headertext headertext promolink

Posts in the ‘Product Management’ Category

Market Segmentation and the Myth of Demographics

Market SegmentationDo you really believe that all 24-36 year old men buy your product for the same reason? If you do, I have a slightly used bridge at a very attractive price for you.

Demographic segmentation strategy is based on the assumption that a specific group – based on age, gender, etc. – is the primary consumer of your product or service. Regardless of the validity of this assumption, it does not often provide insight on why this demographic segment selects the product in question or how they use it. For that reason segmenting a market by demographics has very limited utility. It has become so popular only because no better intelligence about customers was available at the time it was introduced.

Today, a much better approach to market segmentation is available. Grouping potential customers according to the expectations they would have from a proposed product is much more useful. This outside-in approach is similar to the “persona” concept often used by product managers, but uses actual market intelligence instead of imaginary characters.

The first step is identification of “the job-to-be-done” by the proposed product to be “hired” by the customers.

The second step is identification of the products/services the customers use today to do that “job”. This list will likely include products/services that you would not normally consider your competition, but customers may.

The third step is aggregation and analysis of a statistically representative set of “stories” describing the experience of customers who have used currently marketed products/services to do that job. I use the word “stories” deliberately to describe unsolicited and unstructured descriptions of the experiences in the customer’s own words. Any use of survey or focus group methods will “color” the output with a 3rd party bias. The best content is customer biased only.

The result will expose the attributes of the experience that are most important from the customers’ perspective. It will also provide an assessment of how well each attribute met the expectations of these customers. Focus on the attributes with low scores may provide important insight for designing a product that is very likely to take this market segment by storm.

Click here to request a copy of the Mining Social Media to Boost Segmentation paper published by QUIRK’S Marketing Research Review.

If demographic data is pertinent for your product, you can compile it’s distribution by an attribute to improve your chances for success even further. As the GPS
technology taught us: The multiplicity of signal sources results in better decision quality.

Do not confuse Customer Experience with Customer Service

CX is not CSThere are too many people who use the customer experience and customer service/support terms interchangeably. Even well respected authors and customer centricity consultants, like Don Peppers, occasionally slip into this ambiguous trap. Here are some basic definitions found on the web with a simple query:

 

“Customer experience (CX) is the sum of all experiences a customer has with a supplier of goods and/or services, over the duration of their relationship with that supplier. This can include awareness, discovery, attraction, interaction, purchase, use, cultivation and advocacy.”

 

“Customer Service is the assistance and advice provided by a company to those people who buy or use its products or services. “

 

Customer service is just one of the attributes that comprise customer experience, but it is most definitely not the same thing. For some businesses it could be the most important ingredient, and for others in could be completely inconsequential one.

 

Here are some examples to make the distinctions a little more clear:

 

• You can have great customer experience without the participation of the customer service department at all, but sometimes even the best customer support efforts cannot salvage overall customer experience:

o The most attentive waiter can’t improve a poorly cooked dish, but a scrumptious meal can be remarkably experienced in self-served establishment.

o Expertly installed TV cable service does not guarantee quality entertainment.

o Customer Success Managers can only help to retain customers for a short period of time if the software does not perform as expected.

 

• A product plays the leading role in delivering customer experience, not efforts of customer-facing employees. If a product sucks, no heroics of the front line personnel can deliver excellent customer experience. From this perspective it is difficult to understand how product managers, and even more so product marketing managers, manage to avoid the customer experience responsibility spotlight. These are the people who interpret customer needs and wants into a product design. It is a best practice to have them handle customer support lines on a regular basis to learn firsthand how accurate were their interpretations.

 

• Marketing is the group that creates customer expectations, and when these expectations do not meet reality of a product, customer experience suffers. Classical marketing is supposed to “learn” what customers need and translate this learning to product designers and advertising messages that attract the “right” customers to the “right” product. Instead, marketing is too often focused on “pimping” products designed by engineers overseas without any connection to actual consumers. Focus groups and survey are designed to figure out how to sell what they have got, rather than to make what customers want. No wonder the distinction between “market research” and “marketing research” is so blurry. Customer service can be very helpful to facilitate the return of an unwanted product and deliver great product return experience, but it cannot deliver a great customer experience.

 

Confusing customer service/support with customer experience puts an unfair and unbearable load on the shoulders of an organization that already is the second most stressed group, after sales, in the company. Even though its performance has relatively limited ability to influence delivery of customer experience, it is measured, dissected and optimized completely out of proportion. When you see that happen, it is the first sign that the company is focused on financial engineering – not on their customers.

