Outside Innovation

Addressing a Customer Pain Point as the Basis for a New Business

What’s at the heart of a good customer-centric business model? We believe that it has four significant components:

1. Ensure that the model is designed to address or mitigate customers’ moments of truth.

2. Ensure that you address those moments of truth with innovative approaches that take full advantage of available technology.

3. Hone an efficient execution engine that: a) lets you make money while you’re meeting customers’ moments of truth, and b) builds barriers to entry through experience, scale, and distance traveled on the learning curve.

4. Entice customers into contributing value to your business as they reap the benefits from the products and services you provide

Back in 2003, we described Netflix as a good example of a company that built its very successful business by addressing moments of truth in the “I want to watch a movie at my convenience” scenario. Netflix’s innovation was to eliminate the guilt and inconvenience associated with returning rental movies and the affront of being charged late fees. The new Netflix customer scenario was a big hit: Pay a monthly fee. Rent as many movies as you want each month. Return them when you’re done with them and get a new one in the mail within 2 days. No pain. No fuss. No bother. And a great database of movies to choose from.

Now that digital downloads are easy, NetFlix still continues to thrive, having built customer loyalty by addressing the rental movie convenience issue and by embracing digital downloads aggressively. Although I have lots of other choices for digital downloads (on demand from my cable supplier, Amazon, etc.), I still think of Netflix first when I want to watch a movie or a television re-run.

Most NetFlix customers now enjoy both forms of movies—the ones they receive in their physical mailboxes each week and the ones they download on impulse. (The fact that Netflix is still thriving is reinforced every time I go to my local U.S. Post Office, which has three mail slots: Our Town, Out of Town, Netflix.)

How Easy Is It for YOUR Customers to Contribute to Your Web Site? To Promote YOUR Brand?

Rate yourselves! We’ve compiled a set of best practices that we’ve found among the companies that excel in “peer production”—having customers contribute their content and creations, usually via the Web. Customers who like to “strut their stuff” also like to promote your stuff (and their ideas). So this survey also includes a set of best practices for “peer promotion”—having customers promote your products and services and your brand to others. You can download and fill in the questionnaire at your leisure and compare notes with your colleagues. Most people use this as a tool to start strategic conversations. It’s a good activity to do at the start of a relevant meeting as people are getting settled in.

Soon, we’ll provide all of these core competencies in the form of online surveys so you can see how your answers stack up against those of your peers.

eBay Refocuses on End-Customers’ Moments of Truth, Goes Back to Basics with Auctions and Community

eBay’s executives sold a new buyer-centric strategy to an audience of 10,000 eBay sellers and a smattering of buyers at the eBay Live conference held in Boston on June 14th through 16th.

Meg Whitman, eBay’s CEO, described the company’s strategy as “continuing to reignite the core auction experience….You will see more changes to eBay's buyer experience in the next 12 months than you probably have seen in the past three or four years,” Meg explained in an Associated Press interview on June 15th. The same Associated Press article went on to say, “Perhaps most dramatically, eBay is crafting a more social experience, so people browsing from isolated computers feel at least somewhat like they're going to the mall with a pack of buddies.” (One glimmer of where this strategy may lead appeared in May, when eBay purchased StumbleUpon.com for $75 million. StumbleUpon is a site that lets people rate and share favorite Web sites and information online.)

So eBay is going back to basics—re-focusing on its core auction business and on the vibrant user communities that were the hallmarks of the eBay experience that Pierre Omidyar brought to life in 1995.

Bill Cobb, President of eBay North America, described the “new” focus this way:

“We’re investing in the quintessential eBay experience of buying and selling—person to person—in an auction format. Today online shopping is mainstream—but it’s also becoming boring. We’re taking a stand for what we believe—that different is good—that people are more interesting than things—that eBay is still the place to go for the rockin’ deal—and that the combination of all these things is what has created eBay.com into a destination site like no other.”

Bill also described the moves as “a high stakes balancing act.” Why? Because eBay has a long history of trying to please its paying customers—its sellers—rather than focusing on the end-customers or consumers who purchase the sellers’ wares. eBay charges fees to the sellers, not the buyers. But, obviously, if buyers don’t continue to buy and bid at eBay and bring their friends, the company’s growth will slow. Bob Tedeschi reported that Meg Whitman said, “We're optimistic that these changes will translate to accelerated growth and help us change the trajectory of our two largest markets, U.S. and Germany.” Bob points out that, as of early June 2007, the volume of eBay’s U.S. listings was down by 3.8 percent, and “the listings on eBay’s German site had dropped by 16.5 percent earlier this month, compared with the similar time last year,” according to Citigroup. eBay’s revenues were $6 billion in 2006, with $1.1 billion of profit.

However, eBay has learned the hard way that making changes that adversely impact its 700,000 sellers is a risky proposition. So the trick is to convince the sellers that the changes eBay will be rolling out over the next few months will spawn more buying activity, attract more shoppers, and increase repeat shopping behavior.

Based on the early reports from eBayLive and on the relatively civil behavior of the vocal power-sellers at the eBay Live Town Meeting last Saturday, the early signs are that the renewed focus on the “buyer experience” appears to be working.