Can disruptions and customer focus go hand-in-hand?

Author - Nicholas Vinther Skov. Head of CX Advisory

A few months ago, I displayed some rather suspicious behavior in a number of carefully selected British supermarkets in Greater London. I eavesdropped as a (real) customer asked for help to choose a piece of lamb or pork for dinner guests. I spied on what the Brits put in their carts in both the high-end stores and the discount chains.

I did so in the service of a good cause so I could give my own eyewitness report from a market indisruption. Disruption is the buzzword of the day. It is when a critical disruption takes place in the market that changes the status quo - often driven by innovation. For example, new players in the game (Netflix) or new rules (MobilePay). Does this set off thebuzzword alarm?

In part, yes,because markets will always experience disruptions and threats. Happily, there will always be someone who has a good idea (innovation) and manages to convert it into a business (execution).

But mostly no! There is a serious truth behind the increased focus on disruptions. According to PwC, Danish top managers consider changes in consumer behavior the trend they expect to have the greatest influence on their company over the next five years. For this reason, companies today are making the transition from product-oriented thinking to a greater degree of customer orientation. Since 2011, the number of companies seeking to differentiate themselves through better customer experiences has, according to Gartner, increased from a modest 36% to 89% this year. Reports from Forrester Research confirm the same trend.

Wait, now I'm writing about both customer focus and disruptions. Am I mixing them up?

Yes, in fact, I am! As I see it, customer focus and disruptions are inextricably linked. Disruptions are threats when the customers have been forgotten. But they are also exciting opportunities when a dedicated effort is made to improve the customer experience. One example of how terribly wrong things can go is the UK grocery chain Tesco.

Disruption with the world's best loyalty program

Many supermarkets have made countless attempts at loyalty programs with more or less success. Tesco had a go with their Clubcard. But in contrast to the other supermarkets, Tesco created a disruption because they spied the connection between IT innovations and the opportunity to create a better customer experience. From the mid-90s onward, Tesco was the guiding star in the market, with impressive financial results and growth figures. They worked with the buzzword of the day: big data! With huge volumes of data from the customer cards, they monitored customer behavior and targeted special discounts, for instance, to Mrs. Brown if she seemed to be buying less milk than she used to. The Clubcard was a unique disruption. In its prime, it was proclaimed the best loyalty program in the retail sector. In the while world, mind you.

The journey from guiding star to falling star

Alas, the tides have turned and Tesco is now looking more and more like a sinking ship! Their market shares are shrinking quarter by quarter and their profits are many billions below target. The old management is out and in their wake has followed a maelstrom of scandals and internal disorder. So what went wrong? Much of the responsibility can be chalked up toforgetting the customers combined with being hit by new disruptions.

Tesco forgot the customers when they increased their focus throughout the 00s more toward the business potential of supplier agreements. Suppliers could pay for an attractive placement in the store. Consequently, the stores and discounts were increasingly composed according a complicated model depending on what the suppliers were willing to pay for. The same product type was offered in several different constellations and volume discounts. That sort of thing does not promote a positive customer experience. In short, it became more complicated to shop at Tesco, because the prices and discounts weren't transparent.

At the same time, the Germans sounded the attack. The discount chains, Aldi and Lidl, invested heavily in the British market and quickly made impressive inroads. Customers wanted cheaper products - especially after the financial crisis. It was only a small comfort to Tesco that they weren't alone. "The big four" in the UK - Tesco, Sainsbury's, ASDA and Morrisons - were all hit hard.

Last winter, the Morrisons chain made matters worse by poaching some of Tesco's key Clubcard members. On the brink of bankruptcy, they are now making their own attempt at a kind of Clubcard 3.0 disruption. First, they studied the customer journey and discovered that many customers shop in several stores in order to save a few pounds. Then, they launched their Match & More card with a price match guarantee on groceries: The customer saves money shopping at two-three supermarkets and gets the difference paid out as vouchers that can only be spent in a Morissons store. Pretty smart!

However, Tesco isn't just getting pummeled by German discounts and Morrisons' Clubcard. The customers have also changed their behavior in several ways: 

  • Discount and luxury for many customers are no longer either-or. They choose both. By saving money shopping at Aldi or Lidl, they can afford to buy luxury items elsewhere. So now the high-end stores - like Waitrose - are under pressure.
  • Customers increasingly want their groceries delivered to the door. In Denmark, online supermarkets haven't fully caught on yet, but in the UK, the largest player in the market, Ocado, has been in business for 15 years. They have made major investments every year to become sizeable enough to pose a genuine threat in the market. They have (almost) created a disruption (and are also only just beginning to turn a profit).

And Tesco is left battered and bruised. The new chief executive, Dave Lewis, is trying to piece the company back together, selling off parts abroad and cutting in to the bone. He has even tried to sell off Dunnhumby, the in-house company behind their once-so-exalted Clubcard. But nobody's buying!

So what's the winning formula for creating a disruption?

I couldn't tell you - even though we love formulas and numbers here at Ennova. What we can tell you, though, is thatknowing and understanding the entire customer journey is a crucial part of the formula.

When you understand the journey, it's easier to see what can be done better and differently for the customers: Where is there potential for creating a disruption? And not least, to dare to think further: How will the future customer journey look?

To close the circle, I should return to that Friday in the British supermarkets. I wasn't just observing the customers. I was also watching the personnel, especially at Waitrose. They continuously come out on top in customer satisfaction rankings. And an important key to their success is their staff. Waitrose ensures that talk about customer focus in the executive suite becomes a reality for every single employee. I look forward to writing more about this very soon.

Nicholas Vinther Skov. Head of CX Advisory

Nicholas Vinther Skov. Head of CX Advisory

Nicholas provides fact-based consulting to his customers on improving the customer experience. With his never-ending drive, Nicholas seeks out, discovers and picks up on the latest trends within his field – and shares this knowledge with the world in this blog.