The Best Marketing Structure Depends on your Customer

At Ellipsis we believe passionately that companies who are customer centric, who make decisions with the customer’s needs as the catalyst are generally more successful than companies who lead with product or process in their thinking.

Organisations have been implementing management structures¹ that enable this strategy for some time now, by structuring themselves around customer segments; Specialise in each segment, understand the customer needs well, develop better relationships… sounds like a winning strategy, and HBR reported in 2015 that 30% of Fortune 500 companies had already adopted a customer centric structure with more joining every day². Intel is a good example.

With many marketing teams on furlough or laid off because of Covid, it is worth carefully considering what structures should be implemented when the business returns and re-building begins. Take advantage of the opportunity to implement a better structure if there is one, not just blindly re-establish what was there pre-Covid, unless it is still the most appropriate.

We say this because transitioning product focused teams to customer centric structures has proven to be a challenge to company performance³. There is pain, so best to be sure the upside is worth it.

Return on assets of 37 firms that shifted to customer centric structures

We should not be surprised that one marketing structure does not suit all companies because it also does not suit all customers. Ironically, sometimes to be customer centric means not having a customer centric structure - as you would expect, it depends on the needs of the customers you serve and the product categories you work with.

First, some definitions to help make sure we are writing and reading the same things.

In this context, ‘Structure’ is

• The shape and contents of business units, divisions, departments, teams, and networks that group individuals
• The reporting rules between them
• The coordination mechanisms that integrate units’ activities and resources

In organisational design theory, ‘Structure’ impacts

• The company’s degree of market orientation
• Its ability to innovate
• Interfunctional & interdepartmental relationships
• The link between the company’s strategy and performance

HBR found the strength of customer centric structures to be real, “…teams based on distinct customer segments can better align employees with customers and make it easier for Marketing to quickly respond to changing customer needs.”

But customer centric structures add internal costs and complexity to communications and decision processes, duplicate some functional groups… it is not free. These structures do have a greater effect on customer satisfaction, loyalty, word of mouth and business performance when:

• What customers want changes frequently, and
• Customers want & reward better fit.

When customers’ needs change rapidly (e.g., in healthcare, high technology categories), the ability to recognise changes and respond quickly is more important. The poster child case study here is the Mayo Clinic, where they assemble a team of specialist physicians, per patient, on admission.

But if customer needs remain relatively stable (e.g. if your category is a commodity, an air-line, QSR) companies can identify customers' stable needs; reliability, lack of friction, ease of access, etc. In this case, quick responses or continuous market learning are less critical and are less important to customers. No need for customer segment dedicated teams and the increased costs involved.

We argue that not having customer centric structure can still be customer centric, without the disruption, and it can still be a competitive advantage. If your customers prefer little service variation, deliver this in the most efficient way you can. Another US example, the bank USAA have a structure that includes 'Life event teams' that facilitate responses to predictable banking events like buying a car, going through a divorce, managing the business of bereavement. The teams are organised around jobs to be done for all customers and focus on removing friction.

Marketing organisation design is not just about structures of course, there is the dimension of decision authority to consider. The findings here make intuitive sense; Decision making that sits with the employees closest to the customer (decentralisation) increases marketing effectiveness (advertising impact, patent citations) but decreases marketing efficiency (CPI, cost per patent). This seems to fit with a customer centric structure well.

Marketing teams with centralised or formal structures have lower effectiveness but higher efficiency, but when customer preferences are stable, silo marketing structures work as well as customer centric structures, because knowledge is easy to codify and transfer across units through formalised activities.

'Agile', multi discipline teams fit more easily in the customer centric structures but not exclusively. It is possible to have an ambidextrous⁴ structure if your customer needs are complex. An ambidextrous structure consists of two independent teams: “emerging business units” that are flexible and adaptive for exploration purposes, and “existing business units” that are more formal and work to exploit existing capabilities⁵.

Agile structures may also be more valuable for service companies (than product companies) in terms of developing innovations since service innovation requires more tacit knowledge (due to intangibility) and extensive customer interactions (due to co-production).

There are a few more considerations for companies to make as you consider the best structure to rebuild after Covid,

• If your industry/category is very competitive with a high penetration of competitors, already with existing customer centric structures, be aware that any one company’s customer centric structure is less valuable. There is an early mover advantage but diminishing returns if everyone is doing a good job of meeting customer needs.
• If your customers do not value customisation or responsiveness think again. In these categories HBR found customer centric structured companies performed 20% lower than those with structures not aligned with customers.
• Do not forget brand – divisions focused on their own customer segment are not suited to building strong overall brand awareness.

The lesson from this; customer centricity includes understanding what your customers value most from you and structuring appropriately. This will not always be the most agile or most modern, but it should be the most successful.

We are Ellipsis, the Customer Loyalty Experts. We help businesses thrive through solving complex customer problems. Please get in touch, we’d love to talk.

References

1. Structural marketing: using organizational structure to achieve marketing objectives Article in Journal of the Academy of Marketing Science · August 2014 Ju-Yeon Lee, Robert Palmatier, Irina V. Kozlenkova. This whitepaper owes many of the thoughts discussed to this excellent paper, plus project experience with our clients
2. Customer-Centric Org Charts Aren’t Right for Every Company. Lee, Sridhar & Palmatier, HBR 2015
3. Ibid
4. This is the structure that we recommended in a recent Marketing Business Process improvement project
5. Ibid