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I was speaking with a major market research firm that in the not too-distant past had scuttled an eagerly anticipated new practice area, claiming that there wasn’t a market for the new practice and associated research. Yet, a few years later, their biggest competitor has a huge, booming practice in the same area! The competitor’s most widely-read analyst in the entire firm is (you guessed it!) writing exclusively about the same practice area that was scuttled. For the competitor, this is the largest practice area, generates the greatest volume of reports, and the greatest revenue. Clearly, their competitor has made a very successful business in the same market that was deemed unprofitable and unfit for entry. How could one firm fail when a fierce competitor succeeds?

From a business perspective it may make sense to scuttle a project when sales are lackluster and the new product or service simply isn’t gaining traction. Yet, in this case and with the benefit of 20/20 hindsight and a competitive outlook, this was exactly the wrong decision. How could this research firm have made a different (and more profitable) choice?

In talking with executives, the problems were three-fold. First, their initial foray into the marketplace was too general and didn’t address specific needs of their customer base. They didn’t spend the time up-front to understand their customer base well enough and delivered a product that didn’t provide sufficient, immediate and practical value. Second was a marketing issue. Because this was a new product, targeted to a different role within existing customers, marketing should’ve better equipped their sales team with the ability to identify the right buyers within accounts and the right messages to effectively convey the value of the new product. Third was a sales execution issue. Because the sales team was uncomfortable and ill-prepared they gave up prematurely saying, “We can’t figure out who owns this function in the company and so can’t sell this.”

This may have been a $100M opportunity that the company scuttled, whereas if they had spent a bit more time up-front to find out who & how many will actually buy the new product and what specifically these prospective buyers were looking for, they could’ve avoided this disaster and saved a huge amount of money

There are two lessons to be learned from this sad story: You need to clearly identify prospective purchasers and spend time with them to clearly understand how your product/services address Customer Purchase Drivers™. As I’ve written elsewhere, customers base their purchase decisions on the attributes of a product or service that enable them to do four things:

1. Make more money

2. Reduce costs

3. Mitigate risks

4. Satisfy an emotional need

Only by understanding these Customer Purchase Drivers™ can you develop products and services that are guaranteed to be successful in the marketplace. Only by spending time with customers beforehand can you avoid making a $100M mistake.

I spoke with a rapidly growing software company last week about their sales compensation practices. Like many software companies, they provide sales incentives on license revenue, but NOT on services revenue. In other words, they want their sales team to sell software, but NOT the services required to implement the software and deliver the ROI for the software. Their rationale is that licenses are 95% profit, whereas services may only be 25-30% profitable.

While I understand why the company might choose to focus on licenses, there is a practical problem with this model. One of two things happens when salespeople aren’t compensated on services: Read more »

Another tidbit from Drucker’s Effective Executive:

“The man of knowledge has always been expected to take responsibility for being understood. It is barbarian arrogance to assume that the layman can or should make the effort to understand him, and that it is enough if the man of knowledge talks to a handful of fellow experts who are his peers…. If a man wants to be an executive–that is, if he wants to be considered responsible for his contribution–he has to concern himself with the usability of his “product”–that is, his knowledge.” (italics added).

Companies cannot expect their customers to make the leap to understand them. We could recast Drucker’s quote to read:

It is barbarian arrogance to assume that the customer can or should make the effort to understand how your product or service helps them.

If you want to be truly successful, you must take responsibility for the usability of your message.

Remember, your customers base their purchase decisions on the attributes of a product or service that enable them to do one or more of the following four things (known as Customer Purchase Driversâ„¢):

1. Make more money
2. Reduce costs
3. Mitigate risks
4. Satisfy an emotional need

How does your product and service satisfy these Customer Purchase Driversâ„¢? To be successful, it is up to you to help your customers bridge the gap between features, benefits, and these purchase drivers.

Peter Drucker, in his book, The Effective Executive, describes the effective executive as one who “focuses on contribution” in that he/she asks,

What can I contribute that will significantly affect the performance and the results of the institution that I serve?

Answer this honestly (but admit it to none but yourself): Do you focus downward on increasing your power base, growing your popularity in your field, or on the other things that you “do” during the day?

Or, do you do as Drucker suggests and ask, “What can I contribute?” to the success of those around you?

I dare say that we would all get more done by examining ourselves and focusing outwards and on how we can contribute to the larger picture.

I found this picture hilarious. It is interesting that people are taking pictures of the ad—it got people’s attention! It has little to do with anything we’ve talked about here, but I hope you enjoy it anyway.

