During the last few months I’ve had the chance to meet with several small and medium sized companies here in Spain. Thanks to these talks, I’ve finally wrapped my head around a concept I’m calling the User Proximity Strategy.
These companies come from different backgrounds and cater to different markets, but all compete in the food industry. Some have a handful of employees. Others have been around for several decades and have just professionalized its management.
But they all have in common one thing: they are scared by a changing market they no longer recognise.
The End of Distribution
This is a classical value chain. In it, each player focuses on what it knows best, specialising and optimising all its processes:
- Producers devote their efforts to create the most compelling product with the least possible effort.
- Distributors are the real clients of the producers. They receive the product and release it to their own clients: retailers.
- Retailers: are the ones in contact with the final client. They are supermarkets where their most important goal is to optimise revenues per square meter.
Sometimes, distributors and retailers are the same. But more frequent than not, distributors and retailers are separate entities.
As you can see, producers rely heavily on distribution and retail partners in order to get their product into the client’s hands. No product will see the light of day unless they are involved.
Unless you’re Coca-Cola or some kind of extremely well known brand, you’re out of luck. You’re going to have to dance to the tune of distributors and retailers. And that is no fun at all. Why?
As a result of this power structure, several perverse incentives take place:
- The producer ends up creating a product line with either the distributor or the retailer in mind, forgetting about the agent that pays for everyone’s bills: the client.
- The distributor receives the product and ships it to the retailer. But don’t ask them anything else. Supporting their own customers (retailers) is not their job and they pass that responsibility to the producer. Only when they feel like it, because support takes time and resources they don’t have nor care about.
- Retailers, just like any other business, are worried about the performance of its square meter. They tend to see every product as a commodity and some even have them build their own store brand. This strategy reduces even more the little power producers have, crushing their margins.
In conclusion: nobody really cares about the end client. But also, nobody owns the client. Thus, an opportunity arises for someone bold enough to try.
Building a User Proximity Strategy
It is no secret that distribution is undergoing one of the biggest business transformations ever. Internet companies, startups, social media and globalisation are dramatically dropping the barriers of entry to markets where the old paradigm works. This is the context for the User Proximity Strategy.
Getting your product out from your factory to the client is cheaper and faster than ever. No matter where he or she is.
A similar thing happens with getting the word out. Not so long ago, you needed to pay big time for introducing your product to your customers. TV, newspapers and radio were a fast and massive way to do it. But extremely expensive.
Thus, only a handful of companies could afford a media campaign. That’s not the case anymore.
All of a sudden, anyone and everyone can have access to that kind of visibility for a fraction of what it used to cost. Youtube makes it easy to reach millions of people, all around the world. Facebook and Twitter too. UPS and DHL are able to send packages all over the world in record time and cost.
It is true that the barriers have dropped. However, nowadays the problems have changed. It is no longer difficult to reach people in a massive scale. The challenge for traditional businesses is to engage these new clients.
Where to start? By building their User Proximity Strategy.
Companies need to own their customers. Know who they are and why they buy their products. Because it is quite frequent that they don’t know why they buy them instead of the competitor’s products.
They need a list. Some kind of way to communicate with them directly, not through the vague and uninterested actions of a lazy retailer or distributor. It can be an email list, followers in their social accounts, subscribers to a YouTube channel or a registered user in their website.
Something that makes sense with the company, product and culture they represent.
This list is like a shield. A wild card they can use whenever they need. Or whenever the traditional distribution business gets disrupted. Which is sooner than most people think.
Once this happens, producers will be able to continue their business without the need of distributors and retailers.
Being Close to the End User is a Winning strategy
Perhaps the most obvious way to understand the User Proximity Strategy is by being as close as you can to the end user or your client. The tech industry has a voracious ability to position itself as close to the users chest as possible.
Let’s have a look at three examples:
Netflix, the User Proximity Company
Five years ago, the director of my digital business master’s degree told me: “if you want to beat your competitors, you have to position yourself as close as possible to the user”.
A while ago, we analysed Netflix’s business model. I called it the User Proximity Company in what very much was the first stone of this strategy.
Netflix is one of the companies that better represent what being close to the client is. Look at its service, it has:
- Smart TVs.
- Apple TV, Chromecast and Roku.
- Web version, available in any PC or Mac platform.
- App version for Android, iPhone and iPad.
- Consoles like PlayStation, Xbox and Wii.
Any kind of device that is able to play videos acts as a gateway to Netflix. This is known as a horizontal strategy, where the product or service is available in a myriad of platforms, no matter who owns the platform.
Of course, as a consequence of applying the User Proximity Strategy, Netflix needs to be wherever their users are. This explains its aggressive expansion throughout the world. With the notable exception of China.
Notice that all the efforts of Netflix are focused on maintaining and augmenting their contact with the user / client. They control almost all of the digital content distribution value chain: creation of content, service delivery and user experience. Everything except the hardware Netflix runs on.
Maybe, in the not so distant future, hardware becomes an interest for the company. Just like Snapchat’s strategy with its Spectacles.
Google, the Digital Billboard Company
The User Proximity Strategy can be most noticeable when we focus on an advertising company like Google. Google sells digital estate in its billboards to advertisers that want to get their product out.
The more venues to place an ad, the better for Google. As a result, Google has deployed several services that gather user’s attention. Sometimes successfully, like the search engine, Maps or Youtube, others not so much, like Buzz or Wave.
Google has always had in mind that in order to be successful, they needed to focus on the end user. And also, know as much as they could about them in order to sell more expensive ads.
With this in mind, Google created Chrome as a way to overthrow Microsoft from the web browser. But it was an uphill battle, since Microsoft had a significant head start. When the future was taking shape around mobile, they saw it as an opportunity to own the platform where its users will be and thus, Android was acquired.
When Apple introduced the original iPhone in 2007, it was obvious for Google where the future was going to unfold. They quickly repurposed it to become a touch based OS, just like iPhone OS was, and with that, they beat Microsoft.
Despite being the most popular mobile OS, Android is a curse for Google and it demands a strategic shift.
Instead of putting Google closer to the user, it has enabled others to introduce a wedge between them. Namely Facebook. That is the reason why Google is turning again to hardware with the Pixel and Home devices.
Apple, the Design Company
Lastly, there is Apple. Most people think that Apple sells hardware and that it makes a huge profit by doing so. But that is not the case. I see design as Apple’s User Proximity Strategy:
Most people make the mistake of thinking design is what it looks like. People think it’s this veneer – that the designers are handed this box and told, ‘Make it look good!’ That’s not what we think design is. It’s not just what it looks like and feels like. Design is how it works – Steve Jobs.
Meaning, Apple uses hardware, software and services in order to position itself as close to its user as possible. That is why its job is not done as soon as they sell people a gadget. They need to continue and build on that relationship:
- The iPod was a means for people to buy music on iTunes.
- The iPhone is the most important piece of technology because it not only allows us to use Apple’s growing services, but also the ones Apple has no interest in (like countless apps).
Sometimes, a company that thrives in the Apple ecosystem gets too close and menaces its User Proximity Strategy. In that case, Apple has to respond with its own proposal so as to avoid being blindsided. Just like Evernote and the Notes app or more recently Spotify and Apple Music.
Netflix is also a strategic risk for Apple, for the reasons we have discussed. Netflix is becoming closer and closer to the user, introducing a wedge between Apple and them.
Owning your clients is not an option. It is an obligation for any company that wants to survive a changing environment. Of course, it requires careful planning and execution. Nobody said it was easy.