Understanding the Why of your Customers

The ultimate ‘why’ and ‘how’ for businesses to understanding their ideal customers.?

Google Glass started life in secret development in 2010 and was officially announced in April 2012. By spring 2013, Google had created 8,000 prototypes to sell to Google I/O developers for a steep price of $1,500. It would take another year before the public would be able to buy a pair, but it didn’t really matter — the fate of this otherwise innovative product had been unfortunately sealed by then. Ignoring all the early signs, Google Glass was launched for general sale in May 2014. By January 2015, in less than 9 months, Google had pulled it off the market.?Why was it such a spectacular failure?

Applying the?‘Jobs to be Done’ theory, what did Google Glass do for customers? Google also failed to consider that the product’s “jobs to be done” were very well addressed by smartphones, so Google Glass would naturally struggle to fit into consumers’ lives. Would it then replace smartphones, or be a complementary product? Clearly, it wasn’t thought through. This led to the product failure on a mass consumer scale. However, Google Glass?does?still exist?and is used in niche environments and applications. It works exceptionally well in situations where a user’s hands are occupied or too dirty to use a smartphone, or where augmented real-time information is useful, for example in healthcare and manufacturing.

Ultimately, there are many overt reasons why Google Glass failed its initial public launch in 2014. Perhaps the most important factor underlying its mass consumer failure was that Google had assumed it to have great product-market fit. That assumption was based on an erroneous understanding of ideal customer needs and expectations.

Who?are your customers?

Who?should?they be?

What are their?expectations?and?needs?

How should you?segment?your market?

Surprisingly, understanding who our customers are is a fundamental challenge still faced by many organizations. While we intuitively know that understanding customer needs is critical for things like innovation and go-to-market success, many organizations still lack a consistent and successful strategy to uncover, define, design for, and fulfill customer needs.

Many organizations simply make assumptions based on historical precedence, habit, or sales trends in the market. Others indulge in shifting market messaging from being product-centric to being more customer-centric, hoping for a new resonance. Many also indulge in quantitative research that provide hard data on consumer behavior — the trouble is,?quantitative data can only tell you?what’s?happening; it can’t help in explaining?why?things are happening the way they are, and therefore,?who?those customers (or others like them) might be.

Understanding the?Why?of your Customers

It often seems more like an art rather than science to truly understand your customers, their needs, expectations, and to be able to classify them into commercially viable segments.

It involves?both?quantitative and qualitative methods of analysis across multiple domains and touchpoints.?

Quantitative methods most often involve data gathering and statistics to identify patterns or trends. Market research, for example, is a common way of gathering such data. This method can provide you with numerical information that can help determine whether your product offering is doing well or not. For example, if 90% of first-time subscribers renew their subscription, this can be deemed as an indicator of good performance.

However, if the business would like to know?why?customers renew their subscription, then how do we approach this?

Enter the qualitative method, which helps businesses to understand their customers’?decision-making?process.

Qualitative methods of research enable businesses to understand their customers at a deeper level, for example, by observation of behaviour, or capturing verbatim customer interactions and analyzing those elements that especially don’t gel with quantitative results. A business can gather reviews from their customers or analyze past complaints and develop case studies to get a sense of why customers purchase their products (or don’t) and what they love (or hate) about it. Other qualitative methods include capturing feedback after successful and unsuccessful sales calls or tracking social media sentiment. Such qualitative methods can also help businesses to be more aware of their competitors – are customers moving away from them to competitors and if so,?why.

Another relatively new field of qualitative research is known as “valuegraphics”.

Valuegraphics is a term coined by?David Allison?and is a way of classifying segments of consumers based on 56 unique?global values.?These values are based on millions of surveys that have been conducted all over the world to identify values that are shared?across?groups of people, showing us that we are a lot closer than we would expect in terms of our passions and human values, even across age groups, income status, or gender. These human values then enable predictive insights for businesses in a much better way than simply demographics as?some studies?have shown.

