Monthly Archives: June 2007

Techno-centric or Customer-centric

The rate of failure for high-tech products is remarkably high. For every Facebook or YouTube, there are thousands of start-ups that have failed. Why? Were their products technologically inferior? Most of the time, no. They fail because they are more focused towards the technology they are trying to develop than the reason for which they are developing the technology. They are, what we can call, techno-centric companies.

Techno-centric high-tech companies are the ones that think of technology as the center of their universe. They focus on technological innovation in product development without considering the potential customers of their product. The strategy adopted by these companies is to let the engineers and designers come up with the product and then sell the product to the potential customers. But this approach has a major flaw. People are always a bit reluctant towards adapting new technology. In general, masses do not accept new technology unless it is absolutely required to solve some problem they are facing. Of course, there will be early adopters who like to be at the cutting edge of technology who will readily go for the innovation, but in general, the common person will not go out and buy an expensive gadget if it is not absolutely essential. This makes it harder to cross the chasm, making it even harder for the products to become mainstream.

On the other end of the spectrum are the companies that do product innovation focusing on the needs of the customer. These customer-centric companies identify the problems faced by the customer and then develop solutions for these problems using technological innovation. The basic difference here is that the product or the service which is delivered is addressing a need of the customer, making it comparitively easier for the product to get mass adoption. By being customer-centric, it also becomes easier for the companies to develop the complete solution, because the basic reason for development is solving the problem.

Of course, there are exceptions where companies have hit the jackpot by just concentrating on the technology and then marketing the product to the customer. This can be attributed to the right timing of these companies, the massive backing of the early adopters, or coincidence of the technological innovation addressing an important problem faced by the customer. But I think the probability of this happening is too low for anyone to bet their company’s future on it (unless you are one of the blue-chip companies with deep pockets and great R&D budget).

It is also important to make sure we understand that just by being customer-centric, the company will not attain the ultimate success. You will always find products which are developed focussing on customer requirements but are not very successful. Customer-centric innovation is just a piece, a really big piece, of the puzzle. Along with this, you need to get a lot of other things correct to make your product a real success. Some of the important ones are good marketing set-up, ease of adoption, competitive pricing stategy and great customer service.

Ted Levitt, author of the Marketing Imagination, once wrote, “When people buy quarter-inch drill bits, it’s not because they want the bits themselves…they want quarter-inch holes.” This summarizes the high-tech marketing success mantra in very simple words. To be successful in high-tech marketing, you need to identify what your customers want, or what problems they are trying to fix, use technology to address those problems and then make sure you market the solutions to the problems. That’s customer-centric techno-powered innovation bound to sell!

Why pay the premium?

Starbucks, iPod and BMW – what is the one thing common in these three brands? Each one of them command a premium over similar products of other brands. It is amazing to see how the customer who creeps so much in filling gas at $4 per gallon, feels so good buying a grande (about 350 ml) latte from Starbucks for the the same price, even when the same coffee at other places is available for much less. Similar comparisons can be drawn for other products varying from a music player (iPod) to a pair of running shoes (Nike) to a car (BMW) to almost anything else.

There are a few things that help companies sell their products for a premium price. First and the most important one is the ecosystem. These brands create a unique ecosystem of some kind of sophestication around them. iPod, for example, creates an urbane and hip ecosystem around itself. iPod advertisements and Apple outlets lays the foundation for this ecosystem. Then every famous personality owning one makes it even more of a premium product. Talk show hosts ask the guests – “what songs do you carry on your iPod?” (instead of “what songs do you like to listen?”). iPod becoming a fashion symbol or more of a necessity adds to this ecosystem. The last leg of the ecosystem is the iTunes software and the whole array of accessories that go with the iPod. A customer can buy special speakers for their iPod, get docking stations, covers and what not. This ecosystem provides a lot of value to the product and helps the company earn a premium. 

A very important thing to note about the premium branded products is their superior quality. Many times we forget talking about this aspect of the products delivered by the premium brands and just focus on the marketing strength of the companies. The premium branded products are most of the time better when compared to the nearest competitor.

