How Increasing Value to Customers Improves Business Results
When Peter Leyland was appointed director of the European renal division of Baxter UK early in 1997, the business unit of the global health-care company was at a crossroads. The renal division was in the business of selling disposable bags used for kidney dialysis in the home. Although its market share for what is called peritoneal dialysis (PD) was close to 80%, PD was losing out to hemodialysis (HD), which removes toxic waste from blood. On a bag-for-bag basis, HD was cheaper. Meanwhile, new PD entrants were competing on price.
Leyland decided to cut the margin on the bags, but he would not cut costs for fear of negative customer reaction. He moved in the opposite direction, mapping with customers all the treatment activities — before, during and after the dialysis experience. Then he added value at each critical point in that cycle (helping patients, for example, to manage their private and professional lives around treatment, to update prescriptions, to dispose of used dialysis bags or to maintain machines).
Such attentions kept patients at home longer, greatly increasing the sales of dialysis bags. However, Leyland’s division was no longer thinking of itself as being in dialysis-bag manufacturing. It had started thinking like a dialysis patient caregiver. It had become a company with a customer focus. Most enterprises think they have a customer focus, but only those that have switched from traditional business thinking, which aims to extract value from products or services, really do. True customer focus means obtaining value for customers (whether or not they buy all the items they could of a company’s products and services) as well as obtaining value from customers (who voluntarily choose to stay with a company that obtains value for them).1
The problem with the conventional approach is that products and services — and the strategies designed to make and move as many such core items as possible at the maximum possible margins — are too easy for competitors to emulate and improve upon. Cost advantages appear only up to a point. And current research suggests that a customer loyalty focus based on the conventional approach leads to only short-term gains.2
Enterprises that understand and embody the vital components of customer focus can move ahead in a way that makes it difficult for others to catch up.
References (23)
1. Paul Romer, “Increasing Returns and Long Run Growth,” Journal of Political Economy 94, no. 5 (October 1986): 1002–1037.
2. For more on the classic notions of customer loyalty and retention, see:
