As leaders of legacy product and service companies anchored in traditional value chains seek ways to prosper in the digital economy, one of the most important questions they can ask is, “How can we turn our existing customers into digital customers?” Digital customers don’t simply buy products and services: Their interactions with those products and services generate data that companies leverage to provide them with greater value over time. Those data insights also help companies attract new customers, create fresh revenue streams, and expand the scope of their businesses. This customer-generated data, which is often combined with other data streams, has fueled the growth engines of companies built on digital platforms, like Amazon and Google.
Legacy companies typically collect episodic data from discrete events — the sale of a product or the shipment of a component, for instance. Amazon and Google capture a continuous stream of data at every customer touch point on their platforms that is used to generate a new class of insights that play a more expansive role in their businesses.1 All of their customers are digital customers. Now, thanks to technologies such as sensors, the internet of things (IoT), and artificial intelligence, legacy firms, too, can transform their customers into digital customers who generate streams of data via their interactions with connected products.
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Sleep Number uses sensors in its mattresses to track its customers’ sleeping heart rates and breathing patterns. This data enables the company to identify chronic sleep issues, such as sleep apnea and restless legs syndrome, and expand its business scope beyond mattresses to wellness provision. Sensors on Caterpillar heavy machinery produce data that enables the company to track wear and tear, predict component failures, and create new revenue streams from maintenance services. Chubb is installing sensors in the buildings it insures to detect water leaks before they become claims. In this way, the company is expanding beyond damage compensation to damage prevention.
For all its promise, harnessing value from digital customers also brings new challenges for legacy companies. They must develop new value propositions, build out their data infrastructures and strategies, staff for new digital and product design capabilities and competencies, and rework innovation processes to create a feedback loop using valuable customer interaction data.
1. M. Subramaniam, “Are You Using the Right Data to Power Your Digital Transformation?” Harvard Business Review, Dec. 3, 2021, https://hbr.org.
2. M. Subramaniam, “The Four Tiers of Digital Transformation,” Harvard Business Review, Sept. 21, 2021, https://hbr.org.
3. D. Mohammadi, “Smart Inhalers: Will They Help to Improve Asthma Care?” Pharmaceutical Journal, April 7, 2017, www.pharmaceutical-journal.com.
4. S. Ugalmugle, “Smart Inhalers Market Size by Product (Dry Powder Inhaler [DPI]-Based Smart Inhalers, Metered Dose Inhaler [MDI]-Based Smart Inhalers), by Disease Indication (Chronic Obstructive Pulmonary Disease [COPD], Asthma), by Distribution Channel (Hospital Pharmacies, Retail Pharmacies, E-Commerce), Industry Analysis Report, Regional Outlook (U.S., Canada, Germany, U.K., France, Spain, Italy, Japan, China, India, Australia, Brazil, Mexico, South Africa, Turkey, Saudi Arabia), Application Potential, Competitive Market Share & Forecast, 2019-2025” (Pune, Maharashtra, India: Global Market Insights, September 2019).
5. T. Kunsel and P.D. Pandey, “Smart Inhalers Market by Product (Inhalers and Nebulizers), Indication (Asthma and COPD), and Distribution Channel (Hospital Pharmacies, Retail Pharmacies, and Online Pharmacies): Global Opportunity Analysis and Industry Forecast, 2019-2026” (Portland, Oregon: Allied Market Research, June 2019).
6. D. Muoio, “Propeller Health Releases Asthma Forecasting API for Open Use,” Oct. 10, 2017, MobileHealthNews, www.mobihealthnews.com.
7. M. Subramaniam and M.J. Piskorski, “How Legacy Businesses Can Compete in the Sharing Economy,” MIT Sloan Management Review 61, no. 4 (summer 2020): 31-37.