From a critical path perspective, you must understand the value you add for your customers. But if your company’s business relies on selling goods and services to other firms and companies, there’s another consideration you must take into account. The value that you add for these customers gives them an economic advantage in dealing with their own customers. But, as with the earlier lesson on solving the consumer’s real problem, your challenge in selling to these other companies is solving a problem for their customers further down the industry value chain.
To understand this more clearly, let’s look at the example of a “big-data” analytics firm that collected point of sale data from retail outlets for both juice and diaper manufacturing companies. These manufacturers sold to wholesalers who then supplied the retailers.
Now, keep in mind that your revenue is your customer’s cost. Just as you try to reduce cost and up your revenues, they will try to reduce their costs, i.e., your revenues. This is just what happened to the big-data analytics firm. Over time, its manufacturing customers started to squeeze the data firm’s fees in an effort to lower their own costs in these highly competitive markets. When it got to the point where the data firm’s profits were nearing zero, they were about to abandon the business. However, their outside consultant recommended that they talk to their customers (the manufacturers) about how they used the data reports. How did these reports and their analyses help solve their problems?
It turns out that the manufacturers’ marketing departments unbundled, re-analyzed, and re-packaged the reports supplied by the data firm to put the information into a format that answered top management questions—i.e., the marketing departments’ important internal customers. The marketing folks also revealed that no one had a good idea of the volume sold through the various distribution channels. They only knew the total aggregate amount sold by product line.
So, the data firm realized that they could re-format the reports themselves so that their client’s marketing department didn’t have to rework the data, and they could be ready to go directly to top management. They could also re-shape their data collection to help answer the distribution channel questions. They asked their client’s marketing department the worth of these two new services. To their surprise, the marketing departments were willing to pay substantially more to get the new data, given that they would no longer have to devote resources and time of their own to re-analyzing and re-packaging the data.
As mentioned above, it was natural for the manufacturing firms to try to reduce their costs. But by understanding how they could benefit the customer’s customer, the big-data analytics firm managed to offset that dynamic. And an unexpected benefit for the data firm was that their work was now shown directly to top management and that they often presented their work, giving them C-Suite exposure.
Compare this experience to a German maker of car parts trying to break into the Japanese auto market. A major Japanese car company thought very highly of the German firm’s engineering prowess and greatly anticipated working with them as a new supplier. They held meetings to discuss their needs, providing detailed specifications for what they wanted.
Upon examining the product specs, the German company’s engineers saw opportunities to add some state-of-the-art features. Yes, these additional features would raise the product price, but the Japanese company would get so much “bang for their buck.” To them, it should be an easy sell once the Japanese company saw how the new designs would put them on the leading edge vis-à-vis their competitors.
When the Germans showed the prototype, however, the Japanese engineers rejected the new design, saying that it was much more than they asked for. Their customers would not be interested in the new features and would not pay for them. The Japanese firm wanted the product to match the original specs.
This decision appalled the German engineers. After all, the reason the Japanese wanted to work with them is that they were the best engineers of these products in the entire world. They KNEW engineering.
The Germans did agree to redo the proto-type. The 2nd round version was closer to the original specs, but still had a few leading-edge features, which still upped the price. The Japanese rejected this newer version, indicating that the Germans had to control their urge to add new “bells and whistles.” Instead, the Japanese wanted what they ordered—no more, no less—because that was what their customers wanted.
The German firm interpreted this second rejection as an insult to their engineering minds and standards. They could not bring themselves to deliver what they believed to be an inferior product when they could provide a better one.
The Japanese firm withdrew from the relationship, finding a Korean firm that would give them exactly what they wanted. The German firm took several years before they were able to break into the market—by providing what the customers wanted instead of what they thought the customers should want. They had to learn more about their customer’s customers before they could succeed in that market.
When I tell this story, people will often say that Steve Jobs didn’t pay attention to his customers. Like the German engineers, he built what he thought was best and customers flocked to him.
But Steve Jobs paid very close attention to his customers. He didn’t invent any new product, whether personal computers, notebooks, iPods, or iPhones. All those products existed before he entered any of those markets. What he noticed were his customers’ frustrations with the existing products. He then designed newer versions of those existing products that made them more user friendly, more leading edge, and more status enabling. In his words, he made them “cool.”
Another big difference is that Jobs understood his customers’ critical path. He was designing for HIS customers. The German firm didn’t grasp that they had to design for their customer’s customer—a group about which they had little knowledge. Only when they accepted that these customers’ desires, and not their engineering savvy, were of primary importance, did they realize their own goals of breaking into the Japanese auto market.
Critical Path Action Items
Who are your customers’ customers?
What can you do for your customers to help them solve their problems?