During a recent discussion, a customer of one of my clients described an episode of the popular television series “House” in response to a question that I had asked. In that episode, Drs. House and Wilson had made a bet as to which could hide a chicken in the hospital for the longest time without being detected by security. A young doctor on the staff asked a colleague why each of the two senior department heads had chickens in the hospital. The answer she got was “The store only had one pig.”
The interviewee connected this story to my question about our client’s product development contributions as follows: “Every year, your client comes to us with a new release of their product, touting some new features and capabilities. We always ask them ‘Why did you do this?’ and get some sort of an answer.Now I realize their answer is the equivalent of ‘They only had one pig’. It is an answer, technically accurate, but doesn’t really address what we are asking, namely ‘What makes you think these changes will be of any value to us?’” He went on to characterize the most recent several releases of our client’s product as being totally disconnected from what they needed as a customer. His concluding comment was that “Maybe someone in your client’s engineering department thinks these are good ideas, but clearly no one has ever asked us customers if we share that opinion.”
While this executive’s perspective was a troubling message to take to this client, the truth is that their firm is far from alone in terms of investing in innovations that produce nothing but yawns on the part of customers. Several years ago, two of my colleagues cataloged the most frequent external inputs to product development as follows:
- Last Call Certainty: Ideas advanced that react to the most recent customer visit.
- Incrementalism: Ideas focused on small-step improvements to the current product.
- Technology Infatuation: Ideas surfaced by experts enamored with technology they have seen elsewhere, heard about, or personally developed.
- Copy-Cat Imitation: Ideas advanced because a competitor has gone in this direction.
- Brainstorms: Ideas advanced as a result of an inspiration.
What is unfortunately missing from this list is the recommendations of customers.
Thinking about your customers — not just your direct customer, but customers at every stage of the customer chains in which your firm participates — provides the opportunity for an approach to innovation and product development that can yield a higher payoff. As the executive quoted earlier went on to say, “We know exactly what your client should do in terms of evolving their product. And we’d be excited if they listened and took our advice. All they’ve ever needed to do was ask.” For almost every firm, this executive’s advice is correct and relevant. Customers know what innovations would be of value to them, and are almost always willing to share their ideas.
There is a systematic way to think about your customers and elicit ideas that will create value for them and lead to rewards for your firm’s shareholders. In CoDestiny, we outline three ways in which a firm can bring value to its customers: helping them to grow volume, helping them to achieve a higher price point, and helping them to “take costs out” and strengthen their bottom-line margins. These three routes to success always work, and they work when it comes to identifying innovations and new product strategies.
As an aside, these three concepts also provide a litmus test for ideas that are surfaced through traditional means, such as those that were listed above. If the idea has merit, the sponsor should be able to explain how it will help customers grow volume, reach higher price points, or take costs out of the system. If they can’t make at least one of those connections, it is the right time to bring out the caution flag. And, in those instances in which the sponsor of an idea can provide a credible explanation as to how the idea will create value along one of these three dimensions, you now have the foundations for a productive discussion with the customers who are thought to be the likely beneficiaries of the idea. More often than not, discussions with customers that are focused on the reasons why the innovation is believed to create value will yield one of two outcomes. One possibility is that you will learn that it is wishful thinking, that the customer doesn’t buy into the value calculation. It’s rarely wise to just accept that outcome and discard the idea, but it is almost always wise to hear their reasoning and objections. The second possibility is the more exciting one, when the customer agrees with the potential. In those instances, there can be incredible value from interactions that result in a “customer-written product development plan.” After all, who is better at saying what they will value then your customers?
Listening to customers is, of course, always a challenge, always with the potential for distractions and misleading messages. That reality applies to discussions about innovation and product development as well as to the other topics where conversations are important. It is critical to separate the innovations and product development contributions that genuinely create value for customers (and allow you to capture value for your own shareholders) from those that don’t. In truth, customers are often as guilty as your internal team of being swayed by interesting technology, competitor offerings, or other such factors. But when approached correctly, the potential for your customers to contribute high-value insights is great.
This week we’ll look at how you can help your clients increase sales volume. Over the next two weeks, we’ll examine helping clients reach a higher price point and helping clients cut costs.
Ideas that help your customers increase sales volume
The first means of creating value for customers involves contributions that help them increase sales volume. To get at ideas that contribute along this dimension, the focus has to be on what the customer believes is impeding their growth. Productive lines of discussion involve two routes to greater volume: taking market share and reaching “adjacent” markets.
Most customers respond to questions about how they can grow by focusing on what it will take to increase their market share, and this opportunity should never be overlooked. If a supplier can help its customers win sales against its competitors, your firm and your customer can both benefit from higher volume. If you can learn the dimensions along which your customer is viewed as inferior to its competitors, you might be able to identify contributions that can help to close that gap.
But another way of helping a customer increase volume is by helping them to identify new markets in which they can participate. Sometimes these new markets involve new geographies — entering fast-growth markets like China, India, or Brazil. It is remarkable how much of a contribution a supplier can make in this area, particularly if their customer’s entry strategy depends on understanding the peculiarities of the new country market, or if it has local-content requirements, or if new sales channels are required to reach end customers. The key thing to learn from a customer is what will have to change in order for them to be successful in a newly-targeted market. That insight can help to guide your firm’s product development plans.
New geographic markets are, however, only one option through which a supplier can work with its customers to find new sources of volume. Adjacent markets offer a similar possibility, but often require more creativity in terms of thinking. If the options were easy, the customer would probably have thought of them and already implemented them. Successful suppliers have come up with ideas in this realm by thinking of how their own products and services contribute across the customers and markets in which they are active, and then trying to spotlight lessons that can be taken to specific customers that build upon those broader lessons. Your customer is probably already thinking about adjacent markets and will likely value any insights you can bring as to how they can make the transition successfully. Bringing them ideas is a superb way to start a conversation that can lead to ideas about new product development options that will deliver value to your customer.
One firm, for example, had numerous customers that served the aftermarket in their industry with replacement parts and services. It identified other firms that only sold original equipment, and went to them with ideas about how to expand to a more complete life-cycle offering. In several instances, this idea resonated with the customer and the two firms defined product development strategies to allow entry into the customer’s aftermarket environment.
In another industry, a firm that developed a new sensor for use in highly-challenging environments involving extreme weather conditions subsequently did a systematic examination of other instances in which sensors might be subjected to demanding conditions. The project involved a combination of market research and brainstorming, resulting in the identification of nearly two dozen possibilities. They then did outreach to prospective customers, learned the issues that kept those firms awake at night, and commissioned several product development efforts to evolve the sensor’s capabilities into those application environments. Today, over 70% of the firm’s sales are in these additional markets — and the supplier who helped them reach these markets is most certainly on stable ground.
 Bruce B. Karr and Jon T. Gabrielsen, Market-Driven Product Development Strategy, Blue Canyon Partners, Inc., © 2007.
 CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, by Atlee Valentine Pope and George F. Brown, Jr., Austin, TX: Greenleaf Book Group Press, © 2010. See especially Chapter 5.