"The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself." | ||
| --Peter Drucker | ||
How is it that some companies seem to continually innovate and develop products that delight us? Why is it that they seem to know what it is that we need before even we do? How do they create products that we would never give up—even though they didn't even exist a mere five or ten years ago—so much so that some people would rather give up "intimate relations" than be without them?
The answer is grounded in a deep-rooted understanding of the customer and those customers' current and future needs. It's the ability to know your customers so well that you are aware of the problems they face and can anticipate their behavior in response to multiple situations. Successful companies develop a holistic view of the customer, and partnered with an understanding of technology to address their customer's problems develop new products or services that the customers gravitate to, and most importantly pay for. Understanding the Voice of the Customer (VoC) will not only let you understand how to build products that customers will buy, but will also let you create products and services that will delight your customers and solve their most pressing needs.
Innovation and new product development are, it can be argued, the lifeblood of a healthy organization. Without new products or markets, modern corporations face declining market share and ultimate death. Years ago, the concepts of cost cutting and value engineering drove many organizations to focus on driving out costs in current products at the expense of new product development. While this can yield some short-term advantages to the bottom line by way of cost savings, this will not help propel a company to growth and prosperity. One of the most impactful pillars of growth is a continual pipeline of new products and innovations. But even a pipeline of new products and innovations will not be enough to sustain a company unless those products can provide enough value for customers to buy them.
Until the 1980s, new product development was seen as the domain of scientists and engineers. It was these individuals, with their backgrounds in technology and science, who were seen as the stewards of seeing what is next and were given the responsibility of creating new and innovative products and technologies that would entice customers. Their new ideas would be developed into products and then thrown over the wall for marketing and sales. They would then be expected to create the demand and, ultimately, the orders for these new products which customers neither requested nor necessarily needed.
This philosophy of creating technological innovations driven by the engineering department instead of customer needs accounts for much of the reason so many products have been unsuccessful at launch. New products (products that have been on the market for three years or less) currently account for 25-30% of a healthy company's yearly sales, but many new products do not enjoy commercial success. According to a research study performed by the American Productivity and Quality Center (APQC), just 53.2% of businesses' new product development projects achieve their financial objectives and only 44.4% are launched on time. Even more alarming, according to the Product Development and Management Association (PDMA), only one out of nine new product concepts becomes a commercial success, 40% of new products fail at launch, 46% of the company's resources spent on New Product Development (NPD) go toward unsuccessful ventures, and 44% of a company's development projects fail to meet their internal profit objectives.
There are many reasons why products do not enjoy market success. Sometimes it is because the product has had technical difficulties, which compromised its success. Sometimes it is because the product is not positioned in the market correctly and the price is in conflict with the value proposition. Often, it is because the product does not meet the market window, and competitive products get to enjoy a first mover advantage.
There are a number of key things to avoid when developing new products to minimize the potential of failure:
Guessing: Making the assumption that the company employees actually know more about what customers will buy than the customers themselves
Extrapolating: Basing products and services on what current customers request rather than an understanding of unsolved needs that the larger market would gladly pay you money to address
Spinning: Developing a product that does not really solve a customer need, but your organization attempts to create a need in the marketplace by investing in large upfront advertising budgets and armies of salespeople to deliver your message
Too many companies try to develop a product using information found solely within the walls of the organization. Either from the marketing expert who claims to know customers better than they do themselves, the executive who deems that we must create this new product because he/she knows best, or the product based on customer feedback that is delivered through the salesperson without a view of the entire market. The main reason new products are not successful is because the companies did not have a clear view of who their customers were and/or what their customers want and need, as well as their willingness to pay for those wants and needs.
There are a multitude of products introduced every year to the market that are me too products, or products that have simple incremental benefits to the customers. Some recognizable ones are the Microsoft Zune or the Blackberry 10, which were nothing more than incremental products versus the iPod and iPhone/Android phone. We also see examples of products that were obviously driven by engineers, developers, or the marketing department in the organization, such as many of the financial products offered by banks and brokerages, which are very confusing and customer unfriendly. Products can also be driven from the top down because management or the founder thought it would revolutionize the world, which was the vision for the Segway. Such products are destined to a niche or non-existent market. And too often, products are driven by one customer without any consideration to the larger market or non-customers who could provide much more revenue to the company offering the products. More often than not, these products are developed, launched, and go through their short life in search of a market.