It isn’t too hard to find out what customers need, want, and are willing to pay for. In fact, it is quite the opposite. Customers are demanding to be heard. If you search the web for aberrations of many company’s names you’ll invariably find sites that customers have set up to voice their opinions (ie. citibanksucks.com). A recent post on John Dragoon’s (CMO of Novell) blog demanded more “transparent PR”. Sun Microsystem’s customers said they wanted less hype and more specific insight as to how Sun’s roadmap would help them be successful. Read more »

I was reading this week a brilliant essay by Dave Pollard entitled, “A prescription for business innovation: Creating technologies that solve basic human needs.” Pollard writes,

Innovation Starts with the Customer: If successful innovations must address an urgent human need, then the front-end of the innovation process should be situated at the point of contact with the humans expressing that need, i.e. the sales and customer service people in businesses, not the R&D laboratory or the marketing department. With some notable exceptions where the need for the innovation was only identified later, innovations coming from R&D tend to be solutions in search of problems, and those coming from Marketing tend to be solutions for which needs need to be artificially created through advertising.

If innovation doesn’t come from strong leaders, properly schooled employees, behemoth think-tanks, or from outward-bound marketing, where does it come from?
Theodore Leavitt wrote in his book, The Marketing Imagination, “The purpose of a business is to create and keep a customer.” If your purpose is to get and keep profitable customers, shouldn’t your customers be you primary source of innovation?

It is no longer possible for any company to simply develop a new product based on some cool idea and throw it over the wall in hopes that marketing and sales can figure out how to create a need in someone, somewhere. Competition is too intense, customers are too demanding, and profit margins are too thin for this kind of mistake.

Innovation has to come from customers in order to drive any meaningful, sustainable profit results.

Recently, I have worked with several Fortune 500 companies to help them determine what drives customers to purchase their products or services.  My focus for these companies was specifically on uncovering their particular Customer Purchase Driversâ„¢–what inherent quality their product or service possesses that makes customers really want to purchase them.  These drivers are the features and attributes of products or services that enable customers to increase profits, decrease costs, mitigate risks, or satisfy emotional needs.  These drivers are critical for companies to understand if they want to be profitable, ensure that their offering remains both relevant and competitive, and to command premium prices.  By focusing on and understanding how to leverage these purchase drivers, companies can simplify the customer acquisition process, shorten the sales cycle, and increase customer retention—the net of which is increased revenues and profits.

I’m excited to announce that I’m launching a new teleseminar series for executive leadership beginning in early March.  This series will discuss customer strategy topics for executive leadership including CEOs, CCOs, VPs and GMs and will consist of presentations & interviews with industry luminaries/exemplars.

The first one is titled, “3 Essential Steps to Finding & Keeping the Best Clients…. & How to Cast Off the Worst Ones:  Compelling Lessons from the World’s Most Successful Companies.”

It describes how executives can:

• Increase profits by differentiating between the best and worst customers
• Shorten customer acquisition cycles, reduce price resistance, and keep customers longer by asking 6 critical questions of their customers
• Gracefully reduce resource/profit drain or even terminate unprofitable relationships without being maligned across the blogosphere

If you are interested in learning more about the seminar, please send an email to seminar@predictiveconsulting.com.   

A software company that provides financial software to small businesses had introduced a new add-on product to the market but despite spending huge amounts of money on advertising, hadn’t been able to penetrate their existing customer base let alone reach new customers. Prospects were complaining that the new product was too expensive or not that important.

In interviewing their customer base, I found a group of customers that were willing to pay double, triple, and even quadruple the current price because the software product gave small business owners part of their life back—it saved them time and freed them up to go bring in more clients, spend time with their new baby, or just kick back and relax. How valuable is that?!

Using this understanding of Customer Purchase Driversâ„¢ we created a decision tree for salespeople to help them combat low price competitive offers that are rampant in the industry. By asking four to five critical and telling questions of prospects, salespeople could determine whether or not it was necessary to meet or beat competitive prices of if the highly differentiated product was going to be valued regardless of the price.

Because so many people valued this particular feature of the product, and there was no where else they could get it from, it made it easier for the salespeople to convey its value and hold firm on the price, thereby avoiding any rampant discounting.

My client told me they expected this small change would grow their revenue by more than $16 million dollars each year.

I’ve been able to help other companies like this enhance the customer experience to garner repeat business by discovering the Customer Purchase Driversâ„¢ or key components that have the greatest positive and negative influence on customer purchase decisions.