For many years, cost savings was considered to be the primary – and, in some cases, only – objective of the procurement function.
Don’t get me wrong, cost savings still represents a relevant procurement contribution. But it should not be considered the one trick of the procurement pony.
A myopic, profession-wide focus on cost savings makes an incorrect assumption. That assumption is that every organization competes on low cost to the consumer and that procurement cost savings enables profit improvement in a tight market.
This assumption only applies to markets in which a final product or service is considered a commodity. And even commodity-type markets are being transformed by innovative organizations who find new ways to differentiate their products and services.
Markets and the businesses that comprise them are increasingly joining the “experience economy.” The experience economy is one in which consumers value how a company, brand, product or service makes them feel as their customer.
These experience-chasing consumers don’t make comparisons based on price alone. They don’t select a supplier, service provider, store, or product because it is one penny cheaper than the competition.
Instead, they value a unique feeling that they get. They want an experience that they can rave about. And social media’s ever-growing portion of what is considered “real life” only magnifies the desire for a rave-worthy experience.
Consumers want pleasant surprises. They want to feel like they got more than they paid for. They want to feel like they were treated like royalty.
Consumers want to feel like they chose an option that was better than any other option they could have had. Notice that I did not say “cheaper.” I said “better.”
Consumers don’t get those warm and fuzzy feelings from a commodity. So, product and service providers reinvent themselves to include experiences as part of what they sell.
As such, the experience economy has been transforming procurement. Procurement decisions and supplier selections now need to be made based on how positively a decision or selection affects the consumer. Sure, if two options are equivalent, low cost can be the tie-breaker. But, in many cases, the more expensive option can create a more valuable consumer experience for which the company can charge more for. So, choosing the lower cost alternative does not always equate to choosing the most profitable alternative in the experience economy.
As such, procurement professionals need to be in tune with the preferences of their organization’s customers. And they must be aligned with the overall strategy of the organization, including its marketing and sales strategy.
As you try to get in touch with your organization’s overall strategy, you may find that your organization is not a participant in the experience economy. Consider the airline industry. Anyone who has flown regularly over the past twenty years will likely agree: the airline customer experience has gone – and continues to go – downhill. And airline leadership simply does not seem to care.
I mean, airlines now have:
- Taken things that were included in their prices (e.g., ability to choose seats, ability to check bags, drinks, etc.) and made them “options” that you have to pay extra for
- Changed their aircraft configurations to allow for less room (i.e., more passengers and more money for the airlines), making it very uncomfortable to travel for even the smallest of adult humans (see this USA today article for all of the annoying statistics)
- Offshored their customer service, leading frustrated passengers to speak with customer service representatives who can’t necessarily understand or sympathize with the plight of today’s disgruntled business flyer
Despite the fact that the world is moving to the experience economy, the airline industry makes it seem like a positive experience is less important than it ever was. Do you hate certain airlines? Or, like me, virtually all airlines? Does the total airline customer experience make you hate being an airline customer?
Most businesses would never in a gazillion years allow their customers to hate doing business with them. Well, airlines can get away with it.
The consolidation in the airline industry has made it less competitive and more oligopolistic. And, on many routes, there is only one non-stop option, making it more monopolistic. Without adequate competition, a company can treat its customers like [insert the soft-serve-chocolate-ice-cream-cone-without-the-cone emoji] and stay in business.
But your employer may not be able to do that in its industry. Even if it could, your employer may never want its customers to feel as short-changed as airline customers feel.
Therefore, it is key to understand some things about the industry in which your organization operates:
- Is there competition? Or is your organization the “only game in town?”
- If there’s competition, how does your organization compete? On lowest price? On who creates the more rave-worthy consumer experience? Or something else?
- If competition is based on consumer experience, what is the target experience like for the consumer? What contributes to that experience? How can procurement decisions contribute positively to that experience? And are any procurement decisions currently being made that are contrary to that experience?
- At what stage of the experience economy transformation is your organization in? Are you moving towards making your organization, brand, product, or service more of an experience-oriented purchase for your consumers? Are you standing still? Or, worse, is your organization drifting more towards the airline mentality of “customer service” than towards being a leader in the experience economy?
As you now hopefully realize, previous years’ procurement priorities like focusing 100% on cost savings may not be appropriate in the experience economy. Hopefully, your organization is not a laggard in the experience economy.
And, hopefully, you realize what you need to change so that your procurement department can better support a rave-worthy experience for your organization’s consumers.