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Eat Your Own Lunch - Before Someone Else Does

Monday, June 20, 2011

 

Many market-dominant companies suffer from three common and sometimes subtle yet fatal maladies:

1.  Failure to innovate

2.  Loss of focus on sustainable revenue

3.  Complacency regarding customers

Even worse, companies tend to blame the market rather then owning the root cause of this failure for themselves.

In today’s Wall Street Journal is a story of Johnson & Johnson bowing to competitive pressures and leaving the $5 billion global market for stents or tiny metal devices that blow up and keep clogged arteries open.  The company created the market in 1994 with the first stent that allowed patients to avoid invasive and costly coronary artery bypass surgery.

Failure to innovate
J&J failed to innovate.  They created the category, leveraged their impressive brand, aggressive sales force, and dominated the market for three years before competitors were even able to gain toehold.  Revenues in 2006 of $2.6 billion plummeted to $627 million in 2010.  Abbott Labs, Medtronic, and Boston Scientific have all stepped in with innovative products, at lower prices.

Loss of focus on sustainable profits
Instead of innovating, management rested on their laurels, daring competitors to take them on.  And they sued competitors who did.  J&J reaped more than $2 billion in settlements from Boston Scientific in 2009 and 2010, helping drive overall profits.  Although often necessary in the short term, suing competitors or incessantly cutting costs isn’t a sustainable business model. 

Complacency regarding customers
Which leads us to root of the issue:  J&J became complacent about their customers’ needs. This complacency led to a false sense of security of the market dominant position: “Surely nobody can do this better than we,” or “Our customers don’t need anything more than the best we’ve given them,” they must have thought. Wrong. 

Once you’ve provided customers with an innovation, you open up new horizons.  Human nature helps us acclimate and assimilate quickly, leaving us wanting improvements, be they minor or great.  Customers change.  Constantly.  J&J didn’t get this, but Apple does.

Apple recently introduced the iCloud, designed to better meet changing customer needs of “take me anywhere” documents, music, photos, and more.  Interestingly, this new innovation completely cannibalizes its former MobileMe offering.  Apple continuously revises their store layout, adding in areas for children to play educational games while busy parents are at the Genius Bar.  Store employees line up and cheer customers purchasing newly introduced products. 

Whether you are the Chief Customer Officer, the CMO, or the CEO, the questions for you to take away are threefold:

1.  Who is keeping tabs on how your customers are adapting and changing? Because change they will, guaranteed.

2.  How often?  In most highly competitive industries, an annual survey is stale and too old to inform strategy.

3.  How can you leverage detailed customer insight to innovate, even (especially!) at the expense of your own successful products? 

Just because you created or dominate a category doesn’t mean you own it forever.  How can you eat your own lunch before someone else does? Apple continues to understand how customers work, play, and relax and by doing so, beats competition at every turn.  How can you do the same?

 

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Categories: CCO Council | Chief Customer Officer

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