The 30 Day MBA (18 page)

Similar maps can be produced for any combination of variables that are of importance to customers – availability, product range, after-sales support, market image and so on. The technique is used in a variety of ways, including highlighting possible market gaps when one quadrant is devoid of players, suggesting areas to be built on or extended; or where a USP (see below) is required to create a competitive edge.

Understanding customers

Without customers no business can get off the ground, let alone survive. Knowing something about your customers, what they need, how much they can ‘consume', who they buy from now, all seems such elementary information that it is hard to believe so many people could start without those insights: and yet they do.

There is an old business maxim that says the customer is always right. But that does not mean they are necessarily right for you. So as well as knowing who to sell to, you also need to know the sorts of people who are not right for you and accept that trying to interest them will be a waste of scarce resources on your part.

Recognizing needs

The founder of a successful cosmetics firm, when asked what he did, replied: ‘In the factories we make perfume, in the shops we sell dreams.'

Those of us in business usually start by defining our business in physical terms. Customers, on the other hand, see businesses having as their primary value the ability to satisfy their needs. Even firms that adopt customer satisfaction, or even delight, as their stated maxim often find it a more complex goal than it at first appears. Consider exactly what Mothercare is selling when it markets its upmarket maternity wear range. It made clothes for the mother-to-be, sure enough: but the primary customer need it was aiming to satisfy was neither to preserve their modesty nor to keep them warm. The need it was aiming for was much higher: it was ensuring that its customers would feel fashionably dressed, which is about the way people interact with each other and how they feel about themselves. Just splashing, say, a Tog rating showing the thermal properties of the fabric, as you would, say, a duvet, would cut no ice with the Mothercare potential market.

Until you have clearly defined the needs of your market(s) you cannot begin to assemble a product or service to satisfy them. Fortunately, help is at hand. An American psychologist, Abraham Maslow, who taught at Brandeis University, Boston and whose International Business School now ranks highly in the
Economist
's survey of top business schools (see the Appendix for more on business school rankings), demonstrated in his research that ‘all customers are goal seekers who gratify their needs by purchase and consumption'. He then went a bit further and classified consumer needs into a five-stage pyramid he called the hierarchy of needs.

Self-actualization

This is the summit of Maslow's hierarchy, in which people are looking for truth, wisdom, justice and purpose. It's a need that is never fully satisfied and according to Maslow only a very small percentage of people ever reach the point where they are prepared to pay much money to satisfy such needs. It is left to the likes of Bill Gates and Sir Tom Hunter to give away billions to form foundations to dispose of their wealth on worthy causes. The rest of us scrabble around further down the hierarchy.

Esteem

Here people are concerned with such matters as self-respect, achievement, attention, recognition and reputation. The benefits that customers are looking for include the feeling that others will think better of them if they have a particular product. Much of brand marketing is aimed at making consumers believe that by conspicuously wearing the maker's label or logo so that others can see it, it will earn them ‘respect'. Understanding how this part of Maslow's hierarchy works was vital to the founders of Responsibletravel.com (
www.responsibletravel.com
). Founded six years ago with backing from the late Anita Roddick (Body Shop) in Justin Francis's front room in Brighton, with his partner Harold Goodwin, it set out to be the world's first company to offer environmentally responsible travel and holidays. It was one of the first companies to offer carbon offset schemes
for travellers and it boasts that it turns away more tour companies trying to list on its site than it accepts. It appeals to consumers who want to be recognized in their communities as being socially responsible.

Social needs

The need for friends, belonging to associations, clubs or other groups and the need to give and get love are all social needs. After ‘lower' needs have been met, these needs, which relate to interacting with other people, come to the fore. Hotel Chocolat (
www.hotelchocolat.co.uk
), founded by Angus Thirlwell and Peter Harris in their kitchen, is a good example of a business based on meeting social needs. It markets home-delivered luxury chocolates but generates sales by having Tasting Clubs to check out products each month. The concept of the club is that you invite friends round and use the firm's scoring system to rate and give feedback on the chocolates.

Safety

The second most basic need of consumers is to feel safe and secure. People who feel they are in harm's way, either through their general environment or because of the product or service on offer, will not be over-interested in having their higher needs met. When Charles Rigby set up World Challenge (
www.world-challenge.co.uk
) to market challenging expeditions to exotic locations around the world, with the aim of taking young people up to around 19 out of their comfort zones and teaching them how to overcome adversity, he knew he had a challenge of his own on his hands: how to make an activity simultaneously exciting and apparently dangerous to teenagers, while being safe enough for the parents writing the cheques to feel comfortable. Six full sections on its website are devoted to explaining the safety measures that the company takes to ensure that unacceptable risks are eliminated as far as is humanly possible.

Physiological needs

Air, water, sleep and food are all absolutely essential to sustain life. Until these basic needs are satisfied, higher needs such as self-esteem will not be considered.

