With the advent of big data, companies can today collect an enormous volume of customer demographic and psychographic data and use that information to perform sophisticated analyses. The knowledge gained from the analysis is then used to help the business make and sell products to a well-conceived customer archetype. The problem is that many businesses rely too heavily on this demographic and psychographic information alone. As a result, many businesses fail to talk to actual customers using a sense and respond model.
Stephan Haeckel, an American management theorist and former director of Strategic Studies at IBM’s Advanced Business Institute, wrote a book called Adaptive Enterprise where he stated that most businesses rely on a “Make and Sell” business model and postulated that businesses need to embrace a new model that he called “Sense and Respond”.
For business owners, it’s really easy to get sucked into focusing almost exclusively on what you do and the technology you are developing and lose sight of what it is you’re trying to solve for the customer. Businesses spend too much time and energy on the “What” and the “How” and not enough time really understanding the problems of a specific niche of customers by using a sense and respond model.
Broad hypotheses about who the customer is and what their problems are being used to make and sell products and offer services without conducting any real-world validation with members of the target market. This problem is particularly acute for large companies that need offerings with mass appeal to justify developing a solution. By losing sight of the customer’s real problem and needs, they fall into what some call the “Solutions Trap” and become so obsessed with their own idea that they lose sight of the customer’s real problem they are trying to solve.
When it comes to gathering customer data, most of the data collected is used to show correlations. For example, 68% of customers say they prefer version A to version B. While it’s interesting to look for patterns in the numbers, they don’t identify causality.
Let’s say you operate a local community newspaper. Having in mind a customer archetype that includes knowledge of the typical reader’s age, education level, and whether they own a home or apartment does not explain why many subscribing customers choose to subscribe to your newspaper. Perhaps your reader has played a sport at one of the local high schools in your community and enjoys following their progress through the season. Or maybe the reader owns a local business and is more interested in looking at competitors’ ads.
Marketers who collect and rely heavily on demographic and psychographic information to define their customers focus on finding correlations. They may say they want to learn more about their customers, but this information takes them too often down the wrong path. I have heard it said that marketers who focus on demographics and psychographics to attempt to define causality are committing marketing malpractice.
Instead, companies need to engage in more customer discovery to generate meaningful data on customers, such as what they want to achieve with your product or solution, or what are the challenges they encounter with other solutions. Sadly, this is a process that too many entrepreneurs, and the marketing organizations designed to support them, overlook.
What most businesses need to do is to define the progress that the customer is trying to make in a given circumstance or what they hope to accomplish. A customer is not buying a drill to make a hole. The hole is not what the buyer of a drill is trying to accomplish. The hole might be part of a solution, for example, the hole may be necessary to insert a molly bolt to secure a rod for a set of drapes. Hanging drapes is the reason the customer may need to buy a drill. In another example, the customer may want to install a new deck and needs the drill to drive deck screws, or maybe the customer intends to attach a wire wheel to remove grout between tiles.
Clayton Christensen calls this understanding “The job to be done”. Unfortunately, looking for correlations with other buyer segments is not going to capture those reasons.
When a customer buys a product or service, they are essentially buying it to help them do something. This is what Clayton calls “The job”. If it does the job well, the next time they are confronted with the same job, they will likely buy that product or service again. However, if it no longer does the job well, they look for an alternative.
I recently read an article about a condo developer in Detroit that demonstrated the value of talking to the customer rather than relying on demographic and psychographic information. The developer was building a bunch of condos. To put it into perspective, the time frame was just before the financial crisis of 2007 and 2008. The developer designed the units for two types of target customers based on demographic and psychographic data. One was retirees downsizing the family home where they raised their families and the other was divorced, single parents. They used the customer data to determine what their buyers would like to find in a condo. They added some touches of luxury to make them feel better about downsizing and priced them competitively.
Believing the target audience to be busy people, they employed well-informed salespeople and made them available many evenings and weekends to accommodate their prospects’ busy schedules. After running a bunch of ads, they soon discovered that while they received lots of traffic, few turned out to be buyers.
Frustrated with their conversions, they used their industry knowledge to look for ways to improve the product. The condo developer doubled down on their “Make and Sell” mindset and decided that adding a bay window to let in more natural light would make their units more appealing to buyers. They scrambled to get their designers and construction company to add bay windows to the units in hopes that the improved product would help them sell more condos. Unfortunately, adding a bay window didn’t improve sales conversions. They discovered that adding a bay window made little difference between the tire kickers and the serious buyers.
As an outsider, it is easy to speculate about the reasons for their poor sales. Maybe it had to do with bad weather on their open house days, underperforming salespeople, a rise in interest rates, or even the location of the development. However, instead of examining those factors, they used some made-up archetypes based on downsizing retirees and newly divorced single parents and made huge leaps of faith based on this data.
At the end of their financial rope, they finally decided to switch from a Make and Sell model to what Christensen and Haeckel defined as a Sense and Respond model. Rather than rely upon general demographic and psychographic data to make decisions, they decided to interview a few of the people that bought some of the condos and asked them about their buying journey. What they discovered was there was no clear demographic and the only thing they had in common was most were downsizing from larger homes. They also discovered that there was no single design feature that these buyers valued so much that it tipped their decision to buy.
Tire kickers said they valued the big living room and the large second bedroom for visitors as well as the breakfast bar. They also said they didn’t even care about having a formal dining room. However, what the condo developer discovered when they spoke to the actual buyers was in fact related to their dining room table. They heard in many of their interviews that “As soon as I figured out what to do with my dining room table, I was free to move.”
Digging deeper, they uncovered that the dining room table represented a living history of sorts. Every birthday and holiday took place around that table. Homework with the kids and vacations were planned at that table. The table represented family. Some wanted to bring their dining room table with them because they had so many memories but the dining room area was too small for their dining room table. Others needed some time to figure out what to do with the tables, as they felt that donating or throwing them away was not a viable option for a piece with such sentimental value.
The condo developer realized that they were not in the business of building and selling condos. Instead, by adopting a sense and respond mindset, they discovered they were in the business of moving lives. Based upon this insight, the designers shrunk the size of the second bedroom to accommodate a larger dining room. They focused on ways to ease the anxiety of moving by providing moving services. They also provided a storage facility where new owners could take their time deciding what to keep and what to discard. The result was they were able to raise the price of the units and grow their business by 25% during the 2007-2008 financial crisis, while the rest of the industry plummeted by 49%, all because they replaced a Make and Sell mindset with a Sense and Respond one and finally decided to talk to actual customers vs relying on demographic and psychographic information.
Is it time for you to replace your “Make and Sell” mindset with a “Sense and Respond” mindset?
