Customer Centricity is more than customer satisfaction, it’s about centering on the “right” customers to create Strategic Value. Host Victoria Meyer delves into the concept of customer centricity and its role in creating business resilience. Through insights from leading chemical companies’ earnings reports and experts, Victoria unpacks the importance of customer centricity and its impact on strategic value creation.
This is part 2 of host Victoria Meyer’s 3 part series on approaches chemical companies are taking to combat the market weakness in the first half of this year (for more on this, check out Episode 118 of The Chemical Show where Victoria reviews 2Q23 earnings reports and Episode 120 which covers Commercial Discipline.
Learn more about the following:
- Defining customer centricity in the chemical industry
- Putting the right customers at the center of your business
- Assessing customer lifetime value
- Why strategic alignment matters
- Business segmentation to create a higher level customer experience
- Employee buy-in
Victoria explores the definition and differentiation of customer centricity from customer service, highlighting that not all customers are created equal. Emphasizing the need to focus on the right customers to create strategic value, Victoria shares key elements of customer centricity, including customer lifetime value, strategic alignment, segmentation, and employee buy-in.
Gain a deeper understanding of the journey towards customer centricity and how it can enhance business resilience in challenging market conditions.
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Leveraging Customer Centricity for Business Resilience in Chemical Markets
Hi, this is Victoria Meyer. Welcome back to The Chemical Show. Today I am talking about customer centricity and its role in creating business resilience during flat and inflationary markets. In Episode 118, I shared insights from the second quarter 2023 earnings reports from some leading chemical companies, and we talked about the flat markets caused by inventory destocking, sluggish economies, and overproduction in some markets. I highlighted in that episode, three different approaches that companies are taking to create business resilience in these markets. Those three approaches are commercial discipline, customer centricity, and diversification of markets and customers.
So I am using three Thursday episodes to unpack each of those items. Last week, Episode 120, I tackled commercial discipline. If you haven’t listened to it, go back and do so. You’re going to enjoy it. This week, Episode 122, is all about customer centricity. Then finally next week, Episode 124, is going to be about diversification. So stay tuned.
We will also be tackling some of these topics at our upcoming The Chemical Summit on October 24 and 25th in The Woodlands, there’s a panel discussion specific to customer value and customer centricity with leaders from LyondellBasell, Palmer Holland and SI Group. It is going to be great. I’m looking forward to it because the leaders that we’ve got coming have some really excellent insights and stories to share. So you don’t want to miss it. Head on over to thechemicalsummit.com to register and reserve your spot.
Okay, customer centricity. What is it? Customer centricity is often confused with customer service, and it aligns with customer experience. The reality is there is not one common definition. Gartner says “Customer centricity demands that the customer is the focal point of all decisions related to delivering products, services, and experiences to create customer satisfaction, loyalty, and advocacy.” I actually like to tighten this up, because the reality is this is not about all customers, or rather, all customers are not created equal. In fact, Wharton professor, Peter Faber, wrote a book called Customer Centricity. What he says is, “customer centricity is about focusing on the right customers to create strategic value.”
As I like to say, you can’t be everything to everyone. Companies that try to be everything to everyone, they do not reach the standards of business performance and business resilience they want. So you have to be able to say no, you can’t be everything to everyone. Customer satisfaction doesn’t pay the bills. So again, customer centricity is not necessarily about having a high customer satisfaction score. You can have an amazingly high customer satisfaction score and have very few or no customers and not be getting the right profitability, not be getting the right value out of those customer relationships. Customer centricity is really about serving the right customers in the right way with the right products and services at the right time.
One of the things that stood out in those 2Q23 earnings reports came from Eastman CEO, Mark Costa. One of the comments he made in that report was, we continue to benefit from momentum in our premium products and markets. The subtext in that as well is recognizing that those products are going to the customers that value them. Customer centricity is a whole lot about understanding and matching what you do, how you serve your customers, and putting the right customers at the center of your business.
