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Think vertically, act competitively

Vertical software isn't a magic potion, according to consultants Don Peppers and Martha Rogers. They offer some advice on how businesses can differentiate themselves within their markets.

We see a lot of well-meaning solution companies these days that are happy to recommend a vertical customer strategy or software application for your business. For example, if you're in the financial services business, there's a strategy that's just right for you and your competitors. For all you automotive manufacturers, here's a software package that will fit all sizes.

These companies often have excellent products and can indeed add to any customer strategy and solution. But from the user side there's a caution to be respected. A clear customer strategy is essential, and if that strategy can be enabled by technology, we support that. But the strategy problem these days is this: Your customers want the best possible product at the lowest price with excellent service. That is common. In fact, your business model may be common to your competitors, but your customer strategy needs to have some kind of defining characteristics. It makes sense to look at how you can organize your company around product, price and service. So, yes, look at the best practices within your industry vertical, but also try to figure out how to position yourself differently within that vertical.

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How do you do that? Our editors looked at dozens of companies that employ effective customer strategy and tactics. We settled on four companies that have been able to connect differentiated customer strategy with successful financial and customer metrics. All four have "branded" their customer strategy. Southwest Airlines has taken a common customer loyalty practice (frequent flyer miles) and put its own stamp on it. Instead of offering redeemable deals on everything from flights to cell phone minutes, at Southwest, you get points toward free flights and upgrades, and that's it. Southwest's competitive business strategy of providing no-frills, efficient customer service at the lowest possible price is enhanced by its unique approach to customer retention.

Another good example is Nordstrom's department stores. It takes the strategy of building customer intimacy to the high-end. Its foundational principle, "Building trust, one customer at a time" is enhanced by its unique approach to customer experience. Personal representatives are assigned to high-value shoppers. It caters to the upscale consumer who still wants the lowest price available, so it combines the right mix of product, good pricing and effective customer strategy. That's a winning combination. You can find elements in some of its competitors, but in putting it together, Nordstrom's defines its own competitive profile.

Effective competitors will align all areas of their business around customers. In the area of product leadership, keeping in touch with different customer behaviors and attitudes will enable an innovative company to spot new product ideas. It will allow you to redesign product offerings based on the most valuable customers. Lowest price competitors like Southwest can user customer insights to streamline their operations and better align their resources. And customer-intimate competitors can use customer insight to build "trusted advisor" relationships with their clients and customers.

Put differently, we can think of business competition as a strategy game. And strategy is simply a plan for succeeding in a hostile environment. If you focus your firm's efforts solely on the solution that is most appropriate to your vertical, you have to figure that every company within your industry is likely to focus on the same solution. If, on the other hand, your customer strategy flows also from your business strategy, then you are more likely to triumph.

So, don't consider a vertical solution to be a magic potion. Don't play the same game everyone else plays. Take notice of the best practices in your industry, but don't forget that your company has its own competitive profile, and its own needs. Don't sell short by overlooking your individuality.

Copyright © 2004 Carlson Marketing Group, Inc. All rights reserved. Peppers & Rogers Group is a Carlson Marketing Group Company.

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