Welcome to part one of an in-depth look into how the subscription economy came about, and what has led to the realization on the part of more and more businesses that to survive they must reclaim the customer relationship. Over time, the connection with the customer—as well as customers’ trust—has been lost. The history of the customer-producer relationship is a colorful one, which we present in a series that begins here.
In the time before the Industrial Revolution, the exchange between the producer of a good and a consumer was a high-contact, person-to-person interaction, resulting in the creation of a relationship. Blacksmiths, weavers, and carpenters were masters of their craft, and as the producers of their specialized product were responsible for the whole product lifecycle. In addition to actually making the product this included marketing, selling, training apprentices, sourcing material, refining their own material, keeping the books, and receiving customer feedback and subsequently finding ways to make their product better.
The byproduct was a strong sense of ownership of the product: the producer aligned his purpose with his craft because he felt a real value in what he provided to the consumer—likely due in part because he was held accountable for the quality and his performance affected his reputation in a word-of-mouth society. The high degree of connection between producer and customer was accompanied by a high degree of connection between producer and product. In fact the producer and product were almost one and the same. When you think of a cobbler or a blacksmith, their product immediately comes to mind.
More than just the assembly line
Beginning with the invention of the steam engine in the 1700s, the Industrial Revolution brought about the advent of mechanization and mass production, including mills and clothing factories as well as the production line. As populations increased and cities emerged, specializations in trade and product emerged: one person was responsible for only one small part of the product lifecycle, even perhaps a small part of one stage as in the case with production. At this point, a sacrifice was made: the connections between producer and product as well as producer and customer naturally diminished. Because of higher demand due to population growth, degrees of separation came into play: the producer had to hire more people, often with less expertise.
Specialization came to be defined in two different ways: production (e.g., factories) or distribution (i.e., merchants or service providers, like repairmen). Survival of the fittest ruled these specializations; who had the best design, who was best at procurement, who produced the highest quality product. There were many paths to victory, and only marginal advantages would separate victory from failure.
For example, the emergence of lean and just-in-time manufacturing in the 1950s enabled Japanese carmakers to absolutely crush their American competitors due to optimized stock management, ordering, and process management. American auto makers with their push system would create lots of inventory, which would become obsolete sitting in car lots (or be stolen), losing money and value. Japanese producers on the other hand, beginning with Toyota in the mid-20th century, employed the Kanban system. They located their manufacturers close to all their satellite producers, and ordered new stock only when a certain amount of existing stock was consumed. In the time the rest of the stock was consumed, which would render reserves empty, the new shipment to replenish it would have arrived. They had estimated the time to delivery, and built that time in to their consumption of production materials so as to control excess, costs, and waste. Sometimes, a car wasn’t even produced until there was a customer. The factory would order parts and then produce them, as part of a pull system. Six Sigma efficiency was born out of the auto industry.
In the other category of specialization, distributors, the same problem existed. Mom-and-pop shops could not stock the variety customers demanded, which is why department stores and large retailers completely squashed the mom-and-pop shop. Big retailers were able to buy in bulk more efficiently at better prices from manufacturers. (Interestingly, many of the most famous department stores started out as modest shops such as tailors, dry goods, drapers, grocers, and clothiers.) Larger merchants and distributors then took ownership of the customer relationship after the producer gave it up to scale. They knew what to order from manufacturers because of their contact with the customer. Production outsourced the relationship to the merchant, to the shop you’d always buy from because they always knew what you wanted.
From neighborhood store to megastores
However, as retail stores grew bigger and saw more and more customers, the focus homed in on product placement and pricing. The reliance on understanding customers individually lowered, and product placement on the shelf became a science to lure customers into spending more money than they had originally intended. Commerce went from a situation where the expert was in the front of the counter, and the products behind it, to a stocked-shelf environment featuring more staff and fewer product experts. Originally, in say the general store of old, the consumer would communicate needs that the expert would understand and interpret. He would offer an item to fulfill those needs, while fully explaining the product to the customer, which solidified reliability and an ongoing relationship. As audiences began to mushroom, a barrier to the consumer was formed in the way of untrained staff, placing the customer further and further away from a connection with the product. Rather, the customer’s connection was with the venue: Selfridge’s, Macy’s, Harrod’s, Marshall Field’s.
Likewise, the merchant’s ability to keep pace with new offerings and product innovations fell behind. All of these conditions contributed to a reduction of the value delivered to the customer; the store was simply a place where products were available. Scale had come at a sacrifice of the customer voice and the individual customer experience.
This post kicks off a white paper series exploring the Fight for the Customer that is now in full swing. Download it here.
In addition, for the continuation of this story, check out part two of this series on the road to the return of customer loyalty for today’s most innovative companies.
This series is inspired by presentations by Aaron Rice, COO of MindTouch.