New products that offer unique benefits and superior value to customers result in a successful product more than any other single factor. These products typically have four times the market share and four times the profitability of products that are undifferentiated from the rest of the market. As at least one study has shown, successful products have most, if not all, the following characteristics:
A link to what the customer perceives as a main benefit
Offers new and unique benefits over other products in the market
Perceived to be a better value for the customer than other products
Superior in meeting customer needs
Superior quality as defined by the customer
All of these attributes of successful products share one key element in common. These are attributes as defined by the customer or the user, not by the engineering or RnD departments. A thorough understanding of the customer's needs and wants, as defined by the customer, with an eye toward the internal capabilities, competition, and nature of the market is what will define product success. Conversely, failing to understand the competitiveness of a market, your own development expertise, an unwillingness to understand the market, and, most critically, leaving the customer out of the product development process will spell certain failure. In more than 75% of product development projects, market studies are not performed at all, and the task that should be driving the future product definition, the marketing and customer analysis, account for less than 20% of the project, leading to multiple product failures.
Everyone who has studied marketing in the last 50 years has been introduced to the Four Ps of Marketing. It was E. Jerome McCarthy who originally developed the mnemonic which acts as a functional and memorable classification system of the various elements of marketing. Originally, McCarthy defined the marketing mix as a combination of controllable factors at a marketer's command to satisfy a target market. Under the previous marketing model, we sold what we made or produced. Under the new model, we must sell what the customer wants. The old marketing mix looked at the 4Ps of marketing—product, price, place, and promotion. Whether you are thinking of setting up, starting, or expanding your business or selling any product or service, these four elements still need to be at the top of your mind all the time.
The first P is Product. This is what you are selling, whether it is an automobile, software program, diaper, or a service. But it is not just the product or service itself that is included in the product. It also includes the varieties of your product, the quality of your product, how it is designed, packaged, and branded. Anything that adds value to your product and any reason the customer may wish to buy your good or service is part of the product. This consideration must not be underestimated.
The next one is Price, exactly how much you are going to charge for your goods or service. You may believe this is merely the amount you charge customers to purchase it. While this is a key component, the price also includes the MSRP, wholesale price, volume discounts, special offers, incentives, payment plans, and credit terms. In short, it is anything remotely related to the money involved in this transaction.
The third one is Promotion. This is what most people think of when they think of marketing. Promotion includes advertising, the website and landing pages, direct mail and catalogs, e-mails and newsletters, selling, sales promotion, public relations, sponsorships, sales calls, brochures, inside sales, and many other aspects. All are parts of the promotion bucket.
The final P is Place. Place is also known as distribution. How do your clients find your product and where do you sell your product? Is it delivered to their door, is it in a retail store, or do they download it from your website? Place also includes the logistics for each of these things. If your product is sold in a retail store, how did it get there? How many of them are there? How soon do they need more inventory? Everything you need to consider in getting your product to your customer or to a place where your customer can find it is part of place.
It is not enough to define your product, place, price, and promotion unless you also understand whom you are selling to. Customer segmentation and defining your target market will be discussed in more detail in Chapter 3, Laying the Groundwork, but for now, it is enough to understand that the target customer is a critical part of any marketing mix. If my company were selling baby diapers, it would not matter how good my diapers were, how they were priced, where I sold them, or how much money I spent on promotion if my market was single people with no children.
And this is why the fifth P is so important. While many have suggested a fifth P in the past as a part of the marketing mix for such elements as People and Process, I believe a different P is required as so many products seem to ignore a key attribute for product success. I believe the fifth P of marketing should be Problem, and it refers to how well your goods or service can actually solve a target customer's problem or meet the need they have. How many times have you seen a new product hit the market and wondered just who would buy this and why? Without an understanding of your customers, their problems, and how your product can address those problems, you will be rolling the dice with your company's money with each new product release.
And when I speak of customers' problems, I am not just referring to the problems they tell you about or the shortcomings they find with your products or your competitors' products. I am referring to the entire scope of potential problems the customer has and how your offering (which includes your goods or service, as well as distribution channel, website, method of promotion, sales process, customer support, and others) can help solve those spoken, as well as unspoken needs. The following are some obvious ways you can solve your customers' problems with your offering:
Making their life easier
Making them more efficient at their job
Overcoming the issues they have in finding the products they need
Resolving the difficulties they have in purchasing the products they need
Reducing their total costs
Giving them more free time
Eliminating waste
Providing them joy
It is through VoC that you will begin to understand the fifth P, the problems a customer faces and how you can create a meaningful solution to their needs. In a simple way, a well-executed VoC initiative will allow you to provide a solution to the customer's needs (even if he doesn't know it yet) and allow him to buy it in the way he wishes. And how well you can solve the customer's problems will be directly related to the value they will perceive as a result of buying your product or service.
