Many companies, large and small, think they can sell the same goods and services to the same buyers forever. Founders of these short-sighted firms don’t realize that customer demand changes. Moreover, there are many groups of customers, each with its own requirements. Growing firms must design products to satisfy this ever broadening range of end users, whether that means making products er, faster, easier to use, or more versatile.
For all start-up and growing firms, the initial customers are innovators and early adopters looking for new and better solutions to their problems in the form of products. According to author Phillip Kottler, this group is relatively small (see chart), but influential in helping to promote the solution. The next natural set of customers, the so-called early majority, does not share the requirements of innovators and early adopters. Since this group is relatively large, it is a critical segment for any growing company to capture and retain.
The right way to grow a company is to migrate with all these customer segments as they evolve. This means anticipating each group’s requirements and reacting faster, and with more compatible solutions, than the competition, Growing firms also must study the next-generation consumer, modifying products to satisfy this customer base, Some companies are more successful at this than others. Honda’s entry Into the U.S. market is a good example.
When the Civic first appeared in the early ’70s, it was broadcast by innovators and early adopters as the answer to their needs, That model quickly was followed by a spate of others, all of which appealed to an ever-widening group of upscale customers. Lexus has done the same thing; the company broke into the luxury segment of the market by appealing to innovators, who influenced early adopters, who, in turn, influenced the early majority of luxury-car customers.
Subaru hasn’t been as fortunate. In the late ’70s, the auto company made rugged, inexpensive vehicles that satisfied innovators and early adopters. Yet it completely missed the early majority with its midsize family sedans in the late ’80s, Innovators didn’t buy them, and the automaker posted seven straight years of losses. George Muller, Subaru chief operating officer, has attributed the loss of “at least $300 million in foregone sales” to the company’s positioning mistake.
Confusing a product with a business has caused many good firms to collapse just when they were on the verge of success. People’s Express is a classic example, People’s set out to be the no-frills solution to air travel, This worked well for innovators and early adopters. However, the airline’s management soon discovered that the early majority was dissatisfied. That segment flew the coop, and the airline found itself caught in myriad operational and cultural issues. That eventually led to permanent grounding.
The flip side of this situation is Kiwi International, the two-year-old Newark, NJ-based airline. Its similarity to People’s is amazing initial inexpensive fares and no-frills flying-but that’s where the stories diverge. Kiwi is dedicated to quality service and customer care. I don’t remember ever being asked by People’s if I was satisfied with my air travel. Kiwi asks.
But it’s not enough to just ask; a company also has to listen to its customers. Deerfield, IL-based Commerce Clearing House grew into a top 10 Fortune 500 star in the late ’80s. CCH management was content to publish business and economic data for its customers in traditional print form. Advances in information technology, however, enabled competitors to provide the same data electronically and faster. CCH lagged the market in grasping this trend, eroding its customer base.
Technology was also the undoing of Quotron Systems, which once had a lock on the stock-price information business.
The ticker machine, which spat out a stream of paper tape, ultimately was eclipsed by versatile desktop PCs.
Laggards also pay the price outside technology-driven markets, Remember Merry-Go-Round Enterprises? In the late’80s and early ’90s, this rapidly growing, Joppa, MD-based clothing manufacturer capitalized on the hip-hop look for young men. Over time, its early majority shifted to jeans and flannel shirts, Merry-Go-Round didn’t. In 1994, the company filed for Chapter 11. Then-Chief Executive Michael Sullivan admitted, “The fashion environment for young men became very conservative, and we stuck with what they used to wear”
Customers change. To be a long-term success, you must understand the natural customer adoption cycle and respond proactively. Migrate with your customers, anticipate what you must offer to retain and enlarge your customer base, and treat all your customers as the appreciating asset they are.
Robert M. Donnelly is chairman and managing partner of Alpha International Management Group, a New York-based consulting firm that works with growing companies.