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The challenge of the tougher customer

Email|Print|Single Page| Text size + By Robert Weisman
May 25, 2008

Struggling to keep pace with rapid changes in products, markets, and competition, companies are now coping with change in the arena most indispensable to their success: their customers.

The ranks of consumers with passive and predictable habits are thinning. And platoons of noisy, Internet-savvy activists are emerging to lob feedback, challenge established business approaches, and clamor for a voice in the goods and services they're being sold.

They represent not only a threat but an opportunity, according to the findings of what IBM Corp. consultants call the largest survey of global chief executives to date. The survey, conducted with the help of the Economist Intelligence Unit, interviewed 1,130 chiefs of corporations and organizations from 40 countries in late 2007 and 2008.

Departing from traditional market segmentation, it identified two rising classes of customers in which nervous companies are investing. There are "information omnivores" who demand a say in everything from product design to after-market support. And there are "socially minded customers" who will buy ethically and environmentally responsible products and may be willing to pay more for them.

Businesses ignore these cantankerous new customers at their peril, warned Mark Chapman, the Cambridge-based global leader for IBM's strategy and change services consulting practice.

"CEOs are dealing with multiple issues," he said. "But their primary responsibility is to drive the growth of their companies. So reaching these customers should be at the top of their priority list."

Indeed, the IBM survey found that chief executives plan a 22 percent increase in spending over the next three years to serve their "more sophisticated and demanding" customers and a 25 percent increase to satisfy those concerned about social issues. The investments will range from customer-friendly innovations to "sustainable" products and "green" technologies to Internet programs that solicit advice from consumers.

Such efforts are part of a broader trend of trying to keep up with the accelerating pace of change - or, ideally, getting ahead of it. Change is nothing new, of course, in an era of global markets and technologies that can quickly render products obsolete. But there's a growing sense that adapting to change has become a core competency for managers and a competitive necessity for businesses.

"The enterprise of the future is capable of changing quickly and successfully," IBM wrote in a summary of its findings. "Instead of merely responding to trends, it shapes and leads them. Market and industry shifts are a chance to move ahead of the competition."

But there's a fear that many aren't up to the task.

Eighty-three percent of chief executives surveyed by IBM expect substantial changes, a 28 percent increase from a survey taken two years ago when the economy was stronger. But they ranked their capacity to manage the changes 22 percent lower than their anticipated need to do so. IBM termed this "a change gap," and noted it had tripled since the last survey. "It's a faster, more uncertain world," Chapman said.

The new breed of customers may be contributing to the anxiety of chief executives, typically a self-confident lot, about their ability to master change. Captains of commerce are accustomed to loyalty, but consumers today are grousing about customer service in blogs, e-mailing suggestions for easier-to-use products, and demanding recyclable materials and a transparent supply chain. (No more Chinese-made dolls and action figures coated with lead paint.)

Scores of companies have set up customer blogs in a bid to bring Internet discussion of their businesses in-house. Some have gone further. Japan's Nintendo Co., for example, linked up with a group of its video games users and shared prototypes of a new game console, incorporating their feedback to create a unique interface. The resulting Wii became one of its most popular products.

In the software field, meanwhile, consumers and business customers are being pulled into a continuous feedback loop that enables software makers to regularly update their applications.

"The notion today is that a product is never done," said technology author David Weinberger, a fellow at Harvard's Berkman Center for Internet & Society. "It used to be that flaws in products were seen as evidence of a lack of care. Now they're seen as a simple result of human fallibility and something that can be improved."

Accepting suggestions, and even criticism, from customers through the Internet has become a more common practice, Weinberger noted. "There's still a lot of resistance and there's still a fair bit of condescension," he said. "But the marketing profession over the past three years has really started paying attention to the Web."

Activist customers have also fueled a heightened interest by businesses in the field of "corporate social responsibility," known by the acronym CSR. Much of this involves environmentalism and human rights. General Electric Co. rolled out an "ecomagination" campaign to produce everything from wind turbines to energy-efficient appliances. Starbucks Corp. committed to "fair trade" practices that direct more revenue to Central American coffee farmers than to middlemen.

"The attention being paid to CSR is huge," said Sylvia Maxwell, associate professor at the Simmons School of Management in Boston. "And the companies are saying, 'We can't just do this to be nice, we have to be strategic and tailor it to the corporate strategy.' "

Robert Weisman can be reached at weisman@globe.com.

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