Many may say that asking customers about product decisions is a waste of time and money, and argue that customers are not able to tell you what they want, or that they don't know what they want until they see it. They say that no customer would have told you they wanted a telephone, a microwave, or an iPad. Compounding the issue for development teams is that customers often do not know, or cannot communicate effectively, their actual needs and requirements. This is one of the major challenges facing businesses today. Because of this, businesses need to continue to find more creative methods of understanding customer requirements.
Part of the problem is that customers describe product attributes in consumer speak or customer speak while engineers and product developers talk in technical jargon which may be foreign to the consumer. If the customer says I want a better computer, are they asking for a computer with a faster processor, more memory, better memory management, a solid-state drive, increased bandwidth, or the ability to handle gaming as well as high-end business applications? If they ask for a more powerful car, do they want to go from 0 to 60 MPH in four seconds, or to have a top speed of 200 MPH, or do they just need the ability to tow a trailer?
Customers tend to talk in the language of needs, and it is our job, as product managers, engineers, or business owners, to develop the solutions to those needs. In the case of a microwave oven, customers were not asking for a microwave oven (the solution). Instead, they were saying they needed a way to heat up food quickly without drying it out and without taking the time or creating the mess to heat it on the range. As marketers, we need to get beyond the features or solutions or even specifications they ask for to understand the underlying needs they actually represent.
Ultimately, customers cannot always recognize or describe their needs in solutions or a specific set of attributes. As a result, customer needs often have to be interpreted from the raw data (but by using quotes whenever possible as they help to provide context). A customer might say they want a digital camera that is easy to use, with enough battery life to last all day, enough storage capacity to hold a full week's worth of picture shooting, the clarity to see the image on a large screen TV without being fuzzy, and the ability to do the occasional quick video. It is up to the marketing team, working with the engineering department, to define this product requirement into functional requirements, such as the number of megapixels, camera function and navigation, sensor size, battery life, composition, and so on.
While customers often cannot tell you the solution or the exact features or technical specifications they need in a new product, they are quite good at telling you their wants, needs, and the problems they are currently experiencing in their lives or work. What we need to do is to develop products inspired by customers, not designed by customers.
Sometimes, of course, there are innovations that address a customer need that customers had previously not known or been able to define, but such products end up being truly innovative and huge market successes. Twitter is one such example. However, if you uncover the thoughts behind products or services like these, you can see the customer voice loud and clear.
While all input from customers should be considered important to the business, I think it is an important exercise to describe what VoC is, and is not. VoC is not:
A sales call
An executive meeting with the customer
A discussion at a tradeshow
A random customer survey
A customer satisfaction score
Heresy from the sales team
Golf meeting with the customer
The process of identifying customer needs and requirements must be a disciplined and repeatable one. This is where many companies go wrong. Organizations that go down this path with no tools or metrics, and a consistent philosophy for collecting, analyzing, and incorporating customer feedback into products, will ultimately waste their time and will abandon future VoC initiatives.
Wikipedia defines Voice of the Customer as a market research technique that produces a set of customer wants and needs, organized into a hierarchical structure, and then prioritized in terms of relative importance and satisfaction with current alternatives. While this is an acceptable definition, Gerald Katz, in The PDMA Toolbook, perhaps offers a more complete view of Voice. Mr. Katz writes that Voice of the Customer is:
A complete set of customer wants and needs
Expressed in the customer's own language
Organized the way the customer thinks about, uses, and interacts with the product or service
Prioritized by the customer in terms of both importance and performance
When we talk about a complete set of customer wants and needs, we are referring to any number of wants, needs, and desires, not just what the customer verbalizes. We are also referring to the way the customer uses and interacts with your product and competitive products, the benefits or lack of benefits your product brings, and the unarticulated set of problem solutions that could be had if only the customer had the right product.
There is a desire on the part of developers and even product managers to translate the customer speak into their own industry or company jargon. When doing this, the possibility of unintended manipulation or misrepresentation increases dramatically. The best alternative is to maintain the customers' vernacular as much as possible and preferably use direct quotes to illustrate the customer flavor and intent whenever and wherever possible.
When defining needs from customers, it is too easy to rank the ones you deem the most valuable higher based on your knowledge of the industry or your background. Don't fall into this trap. If you genuinely wish to understand the customer's voice, have them group the needs and rank those needs into primary, secondary, and tertiary buckets, and have them prioritize the needs statements you've developed by importance (or any other variable that resonates with the customer) so you can truly understand which ones the customer is most concerned about (and most willing to pay for).
Much has been written about the customers being at the center of the business or the importance of being customer driven, and many companies have undertaken initiatives to become more customer focused. Many say that their most important job is satisfying the customer, but there is a large disconnect between the way senior managers think they are customer-centric versus the reality of how their customers actually rate them. Furthermore, the question remains that if you are only satisfying the customer, is this really enough to stop a customer from leaving for another product or company that could delight them?
