Upstream CX – incorporate CX in development of products and markets

Customer experience plays a crucial role in the relationship between competitive advantage and the exploration of (new) market opportunities. As organizations seek to leverage their competitive edge to enter and thrive in new markets, the quality of CX can significantly influence the success of these endeavors.

When an organization possesses a strong competitive advantage—whether through superior product offerings, technological innovation, or cost leadership—this advantage provides a solid foundation for entering new markets. However, the ability to effectively capitalize on these new opportunities often hinges on how well the organization can deliver a compelling customer experience in these markets.?

CX as a Differentiator in New Markets

In new markets, customers may be unfamiliar with the organizations brand or products. Here, CX becomes a key differentiator that can amplify the organizations competitive advantage. Please also read my article about how CX drives competitive advantage for organizations . A positive and memorable customer experience can accelerate brand adoption, build customer loyalty, and generate word-of-mouth referrals, all of which are critical for success in new markets. Conversely, if the CX fails to meet expectations, the competitive advantage may be undermined, limiting the organizations’ ability to gain a foothold in the market.

Upstream CX

But CX is not just a tool for improving interactions at the point of sale or customer service; it can also play a pivotal role in guiding the upstream development of products and services. By integrating CX insights early in the product development process, organizations can create offerings that are more closely aligned with customer needs, expectations, and preferences, ultimately leading to greater market success (Meyer & Schwager, 2007).?

One of the key ways CX can influence upstream development is through the incorporation of customer feedback into the design and innovation process. By systematically collecting and analyzing feedback from various touchpoints—such as surveys, reviews, social media, and customer support interactions—organizations can identify common pain points, unmet needs, and emerging trends (Klaus & Maklan, 2013). This customer-centric approach ensures that product development teams are focused on solving real problems that matter to customers, rather than merely responding to internal assumptions or industry trends (Urban & Hauser, 1993).

In January this year (2024) I wrote an article about the granularity of CX . In this article I briefly touched upon upstream CX and the importance to see CX as a multidimensional construct that is more than touchpoints and interactions. It spans across downstream CX with Marketing and Service, all the way up to propositions and product innovation. See below (fig. 1) the figure I introduced that time.

CX also fosters customer-centric innovation by encouraging organizations to think beyond traditional product features and focus on the overall experience. This involves considering how a product or service fits into the broader customer journey, including how it is discovered, purchased, used, and supported (Teixeira, Patrício, Nunes, Nobrega, Fisk, & Constantine, 2012). By understanding these touchpoints, organizations can innovate in ways that enhance the entire experience, such as by simplifying onboarding processes, adding intuitive features, or providing seamless integrations with other products (Norton & Pine, 2013).

Early-stage product development can greatly benefit from prototyping and testing that involves real customers. By engaging customers in the development phase—through focus groups, beta testing, or co-creation workshops—organizations can gather valuable insights into how customers interact with a product and where there may be opportunities for improvement (Von Hippel, 2005). This iterative process helps ensure that the final product is well-tuned to customer expectations, reducing the risk of costly redesigns or market failures (Chesbrough, 2003).

Aligning Product Development with Customer Journeys

Another important aspect of leveraging CX upstream is aligning product development with the different stages of the customer journey. For instance, understanding how customers research products, make purchasing decisions, and seek post-purchase support can inform the design of features that make the product more attractive, easier to use, and better supported (Rawson, Duncan, & Jones, 2013). This alignment not only enhances the product itself but also strengthens the overall brand experience, leading to higher customer satisfaction and loyalty (Verhoef, Lemon, Parasuraman, Roggeveen, Tsiros, & Schlesinger, 2009).?

In highly competitive markets, CX can be the differentiator that sets a product or service apart from the competition. By embedding experience design into the product development process, organizations can create offerings that stand out not just for their functionality but for the superior experience they deliver (Pine & Gilmore, 1998). This might involve designing products that are more intuitive, more personalized, or that provide a seamless interaction across multiple devices and platforms (Prahalad & Ramaswamy, 2004). Such differentiation can be a powerful driver of competitive advantage (Klaus & Maklan, 2013).

Finally, integrating CX into upstream development establishes continuous feedback loops that allow for ongoing improvement of products and services. As customers interact with the product, their experiences generate valuable data that can inform future iterations (Reichheld, 2003). This feedback loop ensures that the product evolves in response to changing customer needs and preferences, keeping it relevant and competitive over time (Teece, Pisano, & Shuen, 1997).

