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The Researcher's Bookshelf: Tilt



Article ID:
20131126-3
Published:
November 2013
Author:
Niraj Dawar

Article Abstract

An excerpt from Niraj Dawar's book, Tilt - Shifting Your Strategy from Products to Customers.

When listening to customers is not enough

In his new book, Tilt - Shifting Your Strategy from Products to Customers, Niraj Dawar makes a strong argument for marketers to actively dictate and manage the expectations of the markets in which they operate. The thinking being that, by setting the rules of the game, companies have a better chance of influencing how the game is played. Part of that process, to be sure, involves obtaining customer input through research, but merely asking customers what they want is not the most effective use of the research process, as he argues in this excerpt from a chapter entitled “Busting Myths in the Marketplace Wars.”

A company is market oriented, according to the technical definition, if it has mastered a sequence of activities that starts with listening to customers, understanding their needs and then developing products and services that meet those needs. Captivated by this myth, companies spend billions of dollars and countless hours conducting focus groups and surveys to understand what customers want and evaluating their reactions to product and feature prototypes. Products, prices, packaging, store placement, promotions and positioning are pretested, then tweaked to be responsive to the “voice of the customer.”

But the myth is dented when you find companies that are successful not by being responsive to customers’ stated preferences but by leading customer desires. It is by now legend that, when asked about the market research that went into the development of the iPad, Steve Jobs replied, “None. It’s not the consumer’s job to know what they want.” And even when consumers know what they want, asking them may not be the best way to find out. Zara, the fast-fashion retailer, does not conduct surveys to find out what customers want – it places a small unit count of products on the shelf. If the products fly off the shelf, the company quickly makes more; if not, it rapidly moves on to the next product. Downstream competitive advantage, successful companies that tilt understand, is built by influencing customer criteria of purchase and, in many cases, creating them.

At Apple’s launch of the first iPhone, Jobs famously put up a picture of four smartphones that were then dominant: the Moto Q , a BlackBerry, the Palm Treo and a Nokia E 62. In retrospect, the lineup looks like the target list for a hit job – none of those phones survived the launch of the iPhone for very long and neither did some of the companies behind them. In his speech, Jobs explained what those phones had in common: a keyboard that took up half the usable space on the front of the phone. He denigrated the design as a very poor interface for a supposedly “smart” phone. He was craftily introducing an entirely new criterion of purchase that was to become the dominant dimension for smartphone buyers over the next five years: the touchscreen that offered an infinitely flexible input interface and understood natural human gestures. At the launch, Jobs predicted that the iPhone was five years ahead of its time. None of the competitors whose phones were lined up on the screen realized then that it would take at least that long for a competitor capable of challenging the iPhone to emerge and that when one finally did, it would not come from one of the players on the screen. The reaction of the dominant incumbent in the smartphone market was typical: “It’s kind of one more entrant into an already very busy space with lots of choice for consumers . . . But in terms of a sort of a sea-change for BlackBerry, I would think that’s overstating it,” said Jim Balsillie, then CEO of the BlackBerry maker. Later, he elaborated: “There’s a lot of market research in what we do, we had a lot of market research from our customers in the markets on what the market expects from a solution . . . I am not really [one] to play at gamesmanship, my input [mechanism is] funkier than your input mechanism.” Indeed.

Apple had not asked customers if they wanted or preferred a touch-screen device. Apple’s entry point into a crowded smartphone field was to create consumer preference for the touch screen, turn the screen interface into the primary criterion of purchase and force competitors to follow or be left behind. But there was a catch: those that followed were seen, inevitably, as followers. It’s not the customers’ job to know which criteria they would like you to define; it’s yours.

The importance of defining customer criteria and owning them is underscored by another lesson that often gets overlooked in the iPhone story. Despite Apple’s huge success in North America, the story is different in the largest smartphone market in the world. Samsung beat the iPhone to all of the new criteria of purchase (the touch screen, the gesture control) by over a year in China. The iPhone is a challenger, not a first-mover there. It was introduced late, in October 2009, and remained officially unavailable on China Mobile, the largest phone carrier, even through early 2013 (although a launch appears imminent as of this writing). Samsung has defined the customer criteria in the smartphone category in China. Consequently, Apple’s iPhone remains a distant sixth in the market, with a market share of less than 7 percent compared with Samsung’s 24.5 percent. And as of this writing, the gap is growing.

Much is made of the exhortation to managers to “change the rules of the game.” But ask a dozen managers what the phrase means and you will get at least a dozen different answers. Does it mean you should try to outdo incumbent competitors on criteria they have established (as the K-6 and PowerPC chips attempted to do by beating Intel on speed)? Or is it a reminder that you have the power to change the criteria on the playing field? It is surprising how many companies have difficulty looking beyond the former suggestion.

One reason a firm falls into the trap of attempting to outdo incumbent competitors on their well-established criteria, rather than changing the customers’ criteria, is that when its market research says that customers value criteria A and B, the company assumes those criteria are fixed. Under this assumption, customers are rational actors who use all of the information at their disposal to find the best products on predetermined, unchangeable criteria. Therefore, it makes sense, in this view, to ask the customers what they want and then it is a simple matter of giving it to them. This simply is another way of saying that when offered a better mousetrap, customers will beat a path to your door. But what customers consider a better product depends on many psychological factors, many of which are influenced by the seller. Consumer preferences are neither fixed nor given.

Which product is “better” depends, of course, on the criteria of the consumers. And you play a significant role in defining the criteria that consumers use to evaluate products. If there is one strategic lesson from competitive battles that play out over decades, it is that customers’ criteria are malleable. Over time, not only can you change your position on the criteria but you can also redraw and redefine the internal boundaries of the playing field on which you compete. This lesson applies as much to firms developing new markets (as we saw with Viagra) as it does to firms challenging entrenched incumbents in existing ones (as both Cialis and the iPhone have demonstrated).

Conventional wisdom holds that market-oriented firms tend to perform better than less-market-oriented ones, because the former uncover what consumers need and want, and align their resources to deliver just that. Instead, we’ve seen that customers’ criteria are not inert, preexisting truths waiting to be uncovered by market-oriented firms but rather that market-oriented firms shape consumer preferences. Successful firms don’t just deliver what customers want; they determine what customers want. In the classic debate about whether marketing serves existing consumer wants or creates them, I propose that firms that do the latter build lasting competitive advantage. As a direct corollary, conventional wisdom holds that staying ahead of the game means being first to recognize and serve customer needs. The observations in this book suggest that staying ahead of competition means being first to actively define customer needs and criteria of purchase and to constantly update them.

Excerpted with permission from Harvard Business Review Press.

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