Companies, whether it is through senior managers, product managers, or engineering managers, often think they know the markets and exactly what customers need. This can present a psychological barrier to unearthing the true customer needs, and often clouds the actual customer input they do receive. To become a true customer-centric organization, these barriers must be broken down and the organization must become a learning organization and invite the customer into the product development process.
The biggest factor in product launch failure to realize potential and meet the needs of the market is poor product definition. Although the best companies appear to spend more time with customers and conduct more in-depth market and customer analysis, the average time companies spend in the field is, on average, seven days. Seven days! While 70% of the product life cycle costs are determined during the product development phase, seven days is clearly not enough time to guarantee product launch success.
Companies can also fall into the converse trap of listening to their current customers and ignoring the larger market. These customer-driven organizations are actually current customer-driven organizations. Often, current customers represent a very small fraction of the total market. They tend to have different market problems than your non-customers and view the world through the eyes of your product, focusing only on incremental improvements to the way your current product performs.
Eventually, companies fall victim to taking small incremental steps to tweak features in the current offerings (because that's what the customers told them they needed) instead of taking the initiative to create new products and solutions that could solve the broader market's needs and frequently, the needs of their current customers as well. If you are only listening to the few, those that you currently do business with, you will end up creating a narrowly focused product to satisfy the needs of an ever shrinking market as the rest of the world is evolving. Eventually, you will lose many of these same customers as they migrate to the new and improved solutions offered by someone else.
Based on a number of studies, not only does a strong customer focus improve product success and profitability, it can also reduce the time to market. Market analysis and research does not add extra time, but rather it pays off with higher success rates and better time to market. Fully defining a product before engineering forces a company to commit their resources, which in turn helps the project stay on schedule, achieves better time utilization, and reduces the amount of scope creep and change of product specification. Most importantly, it is the best way to meet the needs of the market.
An additional issue that can occur is a direct result of differing pockets of knowledge. Multiple organizations within the company tend to have a differing view of the needs of the customer. Senior managers, product managers, and engineering all have a view of the customer based on their interactions and history. Unfortunately, without direct customer input, they are nothing more than opinions and hyperbole.
Based on these customer understandings, someone or some group will suggest an idea for a product and infer it would be something customers would likely desire. The idea may have come from a sales meeting, a trade show, an executive meeting, as a reaction to a competitive offering, or it could be a technology-driven product from the company's own R&D group. The likelihood is that the product will have limited success with such a narrow view of the market.
There are, however, exceptions. It has been reported, but also contested, that much of Apple's success was solely due to the vision of Steve Jobs. Whether one accepts the premise that Steve Jobs was the innovative force behind most of Apple's innovations, or whether Apple has leveraged robust customer research and traditional VoC, one thing is certain. They understood the customer and were very tuned into the needs of the marketplace, both present and future. And while Steve Jobs may have been the driving force behind most of the successful products Apple has released in the last 20 years, I would argue that there are not many Steve Jobs in this world, and few have the insights into the mind of the customer that he had.
Although one would naturally think that doing market analysis and making the necessary product decisions before launching into full-scale product development would be almost second nature to companies both large and small, most products still fail to build into the product development process, the necessary steps that will ensure that customer needs are addressed before product development begins. In a recent study, fewer than half of the development teams thoroughly understood the user's needs at the start of a full-scale development, and the primary cause of major feature changes was reported to be the late discovery of customer requirements.
So in conclusion, we have seen new product development evolve from the 1980s, where products were driven by the engineering organization, to an era where products are designed at the intersection of technology and customer need. However, many companies are still too internally focused and tend to organize around four main methods in taking products to market:
Assuming company insiders know more than the buyers about what customers want to buy. Because you are an expert in the market or industry, you know more about your buyers and how a product can solve their problem or need.
Basing products and services on what current customers request rather than an understanding of unsolved problems.
Technology-focused products.
Management "says so" products.
Many of these result in poorly defined products that miss the needs of the market, leading to many large expenses to the organization in not only lost opportunity, but also the necessity of creating a need in the marketplace by relying on expensive advertising or an army of salespeople, which results in more product failures than successes.
Companies that have taken the time to create a complete set of customer wants and needs, expressed these needs in the customers' own language, and have organized and prioritized this information consistent with the customers' thinking have been able to create goods and services that address their customers' needs before the customers even realize the need exists. These companies have enthusiastic customers, and have been wildly successful. Successful companies use VoC to get closer to their customers and understand their motivations, desires, needs, and problems.
Of course, it is not enough to collect this information from the customer. It is vitally important to take the customer's voice and inject it into your product development process so you too can create the next great breakthrough product, which is what we will be discussing in the next chapter.
