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The Customer-Centric Business Model Explained

Entrepreneurs and business owners all understand how important customer service is to the life of their businesses. When customers are happy, businesses tend to enjoy numerous benefits. For example, according to Salesforce research, 89% of consumers are more likely to make another purchase after a positive customer service experience.

It is no wonder that more and more businesses are reinvesting their resources into better understanding and serving their customers to keep them satisfied. However, some businesses take this customer satisfaction to another level. More businesses are choosing to put the focus on the customer first in order to help their businesses thrive.

Businesses that adopt this strategy are utilizing a customer-centric business model. But what is this model and how does it work? In this article, we will break down this model, look at some examples, and also discuss some advantages and disadvantages.

What is the Customer-Centric Model

The customer-centric business model is a strategic approach where a company’s primary focus is on providing a positive experience for its customers. It is also sometimes called the customer-focused model. This business model places the customer at the core of every decision-making process. Both business-to-consumer (B2C) and business-to-business (B2B) companies have used this model to attract and keep customers. From product design to marketing strategies this unique business model relies on understanding and responding to customer needs and preferences.

Unlike traditional business models that prioritize product development or sales targets, the customer-centric approach seeks to create a long-term relationship with the customer. The goal is to foster loyalty and repeat business.

It involves integrating customer feedback into the business process. With that feedback, the business can now tailor services or products to meet customer expectations. Businesses adopting this model often leverage data analytics to gain deeper insights into customer behavior and preferences. This model is grounded in the belief that satisfied customers are more likely to return, refer others, and contribute to sustainable business growth.

Examples of the Customer-Centric Model

Many renowned companies have successfully implemented the customer-centric model. They constantly collect and analyze customer data to improve their shopping experience. One example is Apple. This company which is valued at over a trillion dollars has mastered the art of creating a loyal customer base. They have been able to do this by offering a unique ecosystem that caters to various customer needs.

Another example of the customer-centric model is the shoe and clothing e-commerce leader Zappos. The retailer is known for its exceptional customer service. This includes an unreal 365-day return policy. They are also known for a customer service team that goes above and beyond to ensure customer satisfaction.

However, one of the best examples of a customer-centric model business is Amazon. The retail giant has taken the customer-focused model to another level. They created a leadership principle that revolves around the customer first. Amazon Leadership Principle #1 is to be customer-obsessed. They describe it as the following:

“Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.”-Amazon Leadership Principle #1

With this principle, Amazon employees are expected to examine their actions to make sure they are serving the customers.

Amazon’s employees are encouraged to:

  • Ask, “Is what I’m working on helping my customers?”
  • Rigorously pursue customer feedback
  •  Ask themselves, “What would my customer want?”
  • Ask, “What will make them happy and what will satisfy their needs?”
  • Seek to impress the customer

Amazon’s founder and former CEO Jeff Bezos once said, “There are many ways to center a business. You can be competitor-focused, you can be product-focused, you can be technology-focused, you can be business model-focused, and there are more. But in my view, obsessive customer focus is by far the most protective of day one vitality.”

This focus has made Amazon the world’s second-largest retailer and the world’s largest online retailer. Let’s take a look at some advantages of businesses adopting this customer-centric model and mindset.

Also read: Amazon’s Business Model: 4 Ways Amazon Makes Money and How Much It Makes?

 

Advantages of the Customer-Centric Model

Enhanced Customer Satisfaction and Loyalty

One of the primary advantages of the customer-centric model is the enhancement of customer satisfaction and loyalty. In this approach, businesses prioritize understanding and meeting the needs and expectations of their customers.

By focusing on what customers really value, companies can deliver more personalized and effective products or services. This heightened level of satisfaction fosters stronger customer loyalty. As most business owners understand, loyal customers are more likely to remain customers. For many businesses, keeping customers should be a top priority. One survey found that 73% of consumers will switch to a competitor after multiple bad experiences.

Also, satisfied customers often become brand ambassadors. As a result, these customers are more likely to recommend products or services to friends and family. These recommendations can lead to an increase in new customer acquisitions through word-of-mouth referrals. These referrals can save a business money on advertising as customers are advertising for them.

Considering that only 33% of customers trust traditional marketing, these referrals can be a valuable long-term source of new customers if handled correctly.

 

Improved Responsiveness to Market Changes

Another advantage of this model is how it helps a business become more responsive to the market. Using this model, businesses can maintain a close relationship with their customers. With this relationship, they can constantly gather valuable feedback. Knowing what their customers want and what they think can help them quickly identify shifts in consumer preferences and trends.

