bentleystrategy.com

Customer Intelligence Needs a Seat at the Table

Customer data is often treated as a support function rather than a strategic one. Why customer intelligence belongs at the center of every major business decision, and what it looks like when it finally gets there.

There's a version of this story where it's simple: when a company ignores customer data, it pays the price. But that's not quite what happened, and the real version is more useful.

In 2013, I was part of the Xbox team at Microsoft during the launch of the Xbox One. The stakes were enormous. Xbox and PlayStation were releasing powerful new consoles just one week apart, and winning the first holiday season was widely believed to be the key to sustained adoption.

Our team did what good marketing organizations do. We dug into the customer data, and two things became clear quickly:

First, hardcore gamers play. A lot. Top customers averaged over eight hours a day. And before you picture a basement-dwelling teenager, many of these people make a living creating content on YouTube and Twitch.

Second, and more importantly: top console buyers skewed lower income than leadership assumed. For a significant portion of our core customer base, an extra $100 wasn't a trivial amount. It represented two to four weeks of additional saving at minimum wage.

We brought those findings forward. The concerns were raised with leadership. And this is where the story gets more complicated than "they ignored the data."

The real problem was structural

Xbox One launched at $499, which was $100 more than PS4, partly because the console was bundled with Kinect, Microsoft's motion-sensing camera. Kinect was a significant corporate strategic bet: the vision of Xbox as a full living room entertainment platform, not just a gaming console. It was a bold idea, and it had serious internal momentum.

But here's what the data also showed, and what anyone who knew the hardcore gamer already knew instinctively: that customer didn't want Kinect. They wanted to play Call of Duty. We were effectively telling our most important early adopters, the people you need to buy at launch, "you have to pay more for hardware you don't want, or wait."

That's a classic case of corporate strategy dictating customer strategy. I believe it should work the other way around.

To be fair to leadership: the business case for the alternative was brutal and in no way certain. Imagine walking into a CFO's office and saying: "We need to price lower and take a significant revenue hit in year one, and while it should pay off, the break-even point is two to three years out. Oh, and by the time it does, you and I may be fired." The career risk for the executive who champions that position is significant.

That's not an excuse. It's context that every CMO who has ever tried to advocate for the customer inside a large organization will immediately recognize.

PS4 outsold Xbox nearly two-to-one in the months following launch. Microsoft cut the price, dropping Kinect from the bundle, about six months later. It took roughly a year to get back into contention in the US, and Sony never relinquished the overall lead. Over the full console generation, PS4 outsold Xbox One by more than two-to-one.

It wasn't the first time this happened in the industry, either. In 1995, Sega launched the Saturn at $399. Sony walked onto the E3 stage, said "$299," and walked off. Sega never recovered. PlayStation dominated that generation, and Sega never released another home console. Similar situation, one generation earlier.

The principle I carry from this

I don't believe customer intelligence needs to win every argument. Some of the most important decisions in business history, the iPod and Just Do It, came from inspiration and conviction, not market research. Customer myopia is a real risk too. And there's enormous value in studying adjacent industries, not just your own customers.

But customer intelligence needs to be in the room and have a voice. It needs to genuinely inform strategic decisions, and in many cases drive them. And when a major decision is made without it, or over it, leaders should at least be self-aware enough to call it what it is: a strategic bet, not a certainty.

The Xbox One situation wasn't a bold, eyes-open bet. Nobody stood up and said: "We know our core customer is price-sensitive. We know they don't want Kinect. We're making this call anyway because we believe the long-term platform strategy justifies the short-term risk." That decision would have had more legitimacy.

Instead, the data just wasn't given enough weight to truly influence the decision.

Next time you are discussing a major strategy decision, look around the table, ask who is representing customer intelligence, and make sure they speak up.