforms that make it harder for competitors to win.

The basic rules of economics never change: if you cannot be the lowest cost supplier in your market, you must efficiently offer hard-to-copy differentiated benefits to generate a profit beyond your cost of capital. In the Digital Era, this translated into: “If you cannot become the Walmart of your industry, avoid becoming its Sears by becoming your industry’s Target.” In The Connected Customer Era, become the company your customers experience as “designed perfectly for me.”

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