 

The root of all great products

The root of all great productsGreat products come from a deep understanding of customers’ needs and wants. Such understanding is best formed by observation of customers using a product. Hence, the proverbial chicken/egg situation – a product that has not yet been developed cannot be observed.

One way to deal with this challenge is to start by identifying a “job” the customers of your future product needs to do. As Theodore Levitt observed,

“People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.”

Therefore, a savvy product marketing professional can observe people doing the job with whatever tools (i.e. products) are available to them currently. A keen observation will likely reveal an opportunity for improving the customer’s job, i.e. simplifying the customer’s experience of obtaining the desired outcome.  This approach is championed by Clayton Christensen in his book The innovator’s solution: creating and sustaining successful growth.

Observing customers in the process of using products is not a new concept, and it is known as ethnographic research. However, it is primarily used for learning how to enhance existing products, not to improve customer job experience. The cost of ethnographic research is very high and that forces very limited scope and data samples which would be unlikely to help discover a market segment deficiency of unmet customer needs. That ocean is too big to boil by means of ethnographic research.

The latest developments in big data and opinion mining technologies, combined with growing availability of customer experience testaments available online, offer new opportunities for uncovering unmet customer needs on a market scale. However, there are no widely accepted methodologies available to take advantage of these developments just yet.

The remaining challenges involve:

  •  A market segmentation approach that identifies a job by expanding the view of competition from the products on the same shelf to any product or service that customers could deploy to get this job done. Traditional segmentation methods are based on the assumption that your customers are defined by the demographic group they belong to. Some use a secondary qualifier of buyer persona to refine the target segments. These methods worked reasonably well in the age of mass markets and clever advertising campaigns, before the rise of the social customer. Today we do have the data and tools enabling us to learn who are the customers that purchased products like this and how they experienced them. We can even map them back to the demographics and persona profiles which can provide much better understanding of their real needs.
  • Rigorous data governance methodology is focused on real customers and real communications. Higher volume and velocity of data does not translate directly into market intelligence that is capable of driving business decisions. It often creates even more noise at greater expense and results that are not relevant to business reality. We have to discriminate between endless repetition of mindless remarks by ambiguous digital entities and unique descriptions of real customers’ experiences with specific products or services. We should re-focus from inclusivity of content data sources to exclusivity of authentic content.

Please click here to request the iPod case study that illustrates this process.

Finding the Fine Line: Customer engagement into a product development

Customer Engagement into product developmentMost startups, and many well established companies, utilize “agile” methods to develop new products. These methods involve customers trying early versions of a product in order to validate conceptual viability and provide feedback to be used for further iterations. There are books and training courses sold to promote “lean” development approach, which I have no quarrel with, but I have  yet to see a clear articulation of what stage of such product development process it is appropriate to start billing customers for use. 

Here is the dilemma – wait to charge until the product is completely developed (and foot the expenses while early adopters enjoy the benefits without knowing if they ever going to pay) OR start early and risk repelling valuable development partners.

Both parties in this partnership have to see a benefit to participating in the agile development process to get involved. Customers anticipate that the product will improve their life, when developed, and developers need the customers’ knowledge and experience to develop marketable products. The balance of risk and reward for each party should be periodically assessed to produce a list of necessary conditions to be met before billing can be initiated.

The risk for the development team depends on how much knowledge they possess about the market they plan to address, the processes they target to optimize, and the customer experiences they want to simplify. The risk for the customer is in disruption of their existing process, time investment in learning new workflows, and political capital that may be lost if the product does not materialize.

The trust is the most critical condition for any partnership:

  • Do not ever try to masquerade “puppy” sale strategy as product development partnership;
  • Always communicate how and when, if ever, you will use the feedback given to you;
  • Help the customers sell your product when it is ready to be sold. They will be much more effective than your sales team. 

Validate that the product as-is meets initial customer expectations in terms of functionality and performance before starting to bill the customers. Functionality allows customers to simplify their workflow and process, i.e. save time/effort by a measurable amount. Performance means customers have the functionality available to them consistently and without interruption. Even though these customers are a part of your development effort you cannot expect them to pay for debugging your product. The balance is critical because too much agility can be too disruptive.

I don't always test the code

I’ve experienced both sides of such partnerships. When they worked it was a glorious experience producing very successful products, but when they don’t the developers can lose more than time and money they have invested into the project.  Customers can share their negative experience with the development team publically, before the product launched, to destroy any chance of it to succeed.