You can read more about Maslow's needs hierarchy and how to take it into account in understanding customers on the Net MBA website (
www.netmba.com
> Management > Maslow's Hierarchy of Needs).

Features, benefits and proofs

While understanding customer needs is vital, it is not sufficient on its own to help put together a saleable proposition. Before you can do that, you have to understand the benefits that customers will get when they purchase. Features are what a product or service has or is, and benefits are what the
product does for the customer. When Nigel Apperley founded his business Internet Cameras Direct, now Internet Direct and part of the AIM-listed eXpansy plc, while a student at business school, he knew there was no point in telling customers about SLRs or shutter speeds. These are not the end product that customers want; they are looking for the convenience and economy of buying direct, so he planned to follow the Dell Computer direct sales model and show good pictures. Within three years Apperley had annual turnover in excess of £20m and had moved a long way from his home-based beginnings.

Look at the example of product features and benefits (
Table 3.1
), which has been extended to include proofs showing how the benefits will be delivered. The essential element to remember here is that the customer only wants to pay for benefits while the seller has to pick up the tab for all the features whether the customers sees them as valuable or not. Benefits will provide the ‘copy' for a business's advertising and promotional activities.

TABLE 3.1
  
Example showing product features, benefits and proofs

Product/service adoption cycle – who will buy first?

Customers do not sit and wait for a new business to open its doors. Word spreads slowly as the message is diffused throughout the various customer groups. Even then it is noticeable that generally it is the more adventurous types who first buy from a new business. Only after these people have given their seal of approval do the ‘followers' come along. Research shows that this adoption process, as it is known, moves through five distinct customer characteristics, from innovators to laggards, with the overall population being different for each group. (See
Table 3.2
.)

Let's suppose you have identified the market for your internet gift service. Initially your market has been constrained to affluent professionals within five miles of your home to keep delivery costs low. So if market research shows
that there are 100,000 people that meet the profile of your ideal customer and they have regular access to the internet, the market open for exploitation at the outset may be as low as 2,500, which is the 2.5 per cent of innovators.

This adoption process, from the 2.5 per cent of innovators who make up a new business's first customers through to the laggards who won't buy from anyone until they have been in business for 20 years, is most noticeable with truly innovative and relatively costly goods and services, but the general trend is true for all businesses. Until you have sold to the innovators, significant sales cannot be achieved. So, an important first task is to identify these customers. The moral is: the more you know about your potential customers at the outset, the better your chances of success.

One further issue to keep in mind when shaping your marketing strategy is that innovators, early adopters and all the other sub-segments don't necessarily use the same media, websites, magazines and newspapers or respond to the same images and messages. So they need to be marketed to in very different ways.

Segmenting markets

Having established that customers have different needs means that we need to organize our marketing effort so as to address those individually. However, trying to satisfy everyone may mean that we end up satisfying no one fully. The marketing process that helps us deal with this seemingly impossible task is market segmentation. This is the name given to the process whereby customers and potential customers are organized into clusters or groups of ‘similar' types. For example, a carpet/upholstery cleaning business has
private individuals and business clients running restaurants and guesthouses, for example.

These two segments are fundamentally different, with one segment being more focused on cost and the other more concerned that the work is carried out with the least disruption to their business. Also, each of these customer groups is motivated to buy for different reasons and your selling message has to be modified accordingly.

Worthwhile criteria

These are four useful rules to help decide if a market segment is worth trying to sell into:

• Measurability: Can you estimate how many customers are in the segment? Are there enough to make it worth offering something ‘different'?
  
• Accessibility: Can you communicate with these customers, preferably in a way that reaches them on an individual basis? For example, you could reach the over-50s by advertising in a specialist ‘older people's' magazine, with reasonable confidence that young people will not read it. So if you were trying to promote Scrabble with tiles 50 per cent larger, you might prefer that young people did not hear about it. If they did, it might give the product an old-fashioned image.
  
• Open to profitable development: The customers must have money to spend on the benefits that you propose to offer.
  
• Size: A segment has to be large enough to be worth your exploiting it, but perhaps not so large as to attract larger competitors.
  

One example of a market segment that has not been open to development for hundreds of years is the sale of goods and services to retired people. Several factors made this a particularly unappealing segment. First, retired people were perceived as ‘old' and less adventurous; second, they had a short life expectancy; and finally, the knockout blow was that they had no money. In the past decade or so that has all changed: people retire early, live longer and many have relatively large pensions. The result is that travel firms, house builders, magazine publishers and insurance companies have rushed out a stream of products and services aimed particularly at this market segment.

Segmentation is an important marketing process, as it helps to bring customers more sharply into focus, classifies them into manageable groups and allows you to focus on one or more niches. It has wide-ranging implications for other marketing decisions. For example, the same product can be priced differently according to the intensity of customers' needs. The first- and second-class post is one example, off-peak rail travel another.