A critical step in defining the strategy of a business is to determine its strategic positioning – the essence of how it competes and serves customers in its markets. At the core is customer bonding: the attraction, satisfaction and retention of customers. The Delta Model provides a roadmap for identifying optimal strategic positioning, based on achieving customer bonding, and provides three strategic positions for reaching that objective. Here we will introduce these as standalone options; in practice, a company with a more sophisticated strategy may compete in all three positions to effectively serve its heterogenous customer base.
The Driving Force in Shaping Strategy
Classic strategy frameworks emphasize a product orientation where the company competes against rivals and the winner is determined by who has the best product. These companies tend to commoditize customers by offering standardized products through mass distribution channels that can inhibit contact with end-customers. The intimacy and connectivity of a networked economy, however, offer opportunities to create constructive, long-term relationships with customers that lead to an unbreakable link that we refer to as “customer bonding”, a mutually beneficial engagement based on trust and transparency.
To achieve bonding, you must promote investments in and around the product by customers and complementors (firms that deliver products and services that enhance or augment the company’s products), that customers cannot easily walk away from and the company can use to customize its offering. Investments in these “collateral” assets, both financial and time, such as learning how to use the product, incorporating customer-specific data, integrating purchased add-ons, and customizing interfaces to the product, can increase switching costs – and bonding. The Delta Model provides an expanded set of strategic positions that incorporate customer bonding.
A New Set of Strategic Positionings
There are three distinct strategic options, which offer very different approaches to achieve customer bonding:
- Best Product – Low cost or differentiation: commoditization of customers limits opportunity for bonding
- Total Customer Solution – Reducing customer costs or increasing their profits: enhancing the customer’s economics can lead to stronger bonding
- System Lock-in – Complementor lock-in, competitor lock-out, or proprietary standard: identifying, attracting and nurturing complementors can further increase the value of your offering – and the strength of your customer bonding
The System Lock-In and Total Customer Solutions options offer new ways to compete that deviate substantially from conventional “best product” strategic positioning, and provide increasing levels of customer bonding.
Best Product
The Best Product positioning builds on the inherent characteristics of the product itself – either through low cost, which can offer customers a lower price – or differentiation, which can provide customers unique features. The products tend to be standardized and unbundled, the customers massive and faceless, and the focus on competitors that we are trying to equal or surpass. The drivers are the product economics and the internal supply chain, which provide the engine for efficient product production.
The main limitation of this approach is that it generates limited customer bonding, hence making the incumbent firms vulnerable to new entrants with novel or lower cost products. Its obsessive concern with competitors can also lead to imitation and price wars, resulting in convergence – the worst of all deals. In spite of the inherent limitations of this strategic position, it is by far the most widely adopted.
Total Customer Solutions
The Total Customer Solutions is the antithesis of the Best Product approach – instead of commoditizing the customer, we seek a deep understanding of the customer that allows us to develop customized value propositions for each that can create bonding. Instead of developing and marketing standardized, stand-alone products, we seek to provide a portfolio of products and services that enhance the customers’ ability to create their own economic value, often through self-customization. Instead of concentrating on our own supply chain, we seek to develop an integrated supply chain that links us with key suppliers and customers.
System Lock-in
The System Lock-In option has the widest scope; it includes the extended enterprise – the firm, its customers, suppliers, and most importantly, “complementors” – and can lead to the highest level of bonding. While the customer continues to be the central focus, the key to this strategic option is to identify, attract, and nurture the complementors. They are rarely detected and exploited effectively – we must identify and incorporate all the key external players that can become complementors.
System Lock-In can be achieved either by “owning” unique or constrained distribution channels that locks-out competitors (e.g., optimal shelf space in a grocery store, or the best location is a small town) or developing an extensive set of complementors that supports your product or service and locks-in your customer (e.g., by appropriating the industry standard or dominant exchange). Further, mass adoption of the product should in itself significantly expand the value of the product to the customer – creating a self-reinforcing feedback loop.