 

How to Develop Awesome Products? Focus on Customer Experience

Awesome productsInvolving customers into the product development process is one of the most controversial subjects in product marketing/management communities. Like with most “religious” issues, the arguments are more about the extension of  and the form of involvement, as opposed to product development in a vacuum.

The works of Clayton Christensen, the author of the seminal book “Innovator’s Dilemma“, inspired our thinking about the development of new products methodology that is focused on Customer Experience. Over the years, a few of our clients used this method in their processes to one degree or another, and every time the resulting increase in product sales exceeded their expectations.

We used MindMiester to put together a new interactive e-book “How to Develop Awesome Products”. Please click on the image below to see the table of contents. Contact me for the access, or check back later for download availability.

NPD e-book table of content

Social Customer and the Quest for Better Margins

New Product DevelopmentIt is no secret that most new products taken to market do not perform to management expectations. While there may be a myriad of reasons to explain the high rate of failure, I would like to focus on the fundamental inadequacy of commonly used market segmentation methods. Don Peppers wrote that

“Many, if not most, corporate CRM efforts have floundered or failed because they were oriented exclusively around segmenting customers by their value to the company – diamond, platinum, gold, whatever. But if you want to be smart about your customers, then you have to know how customers differ from each other in terms of what they need from you, not just what you want from them.”

Following this line of logic, most product developers fail because they segment their customers by their demographic characteristics (age, gender, education, income, etc.) rather than their needs. The assumption these marketers make is that similar demographic segment would have similar needs.  The introduction of customer “personas” allows marketers to assign a proposed product’s functions and features to specific customer groups within the demographic segments. Subsequently, all these assumptions are validated by surveying consumers, who belong to the chosen segments and correspond to a “persona” as defined by product developers.

I see three fundamental flaws in the described methodology:

  1. Multiple layers of assumptions are constructed before the validation of an entire construct;
  2. The validation methods are highly subjective and often produce low integrity results;
  3. The method uses an inside-out view of potential customers.

These flaws lead to the introduction of products that are very difficult for consumers to differentiate, and as the result lead to lower profit margins.

The advent of The Social Customer provides product developers with an alternative segmentation method – an approach that at once zeroes in on a market segment composed of customers (not consumers) who have purchased existing products that the planned product intends to challenge. In particular, it analyzes actual customer experience with those existing products. The relative frequency with which customers mention certain attributes tend to indicate those attributes’ importance to the customers. On the other hand, customers’ satisfaction or dissatisfaction with a product in terms of those attributes tends to denote particular strengths or deficiencies. Accordingly, those white spaces where existing products are unable to meet key customer expectations present potentially lucrative opportunities for new product differentiation.

This outside-in approach may be reminiscent of ethnographic market research, but instead of actual observation of customers it relies on analysis of online customer reviews to generate much more statistically representative results much faster.

Customer Intelligence and Innovation

A few months ago, I wrote in this blog about Musing on difference between successful product and Innovation.  This article was re-published in a few online venues and generated a few critical comments about lack of clarity in definition of terms, specifically about what makes a product “innovative.” Many people would agree that most products that the market considers innovative often do not include any technological breakthroughs.

I keep struggling with the definition of what is an innovative blockbuster product (or service), and this is yet another attempt: A truly innovative product is the one that delights its customers by anticipating their needs before they knew they have them. In other words, if you want to develop a blockbuster product, you should stop trying to better serve the existing needs of your customers and instead try to discover needs that customers may not realize they have and address them.

That definition was not quite satisfactory either, so I kept thinking about it, and I think this is a better version: An innovative product is the one that significantly simplifies customer experience of performing the “job” they “hired” this product to do.

I think simplification of customer experience in achieving the desired outcome is an ultimate goal of any product creator. In my opinion, the experience starts with the recognition that the product is a potential “candidate” for the “job” on hand, and continues from a process of acquisition of the product through different steps until the desired result is achieved. If a product can reduce the number of steps in that sequence by 30% or more without sacrificing the quality of the experience or by improving it, it is truly an innovative product.

So how one goes about creating one?

1. Stop seeing a product as a collection of functions and features. Specifications are not what makes a product innovative. Get a clear understanding of what is a “job” this product will apply to do.

2. Stop thinking of “competition” as products similar to yours, or products in the same price range and sitting on a store shelf next to yours. Think of “competition” as any alternative candidate for the product’s “job” regardless of technology, price or package. Would you think of a digital camera as a competitor of a mobile phone?

