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Process Management

Product-Driven vs. Customer-Driven Approach

Posted on January 3, 2023 by Sara Kremsar
1573 | 3 Jan 2023
Product-Driven vs. Customer-Driven Approach

There was a time when large companies focused exclusively on product-centric approaches. As customers have evolved over time, companies are also slowly moving to a customer-centric approach. A product-centric or customer-centric approach is the biggest dilemma facing modern businesses. With increasing competition and customer behavior, customer-centricity is becoming a more effective approach to driving business growth. However, product orientation cannot be ignored entirely, as it has its positive sides that contribute to the business.



OVERVIEW

Companies need to examine all aspects of their operations in today's highly competitive business world. Achieving profit and growth are fundamental aspects of any business, but they are not the only ones. There are two distinctions between organizations. Organizations are distinguished by product or customer focus. Organizations focused on their product are based on the assumption that a great product itself will find its customers. On the other hand, customer-focused organizations work with approaches and tend to provide products and services that customers actually need and want. There is a distinct difference between "customer-centric" and "product-centric" business models. Understanding these differences helps organizations decide how to run their business and what decisions to make.



Product-Driven Approach

An approach aimed at product development, business growth and profitability is adopted by companies that first develop a product and then search for its market. They work on the principle of presenting a product that customers do not yet know they need. The approach above assumes that a great product will attract many customers, bringing in sales and profits. A product-driven company focuses on products and develops newer and more advanced products regardless of market demand because it does not operate on the principle of meeting customers' needs and wants. A "product-driven" company focuses entirely on the product and not on the customers. This is because such companies assume that there are already a large number of potential customers for the products they manufacture, so they often use mass marketing as a sales strategy. Mass marketing ensures that a large number of potential buyers can learn about the existence of the products.

Product-driven business processes are designed to improve efficiency. These processes focus on the product, ensuring that it is unique, recognizable, and immediately usable for customers. To achieve this, companies may need to position their products in a way that makes them the most valuable and advantageous on the market. In product-driven companies, the product is treated as an independent business segment and all resources within the organization are directed toward promoting the product and creating new ones. Marketing and sales teams are responsible for taking the product to market, while other departments play a supporting role. These companies often have hierarchical organizational structures with many silos. Organizational processes are monitored using a range of indicators and employees are rewarded based on their performance. Employees have clearly defined roles and responsibilities.

Product-Driven companies focus on upgrading their products and investing in R&D to develop advanced versions. They build their customer base based on the quality and value of their products and focus on product-led growth. For successful products, they invest in upgrading product quality and expanding into new market segments. They shift resources to high-performance products for products that do not perform well.



Customer-Driven Approach

A customer-centric approach in business means focusing on the needs and wants of customers. These companies identify and understand their customers' requirements and find ways to satisfy them. These businesses aim to create a product or service that matches their customers' needs and wants. Customer-centric companies rely on a large customer base to generate business and maximize recurring revenue. In addition to providing good support and service, they also invest in customer success to help their customers achieve their business goals. This approach is often referred to as market-driven and assumes that a company can only survive if its customers are satisfied. Therefore, companies that take a customer-centric approach must offer high-quality products and services and provide excellent customer service and support. By prioritizing the needs of their customers, these businesses can improve their chances of success and build long-term, profitable relationships with their clients.

In a customer-driven organization, processes are designed to support customer-centric operations. Boundaries are not strict and team goals are tied to customer success. These organizations monitor their success by soliciting feedback from customers, which is then analyzed. Employees in customer-driven companies adapt to different roles based on customer needs, but they all share the common goal of a happy customer. These organizations assume that customers exist and have certain behavioral patterns, particularly in terms of their wants and needs. Customers are at the center of all strategies in customer-oriented companies. These companies are well aware of the segments of their potential customers and market their products accordingly. Product development is largely based on customer wants. To this end, the company conducts market research to gather information on customer needs and wants. The product development team then creates a plan based on this information. When a product is launched, it is designed primarily to satisfy customer needs and wants. Customer-driven companies do not invest heavily in traditional product marketing, as the product is already designed to meet customer needs.

Companies start by identifying their customers' needs and challenges, then develop their products or service. The growth strategy for companies that focus on customers is based on identifying customer needs. Their customer success team is dedicated to gaining valuable customer information. Customer-focused companies do not just focus on the solutions they provide but describe the entire customer journey for a better customer experience. They closely monitor the strengthening of customer loyalty and, thus, their company's growth. Their focus is on maximizing customer lifetime value to make every customer a profitable asset for their company. Customer lifetime value also plays a critical role in the company's valuation and influences investors' decisions about further investment in the company's business. Customer-centric companies have many strategies for marketing their products. They want their loyal customers to become advocates for the brand, which helps them bring new prospects into the sales funnel. These companies also focus on building long-term relationships with their customers so they can generate a steady stream of revenue. This helps them to operate sustainably in a competitive environment.



CONCLUSION

In today's business world, product or customer-centric operations depend largely on the way a company operates, its products and target customers. In the IT industry, the meaning of "product-driven" could be transferred to "software-driven" if the product of the company under study is indeed a software or information solution. Regardless of the approach, what ultimately matters is that customers are satisfied, which makes the company more profitable and sustainably successful. One could say that the approaches mentioned are two sides of the same coin. The company must decide which approach best fits its needs. It should be emphasized that choosing and implementing only one approach is challenging, as one cannot grow without the other. Nevertheless, companies evaluate the effectiveness of both approaches to determine the advantages and disadvantages of each. Theoretically, the best solution is to harness the power of both approaches and use a healthy relationship between the "Product-Driven" and "Customer-Driven" approaches.



QUESTION:

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