Does your company place “following the customer” at the heart of its strategy? Being customer-led is the mantra that is espoused across most businesses. However, in today’s world this is not enough. Incremental customer-led improvements no longer guarantee profit growth.
Increasingly, success only happens when the business proposition is truly distinctive. When companies test a new proposition they will ask consumers how likely they would be to buy the product or service, and how unique the new product and service is. Doug Hall, ex-P&G marketer and author of “Jump Start Your Business Brain” argues that executives pay 95% attention to the first question – likelihood to buy – and only up to 5% attention on the second question – uniqueness. Yet his research of 60 business product launches suggests that ratings of “dramatic difference” are at least as important as “likelihood to purchase” in determining product growth and share.
Distinctive businesses are also more profitable. In Blue Ocean Strategy W. Chan Kim and Renee Mauborgne studied over 100 business launches. They found that whilst only 14% of launches were truly distinctive businesses, they accounted for over 60% of the profits. But why isn’t following the customer the answer? There are three core reasons:
- Customers don’t notice incremental changes. There have been two key consumer trends over the past three decades – ever-increasing choice, and ever-decreasing time. Customers just don’t notice a new product even if it’s a slight improvement on current ones. Seth Godin, author of Permission Marketing, notes, “The leading brand has a huge advantage over the others. There may be a lot of consumers out there, but they’re busy consumers and it’s just easier to go with the winner.”
- Customers can’t predict the next big thing. Doug Atkin, of advertising agency Merkley Newman Harty says, “These days you can’t succeed as a company if you’re consumer-led – because in a world so full of so much constant change consumers can’t anticipate the next big thing.” For example, when Renault designed the Twingo in the late 80’s, they tested this innovative small car with consumers. A majority of those tested did not warm to the car, but a small minority loved it. Renault held their breath and went with the launch. The Twingo went on to be one of their greatest successes. Because it was so innovative it shocked the majority of customers who needed time to appreciate its benefits.
- Distinctive businesses have no competition. In a tight, competitive market you are likely to focus on pricing and service standards win share and beat the competition. Yet it doesn’t have to be this way. In Blue Ocean Strategy, Chan Kim and Mauborgne describe how circus companies competed on factors such as the popularity of performers and pushing aisle concession sales. In this declining market, facing huge competition from TV, cinema, and video-games, this strategy had little effect. However, when Cirque de Soleil launched in the mid-1980’s they ignored the current market and set about creating a proposition that did not involve traditional circus acts. Instead, they combined the best of the circus with a theatrical experience. The result? By 2001 the company had played to over 40m people, and they were the biggest “circus” company in the world.
The bottom line
It may seem counter-intuitive to focus distinctive innovations ahead of letting customers lead our thinking. Yet the research shows that’s exactly what companies should do. As Doug Atkins puts it, “Companies should be idea-led, and consumer-informed.” In the next newsletter, I will set out how you can achieve this change in approach.
To find out more contact Stuart by clicking here or call +44-(0)1636-526111.