3. Gain deep empathy of customers’ experience on their journey to a desired outcome. Learn what is important to them, not to your engineers or marketing people. No disrespect intended towards your partners, but they will be first to thank you when your focus on customer experience will result in a truly innovative product.

We have developed a webinar “Why Companies Do a Poor Job Planning New Products” that provides more details about the ideas and process involved. Please click here to view the schedule.

 

 

Deciding What Not To Do

Every great product starts with a great idea. Unfortunately, many mediocre products and outright flops have also started with an idea that seemed great at the time. I would like to evoke a memory of the patron-saint of Product Managers and quote:

“Deciding what not to do is as important as deciding what to do. That is true for the companies, and it’s true for products.” – Steve Jobs

Unfortunately, we fall in love with our great ideas all too often and tend to overvalue creativity at the expense of critical thinking. Let’s face it – we are paid to create great products, not to engage in “paralysis through analysis.” The cost and effort required to conduct market research is most frequently invested into finding evidence to support our great idea, not to challenge it; hence the survey questions and focus group discussions often default to a pro bias.

I do not believe that human beings are capable of processing information without a bias; however, customer bias is much more valuable than a company/product bias to support critical GO/NO GO decisions. Insights found in experience of consumers, who are most likely to become customers for your proposed product, are in my opinion the best information to help us make that decision.

Insight is a tricky concept that is often used without clear definition of its meaning. I would like to suggest a few ideas on how to define it:

Insight is…

• Penetrating understanding of consumers

• An undiscovered truth that suggests an unmet need

• Something that makes you go, “AHA!”

These came from member contributions to a Customer Intelligence LinkedIn Group discussion and do not pretend to be an exhaustive list. The classic example I have come across is:

“People don’t want quarter-inch drills. They want quarter-inch holes.” – Theodore Levitt, Harvard Business School

Here is a “best practice” used by some of our clients to make this decision:

  •  Identify and articulate a “job” the proposed product (or service) is going to be purchased by its customers to do. If you are not familiar with this product/job correlation concept, you want to learn about research of Clayton Christensen.
  • Identify the most successful products currently available on the market that people buy to do that “job.” These products may or may not have anything to do with the technology, features and specifications of your proposed product.

  • Find and aggregate customer-generated content describing their experience with products identified in the previous step.
  • Analyze this content to identify shortcomings or inadequacies of currently available products to fulfill customer needs from their experience and perspective. Our clients use Market Intelligence Analysis reporting service to save time and effort, but it can be done manually as well.

 

  • “Deep Dive” into those elements of customer experience that score below customer expectations as a group to generate an insight.

  • Ask yourself if your proposed product can improve customer experience based on the insights you have discovered in previous steps. If the answer is ‘No, but…’ follow the advice of Ron White who said, “If you have got an idea… let it go.” The best hope for this product is to become one of many options available to consumers “to-do-the-job” and no fancy marketing communications would be able to differentiate it in their mind.

The cost of error can be relatively low in an agile software development business, but it quickly escalates into millions if product has to be manufactured in volume and brought into consumer market to be tested. On that scale, even a small reduction of product failure ratio will generate outstanding return on investment in this methodology and effort.

 

 

 

 

Can Customer Feedback help to create innovative products??

I keep struggling with the definition of what is an innovative blockbuster product (or service), and this is yet another attempt: A truly innovative product is the one that delights its customers by anticipating their needs before they knew they have them. In other words, if you want to develop a blockbuster product, you should stop trying to better serve the existing needs of your customers and instead try to discover needs that customers may not realize they have and address them.

 

Traditionally, companies use customer feedback to assess satisfaction with existing products and to validate product developer’s ideas for the improvements. One of the most popular methods used for collecting customer feedback are survey and panels, where the questions asked or topics moderated tend to reflect interests of product development team and focus on how customers experience their product.

 

I would like to pose that truly innovative product developers use a different perspective to discover the needs customers cannot articulate in controlled or moderated environment – the perspective of holistic experience of a job the customer “hired” the product in question to do.

The journey starts with the understanding of what the “job” they want to do is and what a desirable outcome is. The next step is to imagine how this whole experience can be simplified in its entirety, which may or may not involve your product. I use the word “simplified” because it is an ultimate description of improvement in a context of “desirable outcome.” Terms we usually use to describe improvements – Better, Faster, Cheaper – are traps anchoring us to the incremental changes of status quo.