There are some key elements in this. I actually think this is not an overnight exercise. This is a journey that takes a couple of years to get right. Part of this first piece is just discovering and understanding the elements that you can focus in on when you’re thinking about customer centricity and using it to drive business resilience.
Customer Lifetime Value
First of all, customer lifetime value, which is really the value that business relationships have over time. So thinking about value, I really think about this in terms of margin, growth and the overall value you’re getting with your business. You can measure it a couple of different ways. It is really forward looking. If we think about projects, capital projects, or innovations when you start looking back at sunk costs, sunk costs don’t matter. I hate to say this, but in many ways that sunk business relationship, the relationship that’s behind you, it matters but it’s not the primary focus. It is one element of assessing customer lifetime value. Customer lifetime value is forward looking. You are recognizing the value of that company, of the business leader, and being okay with some ups and downs.
We’ve seen in these last few years, there’s been some great highs and there’s been some great lows in business across the chemical industry. But it’s really about looking at value, looking at cost to serve this customer and this relationship. Not just in the ways that we sometimes think about it, which would be the cost of goods sold, raw materials and looking at just a pure profit margin. It’s also resources, time, logistics, labs, innovation, and understanding the value.The value equation is two way, let’s be clear about that. Value is never just one way, it is two way. Your customer lifetime value and thinking about your most strategic customers that create the most value for you, and together you for them is critical. Customer centricity involves understanding the right customers. Customer lifetime value is one way of doing.
The second piece of this is around strategic alignment, that also aligns with customer lifetime value. Companies that are strategically aligned to you value you and your services more. You are aligned in long term objectives. You’re aligned in the ways of doing business. Your strategies around growth, around customers, around markets, around other elements of your business are aligned. You have strategic alignment. Companies that you have strategic alignment with, they’re quite possibly one of your right customers that you want to align to.
The third piece of customer centricity, and really in this discovery phase of figuring out who your key customers are that need to be at that center of your business, is segmentation and ensuring that you’re doing the right things for the right customers. I actually talked a lot about segmentation and personalization in Episode 110. If you haven’t listened, go back and listen. Segmentation is critical because when you’re using customer centricity and driving your business to creating a higher level of customer experience, a higher level of customer value, you need to know which segments of your customers are you achieving that with and are achieving that with you.
The fourth thing really ties in with employee buy in. I’ve lumped this here with my phase one of discovery, because the reality is, this becomes of part of your design and definition. Once you understand customer lifetime value, strategic alignment, and your segmentation you’re able to take the next step and say, okay, now what? Who are the right customers that we need to put at the center of our business that drive the greatest strategic value?
I think of it like a bullseye target. You’re not necessarily getting rid of customers, but you are understanding the most valuable premium customers, the greatest customer lifetime value and ensuring that you are serving them appropriately. When you think about your next tier of customers, you might be serving them a little bit differently. So driving customer satisfaction, doing the right things for the right customers, being customer centric and putting your customers at the center of your business processes, your customer activities, but also prioritizing them.
I’m going to go back to what Eastman CEO Mark Costa said, “We continue to benefit from momentum in our premium products and markets.” Customer centricity is key. I’ve heard this from a number of leaders. We’ve seen this in some of the second quarter earning reports that I broke down a couple of weeks ago in Episode 118. In terms of how do we drive long term business resilience, customer centricity is one of those key levers that we have to exercise. Being customer centric requires clear understanding, strategy, decisions about your approach to customers, the customer experience and customer value. Being the right supplier to the right customer at the right time.
That’s it for today. If you liked this episode, please share it with a friend and head on over to Apple Podcasts or your favorite podcast player and leave us a rating and review. In the meantime, we will be coming back to you again with another episode next week. So thank you for listening to today’s episode of The Chemical Show. Keep listening, keep liking, keep following, keep sharing. We’ll talk to you again next week.