There’s an old saying in marketing that customers don’t buy products or services; they buy solutions. In other words, the more a company knows its customers, the better it is at predicting their wants and needs and solving their problems.
Understanding a firm’s core customers shouldn’t be too difficult. After all, they’re frequent users of its products and are apparently satisfied with what the brand already offers. But understanding the wants, needs and problems of non- and occasional customers – those “swing voters” who do not use a product on a regular basis – is a much trickier proposition.
“The first principle of finding new growth is that you’re always better off going after customers who are underserved or neglected,” says Wharton marketing professor David Bell.
Targeting new customers requires a deep understanding of their desires, attitudes and tastes. Firms must develop a keen appreciation for the market forces at play, and then figure out what’s missing in their current product line and where there may be potential openings for a new entrant. At the same time, companies must make sure that launching a product designed to lure a new customer doesn’t distract from serving the needs of current users.
It’s often hard for managers to know for certain whether introducing a new product aimed at a different kind of customer will be a worthwhile investment, both in terms the cost and the effort required. Many companies have successfully won over new customers by using short-term experiments to test the waters for a broader launch.
Company leaders on the hunt for new customers ought to ask themselves two questions, Bell advises. “One, is there potential growth here? And two, do I have the capabilities – both operationally and brand-wise – to jump into this new area?”
Finding a new niche
Going after a new customer with a new product requires a copious amount of market research. Companies must become very familiar with their target customer’s needs, problems and psychological make-up. Firms must estimate the size and value of the customer base they’re pursuing, and calculate how much effort they must exert, and how much it will cost, to acquire new customers.
“The ‘customer life value equation’ is easy to do in conception, but in reality it is very difficult,” says Bell. “The biggest mistake companies can make is spending a lot of money that they’re never able to recoup to acquire a new customer.”
When designing a new product for a new customer, company leadership must find out what their competitors offer and where there may be gaps in the market. Firms must predict how much volume the new product might sell, what price it will sell at and how much cannibalisation it will cause within the existing portfolio, experts say.
The new product might need a different sales channel; it might even require a new brand name. “Many companies succeed with sub-brands,” says Bell, pointing to the Courtyard by Marriott, a mid-priced spinoff of the higher-end hotel chain targeted at budget-conscious business travelers and families, as an example. “You’re not going to get all of the lavish services of the Marriott, but it will be near freeways and it’s for business travelers, and the Marriott brand is behind it. It’s a way to have your cake and eat it, too.”
Jason Green, a principal at The Cambridge Group, a consulting firm and a division of Nielsen, says that companies should generally focus their efforts on new products designed for “the middle, swing voters”. The goal, he notes, is to persuade those “who are unsatisfied and not using the category as often as you’d like to use it more.”
As an example, he points to a dilemma faced by Anheuser-Busch in the mid-2000s. Spirits, flavoured vodkas and wine were experiencing solid growth, but beer as a product category was stagnant. To grow the brand, the company had to understand the “compromises” that non-Bud Light drinkers were making, according to Green, who is head of Cambridge’s growth and demand strategy practice. Then it had to come up with a solution. “Beer is an acquired taste. It is has a pleasant bitterness. But the swing voters were looking for a slightly sweeter alternative,” he adds.