As consumer needs and behavior change constantly, utilizing both quantitative and qualitative methods — allowing them to complement one another — is often the best approach to understanding not just?who?your customers are, but more importantly, the?why?of their decision-making.

Identifying Customer Segments and Needs Especially in New Markets

A few years back, a?Deloitte?research showed that?customer-centric companies were 60% more profitable than others. The most customer-centric businesses not only identify their ideal customers but also grasp their desires, needs, perceived value of products and services?and?how all these change over time.?According to?Forrester, high-growth companies are 2.5 times more likely to focus on solving customer problems than their competitors.?Achieving commercial excellence necessitates careful analysis to determine the true nature, needs and expectations of your customers.

Rolls-Royce?understands that its target market is extremely exclusive and niche and thus refrains from advertising on prime-time TV like Toyota.

They instead focus on exceptional customer service to their customers, the latter becoming brand ambassadors and providing word-of-mouth marketing to like-minded high net worth connections in the industry.

Meanwhile,?Canada Goose?offers “Cold Rooms”, small temperature-controlled, and in-store facilities designed to help customers test its products before buying them.

These “Cold Rooms” have turned some stores into interactive museums, resulting in increased loyalty and revenues during the pandemic despite its stores being closed.

McDonald’s?has had a resurgence in recent years by switching to cool, self-ordering touchscreens (which customers very much prefer instead of waiting in long queues).

They have also introduced healthier meat (and even non-meat!) options, as well as doubling down on localization of menu items, catering to wider customer segments.

Remember, your customers are not just whoever is willing to pay for your products. They are much?more?than that.

By delving into customer needs, wants, and behaviors, businesses can identify unmet needs and pain points, allowing for tailored products and services that appeal to the highest willingness-to-pay (WTP) customers.

Understandably, this is particularly difficult to do if you are entering a new market or trying to innovate to launch new products and services for your business.

At CEP, one of the paradigms we use with clients in such situations is the?Innovation Stage Gate?framework.

The Innovation Stage Gate framework is a structured approach that breaks down the product innovation and development process into a series of stages or gates. Each gate serves as a critical decision point in which the project’s progress is evaluated, and decisions are made to either advance, revise, or halt the project. This framework promotes internal cross-functional collaboration, risk assessment, and strategic alignment, ensuring that resources are invested wisely. The Innovation Stage Gate framework is a proven methodology that empowers businesses to streamline the product innovation and development process, minimize risks, and maximize the chances of success.?

Most importantly, from an external (customer-centric) perspective, this is achieved through the validation of ideal customer segments, and gathering data and feedback on whether specific needs and wants are being met, diligent market testing, and establishing customer WTP. This is a highly data-driven approach to decision-making that leverages both quantitative and qualitative methods to drive the product development journey.

And when it comes to customer segmentation and innovation, another tool we use — which could be even more helpful than Stage Gate?— are the?Value Curves from the Blue Ocean Strategy framework.?

This tool plots out a visual graph of what customers value and their perception of the performance of existing solutions in the market.?It is used to visually represent how a company’s offering (product or service) compares to that of its competitors across different dimensions that are important to customers. These dimensions, also known as value elements, can include attributes such as price, quality, convenience, speed, features, and more.?From this tool we can do a gap analysis to better align or create our offers so that they meet customer needs.?

Get in touch with us to see how we could help you in a similar way with your product innovation efforts.?At CEP, we are passionate about helping our clients embrace customer-centricity and commercial excellence. By prioritizing your customers’ perspective and leveraging strategy fundamentals with the right frameworks, we can facilitate the identification of target customers and their needs, and pave the way for sustained profitability and competitive advantage in the market.

3 Examples of Companies that Understood Customer Needs

We like to showcase real-world examples of companies that have achieved commercial excellence through customer centricity. In this case, these are companies who have done so by having determined?who?their ideal customers are and what their specific needs are, sometimes even before customers know it themselves!?Here they are:

1. Apple

Unlike the case of Google and the Google Glass, Apple’s launch of its flagship tablet, the iPad, was a success story. At the time, the market was already familiar with two categories of devices, each distinct from the other – smartphones and laptops. How then, did Apple successfully shape consumer perceptions and cultivated a need for a third category i.e., tablets? Sure, there were tablets before, but none reached such success like the iPad.?The iPad’s success is so much so that in today’s world, a tablet is often synonymous with an iPad.?