 

The complete customer experience starts with a notion that the desired outcome can be achieved, and goes through discovery of components required, acquisition of the components and/or materials and skills all the way through a process of applying them. Your product may be just one of many in that process, but if you can make it easier to find at the conception stage, simpler to understand that it is the best alternative to get the job done at the acquisition stage, and require less skill and/or effort to operate, that will make your product a lot more successful. However, truly innovative products do often have an element of disruption that does not easily fit into organizational structures. If you are a drill product manager, and survey satisfaction of a drill purchasers, the ideas of alternative wall anchoring to hung pictures will not likely come up. However, even if it does, how does it help you or your department?  I wonder if a celebrated genius of Steve Jobs could only manifest itself because he operated from above of organizational hierarchy.

 

The question is, “Can Customer Feedback help to create innovative products?” If you define Customer Feedback as the results of survey or other structured information-gathering method, the answer is NO. The best outcome of these exercises is reduced uncertainty about your assumptions (i.e., confirmation of what you already know). The probability of discovering an idea that could lead to the conceptualization of an innovative product is extremely low, but could be improved somewhat by allowing open-ended questions and a lot of unstructured comments.

 

I define Customer Feedback as any and all customer-generated content available about a product/service in any form customers chose to communicate it. That includes company and public forums, customer support notes and call transcripts, company sales notes, customer’s Facebook comments, and customer videos and reviews published online. The wider Customer Feedback “fishing” net is cast, the higher probability of innovative ideas discovery. Combine it with the right analysis methodology that does not tie you up with pre-conceived keywords and ontology, and your chances are looking even better.

Wrong Metrics and Damaging Results

customer feedback analysis“You cannot manage what you cannot measure.” Those are well known and accepted words of wisdom that have been taught to thousands of MBA students for decades. There is a lesser popular truth though—that measuring wrong things can really hurt your business. Definition, selection and design of appropriate, balanced and concise metrics, as well as the processes for continuous delivery of these metrics, are the key management challenges for every organization.

 

1.      Focusing on the “wrong” metrics will create unintended results.

 

One of the more graphic examples of “wrong” metrics is a ratio of successful convictions, widely used to measure success or reputation of public prosecutors. This one causes US taxpayers to waste hundreds of millions of dollars in court costs, compensation for wrongful imprisonment and lost productivity every year. Essentially this metric is measuring a percentage of tried cases that result in conviction against the total number of cases tried by the prosecutor. The higher the percentage of convictions, the more “successful” the prosecutor is considered to be regardless of how well justice is served, how many lives are destroyed and how much financial damage is inflicted.

 

Another example is the evaluation of a Product Manager performance based on the attainment of product forecast goals. While I am familiar with a popular definition of a Product Manager’s role as a “Product CEO,” the organizational reality does not often support this definition, as product managers rarely have administrative authority to enforce their decisions and act mostly as influencers. It is intellectually dishonest to keep them accountable for a result of a sum of aggregated decisions made by a multitude of people, but most importantly it does not help to bring desired improvements in products performance.

 

2.      Focusing on unbalanced metrics will promote bad behavior.

 

Performance is often measured by a singular metric, yet people are rarely expected to behave one-dimensionally. Everyone knows that a lot of digressions will be forgiven to a salesman who consistently makes his quota, even though his lack of desire and/or skill to forecast costs your company serious hits to profit margin. Imagine it is the end of a quarter and you are deeply discounting your product in a desperate attempt to make your company revenue numbers, just to see your “best” performer bringing in a “bluebird” deal you had no visibility of. He just caused you to give away profits, and you did not need to sacrifice for “please sign today” deals. A secondary measurement attached to accuracy of forecast and associated with commission structure can dramatically improve a company’s profitability.

 

3.      Concise metrics promote action.

 

Conversely, the convoluted metrics are a waste of time, expense and opportunity. Many Customer Satisfaction measurements are falling into this category because they are often too general, and the best cause of action you may take is to do more studies. Most companies do not even consider competitive influences on their customer’s assessment of their satisfaction with their products or services. Unless feedback from customer analysis of every key component of customer experience is continuously conducted, and in relation to competitive options available to the customers, it is very difficult to figure out why overall Customer Satisfaction is moving higher or lower, who should take any action and what kind of action should be taken.

 

In conclusion, I would like to suggest that any performance metric has to be evaluated in a holistic model as it is very easy to come up with a clever way to improve one aspect of a specific performance at a detriment of the long-term well-being of the company as a whole.