Treating the Customer as a Renewable Resource

Last time, we explored how we can make IT more sustainable by improving data center energy use. Managing energy use is the most well-understood form of sustainability we have, but it is largely an internal form of sustainability practice. If we intend to make our businesses sustainable — i.e., able to function for a long time despite changes in the economy — then we also need to consider sustainability in customer-facing business processes. That’s where treating the customer as a renewable resource comes in, and it is the subject of today’s article. If you are wondering, the third leg of sustainability practice in business is sustainable products, and it will be discussed later.

Whenever I think about sustainable customers, I go right back to the idea of growth markets and zero-sum markets. To be sure, you can see revenue growth in both kinds of markets, and there are few pure-plays — most markets exhibit both characteristics, though one dominates. In markets that are growing, we see new category formation, new products and new services. In zero-sum markets, the growth is internal. We grow product lines or we make products more affordable through various forms of value engineering.

If we can substitute for expensive materials with less-expensive materials, we can pass the savings on to the consumer. When we do this, a product becomes less costly, and more customers can suddenly afford it. The same is true for putting more things into a product, such as adding free applications to a cellphone. The value of the phone increases with the new software and the customer perceives greater value for the same price. This kind of value engineering helps keep commodity products affordable and profitable while providing differentiation.

What’s the Difference?

Differentiation is important because it helps to maintain demand, and that’s a good lead-in to customer sustainability. In a nut, how do you get the same customer to buy again? You might say it happens when old products wear out or become obsolete, and that’s valid, though those mechanisms might not provide sufficient continuous demand an economy needs.

In a zero-sum market, or in a market where demand may slacken for a time, understanding the customer and marketing to very specific demand patterns is an important tool. I see many markets turning from expansion to zero-sum, which drives my interest in customer sustainability. Simply put, an expanding market creates its own demand; this is just another way of restating the supply side argument. Unfortunately, no market expands forever, and we need other explanations, beyond supply side, for times like these.

Not long ago, I came across a case study that describes how to implement a sustainable customer initiative, though it wasn’t called that. You might be surprised about the identity of the company that exhibited such good customer sustainability characteristics. It’s Wal-Mart.

By now you are no doubt familiar with Wal-Mart’s marketing campaign slogan: “Save money. Live better.” But have you considered how it came about? A few years ago, the retail giant was seen in some quarters as a bad guy. Its tactics of extracting lower prices from suppliers, which it passed on to customers, was not always seen in a positive light.

Wal-Mart needed to get beyond commodity pricing and deliver to customers a vision of why they shop at its stores or it would simply be another low-cost retailer. Wal-Mart’s advertising agency, The Martin Agency, teamed with social technology pioneer Communispace to get into the heads of Wal-Mart’s customers.

Moms are the primary customer at Wal-Mart. They deal with limited budgets and have to find ways to stretch their resources as far as they can go. But what Communispace and Martin discovered through deep conversations with community members was that Wal-Mart moms don’t see their limitations as a burden, they see them as a “badge,” according to Katherine Wintsch, The Martin Agency group planning director.

Better Living Through Research

The deep research paid off. According to the case study from Communispace, the research showed that “… the value message isn’t about price, but about what [the mom] can do to create fun and meaningful family times with the money she saves. Buying food at Wal-Mart saves her enough money to feel fine taking the family to the movies.”

From that research, “Save money. Live better.” was easy. But no amount of brainstorming in a conference room would have yielded the result. In the process of asking customers what they thought, Wal-Mart and its consultants practiced sustainability at the customer level. There’s no doubt in my mind that the research and the branding it generated will enhance Wal-Mart’s competitive position. And to prove the point, consider this (again from the case study, but you could look it up):

“Wal-Mart continues to outperform the market even in a difficult economic environment, increasing total net sales by 3.8 percent, and same store sales have risen for 24 straight months. Ranked as the most valuable retail brand in 2008, it was only one of two companies among the Dow Jones Industrial Average to post overall gains in share price for the year.”

This gets to the heart of practicing sustainability at all levels of the business, and it shows why, even in a difficult market, your company doesn’t have to be part of the malaise. When you think about it, Wal-Mart’s slogan applies equally well to its customers and to itself. And it is primary evidence in favor of practicing sustainability at the customer level.