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E148 | How To Improve Customer Relationships By Creating A Connected Strategy with Nicolaj Siggelkow

Nicolaj Siggelkow is a lifelong academic, currently the David M. Knott Professor of Management at the Wharton School, University of Pennsylvania. He is a Co-Director of the Mack Institute for Innovation Management and the former Department Chair of Wharton’s Management Department. 

Nicolaj loves the intersection of teaching and research and getting to focus on the things he’s excited about. And so he’s written a fantastic book called Connected Strategy: Building Continuous Customer Relationships for Competitive Advantage.

In today’s episode, Nicolaj discusses how organisations can sell one off interactions they have with customers, he uses healthcare as his example, for a set amount of money. How do they persuade customers of the lifetime value of that asset so that they part with their cash up front for something they may not need for a long time?

We talk about pricing, subscription, technology and how these things are coming together to change the way organisations compete, in a connected strategy. How can we take a transactional relationship with a customer and turn it into a lifetime revenue generating relationship?

This is an absolutely fantastic conversation with Nicolaj, we hope you enjoy it as much as we did.

On today’s podcast:

  • Interdependencies of strategic choices
  • Identifying customer pain points
  • Connected strategy
  • The subscription model
  • Differentiating yourself through added value


Creating A Connected Strategy With Nicolaj Siggelkow

Professor Nicolaj Siggelkow studied Economics at Stanford University and received a Ph.D. in Business Economics from Harvard University. Having conducted groundbreaking research on strategy, Professor Siggelkow has been named a Fellow of the Strategic Management Society, the world’s leading association of strategy researchers and has been shortlisted for the prestigious Thinkers 50 award (the “Oscars of Management”).

The variety of the job first attracted him to being professor at the business school, on one hand he gets to spend time researching the topics he’s interested in, he doesn’t get dictated to which direction his research should go in. He gets to teach great students, and he has the ability to work with companies every now and again. 

“I’ve been intrigued with the same topic for the last 23 years. That is, thinking about the interdependencies of strategic choices that firms are making, [and] the competitive advantage.”

How does he carry out his research? 

What he does is ask three broad questions: 

  1. How do firms develop and grow and adjust the set of activities that they do over time?
  2. How do those activities result in high performance? 
  3. And what do those interactions among the firm’s activities play in creating and sustaining competitive advantage?

One thing that he’s noticed is how tough people find it to put themselves in their customers’ shoes. When asked what their customers’ pain points are, managers routinely list what they think the pain points are, not what they actually are. 

Connected Strategy

He wrote the book because he was inspired by healthcare. 

“This theme that we were observing of many organisations, right across a whole swath of different industries, fundamentally reshaping the way they interact with customers. From having few episodic interactions to having a much more continuous relationship with customers.”

Healthcare is one of those industries where you’re only connected, as the customer, when something bad happens. Then you get their attention 24/7 until you’re discharged. And then you become unconnected again. Until you need them again. 

“It seems like this cannot be efficient, right? It’s gonna be inefficient for me as a patient, nor can it be efficient in the healthcare system, right?”

And this got them thinking – how can an organisation create a more continuous relationship with customers that ultimately allows everyone to have a better customer experience while, at the same time, reducing costs?

Disney and the magic band

One of Nicolaj’s favourite examples is when you go to Disney World, you get given a magic band. This band acts as your ticket, but it also allows Disney to track customers in the park, so they can direct you to an attraction with a shorter queue, or to pre-programme an itinerary for you. 

It essentially allows them to run the park more efficiently. 

“That was again, this idea about, we both have a better customer experience, while at the same time reducing our cost.”

As an organisation you just have to be aware of the borderline between connected and creepy. 

“Different customers will have very different preferences of how they want to connect with you. We have to be careful that we’re not creating too many creepy instances of things and scaring off customers. Companies have to create a whole variety of different kinds of connected customer experiences to be able to really utilise this well.”

The subscription piece

“The most traditional revenue model is ‘I’ll sell you something and you pay me’ and that’s it. The problem with that typical revenue model, is that I need to convince you right off the quality and and all of the value that you will get out of this product for the lifetime you will use this product. I need to convince you of that at the time of purchase.”

The beauty of the subscription model is that customers can observe daily, how well your product works, and then they might, over time, be willing to pay a little more each day to use your product, and they might end up spending quite a lot of money with you, because they didn’t have to invest a load of money up front on a product they didn’t know if they’d love. 

“These per use revenue models also allow us to price differentiate across different customer types very well.”

Differentiating yourself 

If you want customers to have a longer journey with you, beyond just experiencing your product or service you need to find a way to differentiate yourself, even if you operate in a market that is really hard to differentiate your product. 

“If I’m in a commodity market, where it’s really hard for me to differentiate my product or my service, at the end of the day, it always becomes the low cost guy who wins.”

Take for instance someone who wants to buy an S&P 500 index. You can’t really jazz that up. What you can do is look at the deeper underlying need of the customer which is, at some point, they hope to retire and they need some financial stability in their life. 

But when do customers become aware of their needs? When you’re lying on the floor having a heart attack it is a bit late to become aware of your healthcare needs. Similarly, when you turn 60 is not the best time to start thinking about saving for retirement. 

“People are not always aware of their needs at the best time. So if we can actually help customers become aware of their needs at more opportune times, quite a lot of value can be gained.”

People will come to you, not because you have the better product, but because you have added value, because you solve the pain points in their lives. 

Book recommendations

Factfulness – Hans Rosling
Reimagining Capitalism – Rebecca Henderson
How To Avoid A Climate Disaster – Bill Gates

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