This agility enables businesses to adapt their offerings in a timely manner. Ultimately, being able to adapt quickly will help the business stay relevant and competitive.

 

Higher Chances of Sales

According to one survey, small e-commerce businesses generate 35% of their revenue from the top 5% of loyal, repeat customers. Businesses using the customer-centric model can expect the number of loyal customers to increase. As a result, the business creates the opportunity for increased conversion and increased sales because of the number of loyal customers.

Also, the chances of increasing sales are helped by customer referrals. Earlier, we explained how referrals are increased because of enhanced customer service. However, the benefits don’t seem to stop there as those referrals are also more likely to lead to sales. A Nielsen study found that consumers were 77% more likely to buy a product if their friends recommended it.

 

Competitive Differentiation

Finally, the customer-centric model provides a powerful means of competitive differentiation. In industries, products and services are often similar. Because of this, offering a superior customer experience can be a key differentiator. This approach can enhance the entire customer journey. A customer-focused approach during pre-sales, sales, and after-sales stages can make customers feel more valued.

By excelling in customer experience, companies can stand out from their competitors. As we mentioned earlier, being different can help attract new customers as well as keep current customers loyal. Today, customers have a plethora of choices. As a result, a strong focus on customer-centricity can be a decisive factor in winning and maintaining market share.

 

Disadvantages of the Customer-Centric Model

Resource Intensiveness and High Costs

One of the primary disadvantages of the customer-centric model is its resource intensiveness and associated high costs. Implementing a truly customer-centric approach is a lot of work. Oftentimes, doing so requires significant investment. This means investing in customer service, technology, training, and data analysis tools. Needless to say, this can be particularly challenging for small or medium-sized businesses with limited budgets.

Also, maintaining a high level of customer service across various platforms and touchpoints involves ongoing expenses. For example, training staff, upgrading technology and gathering and analyzing customer feedback. These costs can strain financial resources. This is especially true if the return on investment in terms of increased customer loyalty or revenue is not immediate or is lower than expected.

Risk of Over-Reliance on Customer Feedback

Another challenge of the customer-centric model is the potential over-reliance on customer feedback. Well, all know that customer insights are invaluable for tailoring products and services. However, exclusively relying on customer feedback can sometimes lead businesses to make decisions that may not align with their long-term strategy or brand identity.

Customers typically provide feedback based on their current needs and experiences. As a result, their feedback may not necessarily take into account future market trends or technological advancements. This could cause a business to become too reactive. The business could begin constantly tweaking its offerings to meet every piece of feedback. If this happens, the business could end up lacking clear direction or focus.

Potential Dilution of Brand Identity

Brand identity should be a goal of every business. However, excessive focus on customer satisfaction can sometimes lead to a dilution of brand identity. In efforts to meet varied and sometimes conflicting customer expectations, businesses may find themselves straying from their core values and brand proposition.

If a brand is trying to position itself as a niche company that sells premium products, creating too many lower-priced products to meet customer’s expectations can confuse the company’s target market.

This can confuse customers and erode the unique selling points that originally attracted them to the brand. Additionally, trying to cater to a wide range of customer preferences might result in a loss of uniqueness in the product or service. Ironically, this would make it difficult for businesses to differentiate themselves in a crowded market which is one of the advantages of being customer-centric.

Balancing Diverse Customer Needs

Finally, the customer-centric model poses the challenge of balancing the needs and wants of different customer segments. Not all customers will have the same preferences or expectations. What delights one customer might not satisfy another.

This can make it challenging for businesses to prioritize which feedback to act on. Also, it will make it harder for the business to decide which products to develop and which to discontinue.

In trying to please everyone, there is a risk of not fully satisfying any particular group. This could lead to a decline in overall customer satisfaction and loyalty. Additionally, catering to the specific needs of different segments may require additional resources and can complicate business operations.

Conclusion

As we stated earlier, customer service is crucial. We also showed some of the advantages of being customer-focused. However, there are some downsides to adopting a customer-centric model. For some businesses, they simply do not have the resources to be customer-centric while growing revenue and profits. Entrepreneurs and business owners wanting to utilize this model need to understand the risks and the amount of effort and focus it will take to execute properly.

Also read: 

21 Different Types of Business Models With Examples

Thomas Martin
Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.

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Tom is a member of the Editorial Team at StartUp Mindset. He has over 6 years of experience with writing on business, entrepreneurship, and other topics. He mainly focuses on online businesses, digital publishing, marketing and eCommerce startups.

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