Develop a CX Strategy for new and existing Markets

Developing a CX strategy that effectively integrates into upstream product and service development is crucial for sustaining market relevance and achieving long-term success. However, the approach to CX strategy can vary significantly depending on the market context and the organization’s objectives.

To assist organizations in navigating these strategic decisions, the following 2x2 matrix (fig. 2) provides a framework for developing an upstream CX strategy. This matrix categorizes potential strategies based on two key dimensions: the focus on new versus existing markets and the emphasis on innovation versus refinement. By analyzing these dimensions, organizations can identify the most effective approach to enhancing their products and services in alignment with customer needs and determining the most appropriate CX strategy based on market focus and the type of development organizations are aiming for.

The matrix offers four distinct strategic options:?

Customer-Centric Innovation (Unmet needs in new markets)

This quadrant emphasizes the development of new products or services that address unmet needs in emerging markets. It is ideal for organizations looking to explore new opportunities through groundbreaking innovations that resonate with customers.?

Experience Design?(Enhancing existing products in new markets)

This strategy focuses on enhancing the customer experience of existing products as they are introduced to new markets. By tailoring offerings to meet local preferences and expectations, organizations can ensure successful market entry and growth.?

Market Research & Testing (Validating concepts in existing markets)

In this quadrant, the emphasis is on validating new concepts and refining products through rigorous market research and customer feedback in established markets. This approach minimizes risk and ensures alignment with customer expectations before full-scale launch.?

Continuous Feedback Loops (Iterating and improving in existing markets)

This strategy involves ongoing iteration and improvement of products or services in existing markets, driven by continuous customer feedback. It is essential for maintaining a competitive edge and ensuring customer satisfaction over time.

Wrapping up

Forward-thinking companies are beginning to recognize that CX isn’t just a reactive measure but a proactive strategy that drives innovation and market leadership. By embedding CX into the development process, organizations gain invaluable insights that help them anticipate customer needs and differentiate their offerings in a crowded marketplace. This shift is becoming a cornerstone of competitive advantage, enabling organizations to not only meet customer expectations but exceed them in ways that competitors can’t easily replicate. As a result, those who embrace CX as a core element of their development strategy are positioning themselves to lead in an increasingly customer-driven world. See also see my previous article about CX as a competitive differentiator.

Incorporating CX into the upstream development of products and services enables organizations to create offerings that are more aligned with customer needs, more innovative, and more likely to succeed in the market. By prioritizing customer feedback, engaging in customer-centric innovation, and continuously refining products based on real-world experiences, companies can enhance both the product itself and the overall customer experience, driving long-term success and differentiation.

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References

• Chesbrough, H. (2003).?Open innovation: The new imperative for creating and profiting from technology. Harvard Business School Press.
• Klaus, P., & Maklan, S. (2013). Towards a better measure of customer experience.?International Journal of Market Research, 55(2), 227-246.
• Meyer, C., & Schwager, A. (2007). Understanding customer experience.?Harvard Business Review, 85(2), 116-126.
• Norton, D. W., & Pine, B. J. (2013). Using the customer journey to road test and refine the business model.?Strategy & Leadership, 41(2), 12-17.
• Pine, B. J., & Gilmore, J. H. (1998). Welcome to the experience economy.?Harvard Business Review, 76(4), 97-105.
• Prahalad, C. K., & Ramaswamy, V. (2004). Co-creation experiences: The next practice in value creation.?Journal of Interactive Marketing, 18(3), 5-14.
• Rawson, A., Duncan, E., & Jones, C. (2013). The truth about customer experience.?Harvard Business Review, 91(9), 90-98.
• Reichheld, F. F. (2003). The one number you need to grow.?Harvard Business Review, 81(12), 46-55.
• Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management.?Strategic Management Journal, 18(7), 509-533.
• Teixeira, J., Patrício, L., Nunes, N. J., Nobrega, L., Fisk, R. P., & Constantine, L. (2012). Customer experience modeling: From customer experience to service design.?Journal of Service Management, 23(3), 362-376.
• Urban, G. L., & Hauser, J. R. (1993).?Design and marketing of new products?(2nd ed.). Prentice Hall.
• Von Hippel, E. (2005).?Democratizing innovation. MIT Press.
• Verhoef, P. C., Lemon, K. N., Parasuraman, A., Roggeveen, A., Tsiros, M., & Schlesinger, L. A. (2009). Customer experience creation: Determinants, dynamics and management strategies.?Journal of Retailing, 85(1), 31-41.