You want to grow your successful business, or maybe you’re falling behind the competition. Whether you’re a market leader or struggling to keep up, quality market insights can help improve your returns.
Do you know…
How much your customers value your products?
Why your customers value your products?
What drives the quantities they purchase?
After you answer these questions, consider whether your team would answer the same way. Every decision in your company should be aligned behind a common understanding of these business foundations – and that’s harder to accomplish than you might think.
The Business: A tier one automotive supplier was struggling to sell aluminum parts to major OEMs. The aluminum parts were more expensive than the traditional steel versions, but they offered benefits such as lighter weight and higher performance. Sales teams pitched improved fuel efficiency from the weight savings but the automakers just weren’t interested.
The Challenge: At the time, cars sold in the US were getting bigger and bigger. SUV sales were driving industry growth. The Toyota Prius was only for treehuggers. Gas was cheap so consumers didn’t care about gas mileage. Aluminum parts improved MPG, but consumers certainly weren’t willing to pay a premium for it. Automakers had no room for extra costs they couldn’t recoup in their sales price.
The Market Insight: Better MPG wasn’t a selling point, but aluminum parts have other performance benefits. Aluminum has a higher strength-to-weight ratio than steel, meaning the weight savings doesn’t compromise strength or safety. In the 1990s, Ferrari realized that using aluminum instead of steel allowed them to make larger cabins and trunks – accommodating the needs of professional athletes for more leg and headroom – and the ability to put two golf bags in the trunk. When the Ferrari Modena debuted in 2003 with an aluminum spaceframe, it boasted a 10% increase in size and a 28% reduction in weight… meaning speed and performance were actually improved. A new value proposition was born: OEMs could improve speed, performance and comfort with aluminum parts. And, those are things that many customers care about – especially in high performance and luxury vehicles.
The New Strategy: The product was the same, but the target customer and the story were different. When the sales team stopped talking to purchasing departments about improved gas mileage and started talking to high performance and luxury vehicle platform managers and designers about speed, performance and comfort, they were able to increase prices, build strategic partnerships and drive more sales.
Who Are Your Target Customers? What Benefits Do They Seek?
As the case study demonstrates, defining your target customer and the benefits they seek is fundamental. For many businesses, there is more than one person involved in the decision. Successful companies know who – specifically – values their offerings by understanding:
- Who consumes the products or services?
- Who chooses or specifies the products or services?
- Who influences the purchase?
- Which segments are most likely to value the products and services?
- How to identify customers in the most attractive segments?
Once you understand who your target customer segments are, you can specifically define how these segments benefit from your products or services over your competitors. Questions involved in this part of the analysis include:
- What specific product functionality do customers value?
- What financial benefits do customers seek?
- What are the emotional aspects of the purchase?
You may believe you’ve already examined these questions over and over again, but as my mentor, Ronee Hagen, former Chief Customer Officer at Alcoa, used to always say:
“Customers are the only people who are consistently putting money into your business.”
Getting and keeping customers is the only way your business will survive over the long term. Shouldn’t you strive to understand them better than they understand themselves?
How Do Customers Shape Your Business Model?
OK, so you have a solid understanding of your customers and how your products or services meet their functional, financial, and emotional needs. The next step is to incorporate these insights into your business model. Optimizing your business model ensures you’ll profit from serving target customers – those customers who value your offerings most.
Business Model Key Questions
Customers are at the heart of these questions; not the sales team, not R&D, not leadership’s past experience, not what competitors are doing – and certainly not your best guess. Successful strategies embrace the customer’s needs, meeting customers where they are.
We’ve seen time and time again how deepening a company’s understanding of their customers can bring big returns. Regardless of the industry and no matter the client or the market, this work has helped cross-functional management align and drive business value. In upcoming posts, we’ll dig deeper into how we do the analysis and how it’s helped our clients.