Emotional factor also plays a major role in paying the premium. The customers actually pay the premium to treat themselves. Buying these branded products give them satisfaction and help generate a good feeling about themselves. Take car for example. A customer pays a good amount to buy a BMW. Yes it is one of the best cars available out there, but how important is that while making a buying decision? The most important factor that kicks in here is the emotional feeling of the customer for the car. Some people have it in the list of their “things to buy when they can”. Others use it as a factor to satisfy themselves of attaining a certain level of success in life and yet others just buy it to treat themselves luxuriously (and assemble speeding tickets ;)).

Now let’s talk about how some companies are able to put their brands at that level which makes them important for the customers to have even at a premium. To answer this in a couple of words- Expressive Branding. This gives the customers a very straightforward way of making a statement about themselves. Each of these premium branded products have a certain level of luxury attached with them. And believe it or not, every common person loves luxury. People are obsessed by trading up. They will go to a coffee shop and ask for a cup of something which is not less then a tongue-twister for trading up. These brands promote themselves as a channel that people can use to trade up or to make a statement about themselves.

But it is not a bed of roses. When a company does expressive branding, it takes some major risks. When the brand plays the role of creating an identity statement for the customer, it always runs into the risk of a certain segment of people hating it. You will always find people who would never ever buy a certain brand because it’s not their type. The companies going for expressive branding make a very clear statement to the World – love us or hate us, but don’t ignore us. After all, if you want to earn a premium, you have to pay a price for it!

Customer segmentation – it’s all about the connection!

Customer segmentation is no longer a good to have feature. With more and more companies using customer segmentation as the base of their marketing and advertising efforts, it is something that is required for success in any industry. Effective use of customer segmentation will no longer give you a competitive edge, but in-fact it has become a feature that will keep your company competitive in the market. So what is the use of customer segmentation? You can find good amount of literature on this topic, but to sum it all up in a few of words – effective customer connection.

Online stores like Amazon and retailers like Best Buy have done great work in this area. Amazon pioneered the space with customized recommendations for the customers and a personalized home page. Best Buy’s application of customer segmentation in the brick-and-mortar World is very impressive. They remodelled their specific sections and at some places entire stores based on the segmentation data, trained their store associates accordingly and sent out coupons and set discounts based on this data. Best Buy now has radically different strategies to target different segments from young professionals to soccer moms.

To put it in very simple words, what these companies are doing is trying to get their customer what they think the customer is interested in. To lay parallels with an everyday example, you go to your favorite deli or coffee shop around the corner and the person attending you comes and asks – “the regular?” and (most of the time, if you are not in mood for the complete opposite or something else,) you say yes! That’s customer connection in its purest form. But if your business is not the deli or coffee shop where you can remember all the customers, with the help of computing power and analytical software, you can very well “remember and recall” what the customer is looking for and connect to the customer in a proactive way.

Another way customer connection can be enhanced is by proposing the customers what meets their requirement based on what features they used or products they purchased in the past. This can be done using the techniques of inference. Going back to our analogy of the deli, you order a specific sandwich most of the time, and the deli just came up with something that goes well with that sandwich or is a new sandwich similar to your favorite one, the person attending you can suggest it to you and most of the time you might go for it. Customers love suggestions or recommendations when they are sensible and unobtrusive. By forming segments, it can be inferred what the customers in this virtual segment will be interested in and can be served accordingly.

So let’s look into the specific contribution of segmentation over here. I think segmentation provides a couple of very important handles in the entire concept of customer connection. It helps companies deal with large number of customers. Most of the times it is practically impossible to connect to each customer one-on-one. So in order to give a close to one-on-one experience, the marketers can segment customers into buckets and connect with a segment of customers in the same way. Another benefit of segmentation is adding relevancy. By reviewing the activity of customers in a segment, a pattern can be derived and used to target that particular type of customer. The basic concept is to add relevancy to what customer is looking for, whether it is in form of showing relevant advertisements, promoting products or providing relevant content. By adding relevancy to the advertisements, they are not obstructive, but in-fact informative. Same is true for product promotion. If the product you are promoting is useful to the customer, it is not hard-selling, it is being helpful to the customer.

To sum it all up, segmentation basically provides the touch of practicality to the entire process of customer connection. In today’s World, where customers have lots of options and their time is more valuable than ever, proper customer connection is becoming a required feature. And to scale this to millions of customers in this global economy, customer segmentation is nothing but an essential tool.