John Hagel is co-chairman for Deloitte LLP’s Center for the Edge with nearly 30 years of experience as a management consultant, author, speaker and entrepreneur. He is the author of numerous books, including “The Power of Pull,” “Net Gain,” “Net Worth,” “Out of the Box” and “The Only Sustainable Edge.” Previously, he was Global Leader of McKinsey’s Strategy Practice and Electronic Commerce Practice (which he founded and led from 1993-2000). John holds a B.A. from Wesleyan University, a B.Phil from Oxford University and a J.D. and MBA from Harvard University.
John, I remember reading Net Gain and Net Worth and thinking when is this going to happen? When are companies going to truly be on the side of customers?
(Laughs). Coming from Silicon Valley, I often get this question from executives around the world: What’s “the next big thing”? Usually, they frame the question in terms of the next wave of technology innovation. They want to know what’s the next big technology that could disrupt everything?
That’s an important question, but I often shift the question to disruptive business models. Too often we get distracted by the latest new technology, but we don’t spend enough time thinking about the profoundly new business models enabled by these technologies. We fail to ask the Willie Sutton question: “where’s the money?”
In this context, I’m intrigued by the growing potential to scale a business model that’s been around for centuries, but only for the very wealthy and successful. It’s what I call the “trusted advisor.” What’s that? It’s someone who, rather than sitting on the other side trying to push more and more products and services to me, crosses the table to sit next to me and gets to know me so well that he/she can proactively recommend things to me that I had not even asked about, but that turn out to be extremely relevant to my context, needs and aspirations.
So if you’re a marketer, you’re going to have to do some fundamental rethinking of your approach to marketing. The shift is from affluent niches to mass market.
The very wealthy have had trusted advisors for ages, in the form of wealth managers, concierge doctors or personal shoppers. This business model worked for them because the very wealthy could spend enough to justify the significant time and effort it required to get to know those people deeply enough to become trusted advisors. The rest of us simply could not access this kind of expertise and advice.
But that’s all changing now. With the advent of Big Data, sophisticated analytics, social software, the Internet of Things and cloud computing, just to name a few of the enabling technologies, the “trusted advisor” business model now has the potential to expand from the niche of the very wealthy to become a mass market event. These technologies make it feasible to compile a detailed understanding of the social and economic context of the individual at much lower cost than previously imaginable. We don’t have to submit to detailed interviews or fill out endless questionnaires to provide this information. The trusted advisor, with our permission, can simply watch and analyze the “digital exhaust” from our activities to develop deep insight into who we are and what is important to us.
Not only is this opportunity emerging because of the untapped capabilities of a growing array of digital technology. It also addresses an unmet need that a growing number of us have given the long-term forces that are driving the Big Shift on a global scale. The Big Shift is significantly expanding and rapidly evolving the array of options that are competing for our attention and money, and providing us with far more information about these options than we ever had before.
Yet, the truth of the matter is that, even with amazing technology advances, we still only have 24 hours in the day. One of our growing needs is to increase our ROA – in this case, return on attention.
If we had a trusted advisor or agent who knew us intimately and who could help us sift through all the options available to us, we’d get far more value per unit of attention than we ever could on our own.
So this is like an extreme form of customer-centricity?
In broad strokes, we are moving from product-centric brands to customer-centric brands. Product-centric brands represent promises about products (or retailers) – “buy this product from us because you can trust that it will be a quality product at good value.”
Customer-centric brands offer a radically different promise – “buy from us because we know and understand you as an individual customer and we can tailor an appropriate bundle of products and services to meet your individual needs better than anyone else.” In other words, customer-centric brands promise that, if you give them their attention, they will give you a better return on attention than anyone else.
Relatively few customer-centric brands exist today. In some cases, you might think of your personal physician, lawyer or accountant. In other cases, you might think of a local, independent retailer like a specialty music store or wine store that has taken the time to get to know you as an individual customer and recommends products to you each time you come into the store.
In the journey from product-centric brands to customer-centric brands, many consumer companies have locked in on a transitional concept – segment-specific brands.
Two tests help us determine whether a company has a customer-centric brand.
First, such brands ultimately require product agnosticism. If a company is really going to gain the trust of customers, it must be prepared to offer the products and services of other companies, even of competitors. This will usually involve a fundamental re-definition of the business. In the terms introduced in my article in Harvard Business Review on “Unbundling the Corporation”, it requires a choice to become a customer relationship business rather than a product innovation and commercialization business. Most companies today are a hybrid of these two businesses (and a third, infrastructure management businesses). This is the underlying reason there is so much tension when customer segment managers are added to organizations with more traditional product brand managers.
The move to customer-centric businesses will force executives to reassess what business they are really in.
The second test of a customer-centric brand is whether the company in fact focuses on building profiles of, and measuring performance with, individual customers.
These two tests are indeed challenging. But the rewards are significant. In markets characterized by intensifying competition and eroding margins, customer-centric brands provide a powerful way to attract and retain the attention and trust of customers. They also build substantial switching barriers, since competitors will find it very difficult to replicate individual customer profiles that become the basis for delivering tailored value.
