No matter what business you are in, you know things about your customers that they don’t know and can’t find out on their own — but that they would value immensely if you would share them. You have access to the big picture and can see different things in the marketplace than what your customers can. You can see problems that are likely to arise, because they have arisen elsewhere; you can see solutions to problems that plague a particular customer or subgroup of customers, because you have seen solutions successfully implemented there.
The big picture was used to great effect by an Australian division of ICI explosives. Some years ago, ICI was a company stuck in a commodity trap, mired in intense price competition with several other similar firms selling explosives that were used by quarries to blast solid rock into pieces of roughly equal size for the landscaping and construction industries.
ICI’s profitability depended on retaining customers, and keeping customers in this environment was not easy. Small price reductions by competitors could pry customers loose. At a strategic level, ICI recognized that if it wanted respite from the intense competition and profitability beyond the minimal margins of a commodity business, it had to entirely rethink its business approach.
A booming business?
If you had asked ICI executives at the time what business they were in, the obvious, natural and inadequate answer would have been, “the business of selling explosives.” But in rethinking its business, the company for the first time attempted to address a different question: what are the customers buying?
The quarries’ primary concern was to produce broken rock to well-defined specifications while minimizing the cost of their input. As up to 20 parameters affect the performance of a blast, a lot can go wrong. The literal profile of the rock face; the location; depth and diameter of the bored holes; and even the weather can alter the required amounts of explosives used and the way they are laid. Mess up this complex formula often enough and your profits crumble into dust and get blown away by the wind.
In this dilemma, ICI saw its opportunity. If the company used its view of the big picture as an advantage, it could develop a whole new strategy, with new sources of competitive advantages and a new, differentiated offering.
When ICI’s engineers culled data on conditions and outcomes from hundreds of blasts across a wide range of quarries, they saw something that had never been seen before: patterns that helped explain blast outcomes. Using empirical models and experimentation, ICI developed strategies and procedures that greatly reduced the uncertainty that, until then, had gone hand in hand with blasting rock.
Selling the desired outcome
ICI then faced a strategic choice. It could continue to sell explosives, offering its new expertise as an added service. This approach would give the business a clear edge, but would also keep the company in the same orbit as its competitors. The approach would also present others in the industry with a clear target, one that said, “Copy this.”
Instead of following that path, ICI made a bolder move and began writing contracts for the outcome that customers wanted: broken rock produced to spec. It billed its customers for the outcome of the blasts, promising them that the result of the explosion would be a certain percentage of broken rock falling within a prescribed size range.
The redefinition of the contract meant that ICI was in the business of selling a highly differentiated value proposition created by the application of engineering expertise, marketing savvy and strategic acumen. More importantly, the competitive advantage ICI built on this foundation was difficult for competitors to replicate unless they could gain access to as wide a range of data as ICI’s years of experience and variety of clients provided.
The big picture creates value because it allows you to anticipate problems, learn of potential solutions and avoid dead ends. In each instance, the two underlying sources of value to customers remain constant: you can help reduce their costs, you can reduce their risks, or you can do both.
Niraj Dawar is professor of marketing at the Ivey Business School in Canada and Hong Kong. This column was excerpted with permission of Harvard Business Review Press from “TILT: Shifting Your Strategy from Products to Customers.” Copyright 2014. All rights reserved.
