Customers are the magic ingredient for any successful business. A business cannot survive without customers. Despite the obvious importance of the customer, it’s common for businesses to have a hazy picture of their customers. For starters, they don’t really understand why a customer bought from them. Customers buy a product or a service for a variety of reasons. It could be due to superior quality. Or great pricing. Or because the price-quality equation appeals to the customer. It could be due to a long-standing relationship between buyer and seller. Or that it’s geographically close to the customer and its cheaper.Or they are more comfortable buying from a supplier located closer. Often, and worryingly, it is due to habit. It becomes a routine to buy a certain product from a certain supplier. There are a wide set of determinants of customer choice. Many businesses can’t pinpoint why a majority of their customers buy from them. Or at least don’t have answers backed up by data. Sure, they’ll have hunches. Those can be far from the truth. If businesses don’t understand their customers, it’s unlikely that they’ll have a long-term competitive advantage.
Losing touch with what the customer wants is the reason why many small and medium businesses just can’t grow beyond a point. And why some large businesses go bust. Every successful business understands their customer very well. Sometimes, they understand them so well that they even anticipate an unarticulated demand. Before 2007, few customers would have agreed if you told them that they needed a touch screen phone. Barely 13 years later, it seems almost silly to waste screen space for a physical keyboard.
Why do businesses stop understanding their customers? Needless to say, they don’t mean to. It’s just something that happens over a period. When a business is small, every little requirement of the customer is well understood. When a business starts growing bigger it becomes increasingly difficult to understand customer requirements. There are more customers and many more customer touch points. So, customer insights become more difficult to collate and make sense of. All companies start by creating products or services which they think or know will appeal to a limited set of customers. The product or service is built around the customers need. Once that product or service sees success, then that strong customer relationship often suffers.
In most cases, the business decides that it needs to grow quickly on the back of this successful product. It introduces a whole new range of products or product variants of the successful product. They hope that the availability of a wide variety of products and services will at least appeal to some customers. Their answer to the question “Who is your ideal customer” is “Everyone!”And will be enough for them to make good revenues and eventually profits. Within a band, that can work. Maruti, for instance, saw great success when they had cars which were targeted at the budget buyer. But with the slightly premium segments, penetration took a long time. Even when they introduced expensive imported models. Remember the Kizashi Sedan? They weren’t many takers for an uber exclusive limited numbers sedan from the same place selling cheap hatchbacks. Only after they’ve separated distribution under NEXA cars have they started to taste success with premium cars. NEXA is now the third largest automobile retail brand in the country. All of Maruti’s premium offerings are sold through this channel and with this branding. And Maruti is careful not to associate the parent brand with the NEXA brand.
The problem with trying to serve everyone is that you land up serving no one. The clients and customers who would value your product or service the most, are forced to wade through a confusing array of products before they get what they want. Even if the product categories are low, companies need to keep understanding customer requirements. Requirements aren’t static and companies need to make sure that they keep understanding the changing customer needs.
So, what’s the alternative?
Know your customer intimately. That means understanding why they buy your product over competition. Understanding what product attribute changes will make them love your product even more. Understanding the drivers of a purchase decision. What are the key requirements of a client that your product meets? Price? Availability? Eco-friendliness?
The other aspect is having a tightly defined product or service. Don’t go offering anything and everything to everyone. That means you say no to some customers, either because you don’t have the right product or because they are not the right customer for you. The customer might not offer you long-term value or simply not be profitable to work with. Having a tightly defined offering requires courage. There’s the risk that the product doesn’t click. Yet, in that case, modify your product or service attributes. And once you’ve decided, don’t hedge. Apple could easily have many different variants of the iPhone. Instead, they choose to place their bets on 1 model at any point in time.
All this doesn’t mean that you don’t innovateandsay no to everything that doesn’t fit your tightly defined product. You should never keep your eyes closed to product innovations. Steve Jobs called the Corning CEO six months before the first iPhone launch in 2007. He wanted a scratch and crack resistant screen. Corning delivered. They saw a valuable customer and the potential in a new product. And they were right. Gorilla Glass has been used to cover more than 7 billion touchscreen phones by 40 different manufacturers.
How do you do it?
It’s tough collecting customer insights and making sense of them. So, the entire process needs to be formalized. Everyone in the organization should be involved in collating customer insights. There should be systems and processes in place to collect customer data. And a formal process to make sense of those insights.
Closing thoughts
There are plenty of businesses which do decently well without laser focused product offerings and selling to whoever is willing to buy from them. Yet, to go to the next level, those businesses need to start reducing their product range and tightly defining their customer. And even go as far are ‘firing’ existing customers. That will help them grow into a larger business. And more importantly keep you happier. We have a set amount of resources. With a sharp product and customer definition, you’ll have more time to spend on your other pursuits. While your business growth increases exponentially.