To restore the power of brands, companies will need to master the techniques required to build customer-centric brands. It won’t be easy. It requires a fundamentally different approach to marketing I call “collaboration marketing.”
That’s also related to the work you did on “unbundling the corporation” – which eventually became the basis for the “business model canvas” framework that’s become so popular today. How does collaborative marketing lead to unbundling?
Companies that master the techniques of collaboration marketing will start to build more trust with customers based on their increasing helpfulness in addressing the customer’s needs. Companies traveling this path will ultimately need to make a very difficult choice if they are truly going to win the deep trust that they will need from the customer. They will eventually need to shed their own product businesses to reinforce with customers that they are truly impartial in terms of evaluating the full array of products and services that might be relevant to their needs.
Rather than staying wedded to traditional push-based marketing approaches that focus on intercepting, isolating and insulating the “target” customer, collaboration marketing harnesses the power of pull to attract customers, motivating them to seek you out because you are becoming more and more helpful, assisting them to get more value from the products you’re selling. One of the most effective way to be helpful to customers is by mobilizing a large number of third parties who have complementary products and services that can help the customer get more value from your own products and services.
We are in the early stages of a profound shift in the economics of business that will transform marketing (along with many other things). Three shifts in economics are occurring in parallel.
First, we are moving from a world of relatively scarce shelf-space to relatively scarce attention. Second, costs of production and physical distribution are significantly declining on a global scale and customer acquisition and retention costs are rising. At the risk of over-simplification, value creation is shifting from businesses driven by economies of scale in production to businesses driven by economies of scope in customer relationships. Layer in a third factor at work – the systematic and significant decline in interaction costs that make it easier for customers to identify vendors, find information about them, negotiate with them, monitor their performance and switch from one vendor to another if they are not satisfied with performance.
These three forces reinforce each other and help to explain the growing power of customers in markets around the world.
These shifts have broad implications in terms of marketing strategy, branding and marketing performance metrics. At the risk of over-simplification, conventional marketing is built upon the three “I’s”:
- Intercept – target and expose customers to your message wherever you can find them.
- Inhibit – make it as difficult as possible for the customer to compare your product or service with any other options.
- Isolate – enter into a direct relationship with the customer and, wherever possible, remove all third parties from the relationship.
Nirvana is the walled garden of direct marketing. It is captured in the mantra of “one to one marketing” – one vendor dealing individually with each customer.
A different approach will be required to succeed in a business landscape defined by the economic shifts described earlier. I define “collaboration marketing” in terms of three “A’s”:
- Attract – create incentives for people to seek you out.
- Assist – the most powerful way to attract people is to be as helpful and engaging with them as possible – this requires a deep understanding of the various contexts in which people might use your products and a willingness to “co-create” products with customers.
- Affiliate – mobilize third parties, including other customers, to become even more helpful to the people you interact with.
In contrast to the “one to one marketing” mindset of conventional marketing, collaboration marketing requires a “many to one” mindset. The winners in this new world will be orchestrators who can mobilize rich networks of resources to serve customer needs.
So it’s about building and scaling trust?
The key is we would need to deeply trust the business serving as our advisor or agent.
How does that trust get built and preserved over time? This is especially challenging in a world where all the surveys indicate we are rapidly losing trust in all of the traditional institutions – businesses, governments, schools and all kinds of civic institutions.
Trust comes in part from the realization that the business knows us as an individual very broadly and deeply and is not just treating us as one more nameless consumer based on aggregated data that covers only a slice of our existence. That’s the easy part, given the new technologies that are increasingly powerful and cost effective in capturing, compiling and analyzing large amounts of data related to our activities and interests.
The real challenge is in convincing us that the business will use all of this data to serve our interests, rather than the interests of others who are trying to “target” and “own” us. For a business to do this, it must reverse the trend of current online business models that have been moving from subscription based revenue models to advertising based business models.
As long as the business depends upon advertisers or commissions from vendors for its revenue, can there be any doubt about where the loyalty of that business lies? It will first and foremost be loyal to the advertisers that pay the bills. If I am truly going to trust my advisor or agent, I have to be willing to pay that business for its services and be confident that the business is not being paid by the product or service vendors trying to reach me.
The good news is that new technology platforms are significantly reducing the cost of building and running such an agent business at scale. The result is that the subscription services are likely to be increasingly affordable to a growing segment of the population.
Here’s another key ingredient for trust. We need to be confident that the business will not artificially constrain our choices but instead provide us with the full array of options that are available and relevant to us. This will make it very difficult for the Internet-based businesses that are diligently trying to build “walled gardens” to keep us from venturing out and exploring broader options.
It also makes it very difficult for any established product or service vendor to build the trust necessary to play the trusted advisor role. If you have some products or services that you’re trying to sell me, how can I trust you to present me the options offered by other competing product or service vendors? Would you really be willing to recommend a competitor’s products or services if they were in fact better suited to my needs?
