Innovation First: An Iterative Model of Customer Valuation that Decentralizes the Customer

Nicole CathcartJohns Hopkins University

October 1, 2009

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Market fragmentation, with roots in the digital revolution, has exponentially accelerated

the need for more advanced marketing strategies. An abundance of consumer data has revealed

complex behavioral patterns that can allow marketers to maximize their budgets and increase net

revenue. As businesses have recognized the growing complexity in the marketplace, simple

product-oriented strategies and tactics are no longer sustainable options. In their integrated

marketing communications (IMC) approach, Don and Heidi Schultz (2004) build a framework

for a strategic shift at the organizational level to centralize the role of the customer, with

customer valuation as one of the key factors in developing a marketing strategy. However,

Glenn B. Voss and Zannie Giraud Voss (2008) present a compelling argument that market

competition in some industries may override the centrality of the customer. Their research

suggests that more dynamic markets use both innovation and customer acquisition models to

meet goals while customer retention models may limit revenue potential. In this suggestion,

Voss and Voss present an enhancement of the IMC model where driving firm performance

demands such an iterative model of customer satisfaction that the customer is no longer central

to strategy.

The IMC approach to customer valuation reemphasizes that customers are of the highest

value to the organization and should be considered a financial asset. Although viewing the

customers as an asset gives them a strategic role that should be recognized, in some cases, this

process may reveal that the customer is not the most valuable asset to the organization.

Certainly, each customer does not have equal value, and even within aggregated customer

groups, Schultz and Schultz suggest options for high- and low-valued relationships. This

distinction may not be important for every firm. The process of valuation, however, allows for

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greater clarity as to value of the customer compared to other firm assets and represents an

essential process for effective strategic decisions.

The volume of market competition and the level of demand for innovation represent two

key factors in determining inherent loyalty of a customer base (Voss & Voss, 2008). The nature

of a market saturated with constantly improving options creates a demand incongruent with a

loyalty strategy. In fact, focusing on customer retention in a saturated, dynamic market may

negatively affect a firm’s net revenue. Promotions that lower prices for retaining customers in a

low loyalty market, for example, may expend resources for less gain. In this situation, a firm’s

resources are better focused on constant innovation than customer retention, as the innovation

fuels the acquisition of new customers, also what Schultz and Schultz label as competitive

customers. Although dealt with in passing in an IMC context, this customer group becomes the

central target in the strategy enhancement proposed by Voss and Voss. Arguably, the present

and competitive customer groups combine into one overall target only marginally more

important than prospects.

Voss and Voss outline two distinct internal and external models as appropriate for

concentrated and dynamic markets. In concentrated markets where competition remains low or

moderate and innovation is a non-critical strategy, the IMC model of refinement of

organizational strategy, communication and products to meet customer expectations makes

sense. However, in dynamic and highly-innovative markets, organizational culture must shift

away from the customer towards constant change and innovation. In fact, a model of seeking

customer learnings may hinder these organizations, as “customer focus may be less effective in

dynamic environments because it can lead to inertia, myopia, and missed opportunities” (Voss &

Voss, 7). Ironically, in the shift from giving the customer what they want to giving the customer

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what they don’t even know they want yet, their asset value may diminish while net revenue

increases.

This shift from a customer focus does not mean a shift from relying on data and research,

a core value in IMC. Instead, studying the competition becomes one of the central strategies to

promote innovation. The need to evaluate competition is not particularly groundbreaking, but

the centrality of this role as an organizational development strategy and an alternate strategy to a

customer focus, presents an interesting avenue for success. Certainly, this is a dangerous path

for an organization that does not have the internal culture and resources to drive innovation

appropriately.

Although a competitor-centric approach as a primary strategy may only be affective in a

dynamic, concentrated and innovative market, there may be a piece of this strategy that has more

general application. After all, if some markets can recognize that competition drives innovation

more than customer demand, what more might be possible in markets where the customer has

become too central in the process? What is the proper balance between matching customer

expectations and defining those expectations? The process developed by Voss and Voss may

help answer these questions quantitatively. By allowing firms to measure revenue affects of both

the customer- and competitor-centric models, those that have already determined their customer

value now have an additional option for maximizing performance. The Voss model is then not

in conflict with IMC, but rather an optional strategy built on the data IMC can provide. This

relationship suggests that IMC may be an important foundation for marketing strategy as market

complexity continues to increase.

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References

Schulz, D., & Schultz H. (2004). IMC, the next generation. New York: McGraw-Hill.

Voss, G.B., & Voss, Z.G. (2008, November). Competitive density and the customer acquisition–

retention trade-off. Journal of Marketing, 72. 3-18.