Steve Jobs said it best:?“If there’s going to be a third category of device it’s going to have to be better at these kinds of tasks than a laptop or a smartphone, otherwise it has no reason for being.”

In short, the iPad was able to provide added value to smartphone and laptop owners for it to successfully be an “in-between” device. The iPad presented itself to a market that was already affluent with the workings of smartphones and laptops, both capable of being mobile, powerful, and efficient in its battery use. Complemented by technology that made it viable, the iPad’s value proposition was simple – light enough to be carried around, bigger than smartphones which enables better browsing, and long battery life. The iPad knew what it wanted to be – a device that is?“more intimate than a laptop, and so much more capable than a smartphone”. Thus, the iPad is an excellent example of a product that not only understood the market, but was also able to?create a perceived need?in the market, a testament of Apple’s customer-centricity.

2. Root Insurance Company

Founded in 2015, the online auto insurance company Root was able to innovate and succeed in a saturated market by being customer-centric and knowing?who?their ideal customers ought to be and how best to serve their specific needs.

In an industry notorious for being frowned upon by consumers, Root’s customer-centricity has resulted in happier customers as the company prefers to cover only good drivers and rewarding their good driving by cutting their premiums, often by half! This results in the company able to provide insurance policies that are significantly cheaper than more established insurance companies. Root identifies good drivers by having them install their app first, which will measure the driver’s behaviors such as speed, times of day driven, and braking force. Once determined to be a good driver, only then will Root provide a policy. In addition, Root also provides roadside assistance with every policy. All of this done of course, via the user-friendly app.

By 2023, Root has grown to over 200,000 policies, translating to over $600 million in cash and cash equivalents to the company.?Root’s success lies in knowing?who?their ideal customers are and the?why: good drivers who seek an easier and more fair way of getting insurance. This in turn, benefits both parties – good drivers obtain an insurance policy that is cheap and has plenty of benefits, while Root can continue being risk-averse in their business model (covering only less-risky drivers) and delivering customer-centric services to their customers such as cheap policies, extra perks, and technology-focused services.?

3. Imperfect Foods

Do you care that your apple has a small dent or imperfection on it?

Like you, it turns out hundreds of thousands of other people also do not. This was the basis of Imperfect Foods and its unique business model. The company sells produce items deemed too “ugly” for grocery stores to showcase (because ugly does not mean not fresh!). The company also took advantage of the surging demand for online grocery shopping, which was propelled by the pandemic, with a twist.

Imperfect Foods’ success is a great example of a customer-centric company that uncovered an undefined market segment of consumers. Imperfect Foods was able to follow a simple formula: cater to that segment of customers who demand online groceries while seeking to reduce waste, be more sustainable, and would like competitive prices. The company stands by the identity of being a sustainability-focused online grocer. Buyers of produce from Imperfect Foods have acknowledged that they have felt good about contributing to the circular economy and reducing wastage i.e. they have felt good about themselves as a result. As a result of knowing these specific needs of the segment (i.e. the?who?and?why?of their customers), Imperfect Foods’ unique business model has put them on track to achieving $1 billion in sales by 2024.?

This article was written by?Vimal Kumar Rai, Managing Partner, and is also available on?Commercial Excellence Partners' site.

Commercial Excellence Partners is an expert network of highly experienced commercial and industry leaders that work together to help clients solve their commercial excellence challenges. Our shared methodology puts our client’s customers at the heart of all we do when advising on customer/market insights, commercial strategy, competitive positioning and communication, marketing and sales pipeline alignment, and skills and culture development that lead to customer success.

Whether you’re looking to increase market share, launch a new product, or drive customer loyalty, we can help.

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