Doc Searls, in his great book, The Intention Economy and its concept of “vendor relationship management,” came close to identifying the opportunity for a trusted advisor. My only reservation about his concept is that it tends to be very transaction focused and triggered by an explicit intention of the user. The trusted advisor concept that I am outlining goes well beyond transactions to be helpful to the users in getting maximum value from the products and services they are using after purchase. It requires a deep relationship and understanding of the context and aspirations of each of us to be as helpful as possible in achieving our aspirations and adhering to our values.
The trusted advisor also doesn’t just wait for us to express an intention – it helps to shape intentions by proactively suggesting actions that we hadn’t even thought about but that turn out to be enormously valuable.
So the trusted advisor is a disruptor of the status quo?
The trusted advisor business is likely to be disruptive to established businesses, both on the Internet and in the bricks and mortar space. Internet businesses have become deeply addicted to advertising revenue models and will find it very challenging to shift to a subscription based model. Bricks and mortar businesses – whether product manufacturers or retailers – have their own products that they’re trying to sell and would be deeply averse to recommending products or services sold by competitors.
But this is also why the mass market trusted advisor business model is such an interesting opportunity. There’s a white space out there defined by untapped capabilities and unmet customer needs that existing players will find very challenging to address.
When trusted advisor businesses begin to establish themselves, they could begin to capture much of the economic value that today is held by traditional product and service businesses and retailers. These trusted advisor businesses will now have a much deeper and intimate relationship with the customer than any of these traditional companies have been able to establish and they will have a growing ability to shape customer purchasing behavior.
These trusted advisor businesses could ultimately become infomediaries – a business concept that I first explored in Net Worth. Infomediaries have the potential to shift the ownership of customer data from the product and service vendors to the customers themselves. In this case, the trusted advisor could become the custodian of customer data and, subject to the direction of the customers, manage it on their behalf and determine who can have access to the data and under what conditions.
The rise of trusted advisors could also undermine the scale advantages that have driven the growth of established businesses in the past, creating an interesting structural advantage over time that could marginalize large, established players.
The rewards will be significant for companies that target and successfully occupy the trusted advisor role. The economics driving this business model have powerful economies of scale and scope. The more I know about you as an individual customer, the more helpful I can be to you in terms of recommending things that are truly relevant to you.
This, by the way, is a key obstacle for product and service vendors – they typically see only a slice of the activity of the customer. It’s the classic “share of wallet” problem – for example, if I’m a bank, am I handling 90% of your financial activity or only 10%?
Economies of scale and scope go one step further as well. The more customers I serve as a trusted advisor, the more helpful I can be to each customer, since I am in a better position to look for patterns of needs and value across a larger number of more diverse customers. This can often prompt valuable recommendations: “You haven’t expressed an interest in this, but I’ve noticed that many people like you are using and getting a lot of value from this product or service. Would you be interested in more information about it?” And the more customers I serve as a trusted advisor, the more insight I can gain from feedback loops in terms of responses to recommendations that I’ve made. I’ll learn a lot faster than a business that is serving a narrower segment of customers.
As a result, the mass market trusted advisor business enabled by digital technology is likely to become very concentrated over time. In the early stages, we are likely to see trusted advisors emerge in specific domains like financial services, wellness and healthcare, home ownership and travel. Over time, though, leaders in each of these individual domains are likely to extend out into adjacent domains, until the trusted advisor is helping customers across all domains of their activity. Think about it. As an example, if I’m advising you about your financial needs and I know more about your health, wouldn’t I be more helpful to you on a variety of fronts, including issues like investment goals and insurance coverage?
On a macro-economic front, the rise of trusted advisors is likely to accelerate fragmentation in other parts of the economy, especially in product and service businesses. A niche product or service business is likely to have much more success in connecting with the most relevant customers if there are trusted advisors that are investing in getting to know the individual needs of customers.
In contrast, the tendency of many consumer product businesses to consolidate in order to get preferred positioning in large “big box” retailers will likely diminish as trusted advisors become more active in shaping customer purchase activity and demonstrate their unwillingness to be influenced by product or service vendors.
Does that mean that existing companies are precluded from addressing this emerging business opportunity?
Not necessarily. The mass market trusted advisor role is not here yet, but companies aspiring to target this role should not be complacent and sit on the sidelines. This new type of business will be driven by powerful economies of scale and scope that will make it increasingly difficult to challenge early entrants once they build critical mass. This is a business that will not be kind to “fast followers.”
Given this, what should companies who are intrigued by this business opportunity do? Here are some early steps you might want to consider taking:
- Assess the customer data you might already have and determine where and how you might be able to proactively help customers (and resist the temptation to use this data for narrow cross-sell and up-sell purposes)
- Determine how you might be able to harness the Internet of Things and other technology to gain even more insight into who your customers are, how they are actually using the products and services you have sold them and their broader context
- Seek out and mobilize third parties that can help add value to the customers you are serving and connect them to your customers in ways that help them and provide you with more data and insight regarding their needs
- Find ways to engage in short term value exchanges that will demonstrate to customers that you are using their data to increase the value that they derive from your products and services and that will motivate them to share even more data with you
Remember, it’s not about the data you capture but the value that you unleash from the data and deliver back to the customer. The data will ultimately migrate to the businesses that can create the most value for the customer from the data.
INTERVIEW by Christian Sarkar.