CUSTOMER STRATEGY

Truly understanding who your target customers are is a fundamental step to almost any type of strategy. One of the easiest ways to improve a company is to establish and internally publicize the target customer(s) and their persona(s).

If everyone in an organization truly understands who the target customer is then they can:

1. Differentiate the value proposition to the customers' needs

2. Supercharge & align go-to-market strategies to them

3. Customize every facet of the business to the target customers

4. Ultimately, drive better customer and financial value than competitors

The right target customers can unlock the growth potential of a business. Most companies need to focus on their target customers, by better defining and evangelizing their existing target customers, or by reducing the number of customer targets they are pursuing. In some instances, a business has the growth option to expand into new target customers, typically after most other growth options have been exhausted (e.g., new products and services, go-to-market, geographies), since expanding into new customer segments can be one of the most expensive and risky strategic growth options.

Below are the typical conditions that lead to either focusing or expanding customer targets.

FOCUS

• Fragmented business
• Org drowning in complexity
• Lack of compelling value proposition
• Don't understand the customer

EXPAND

• Winning with existing customers
• Superior value proposition
• Clear plan to dominate new target(s)
• High business model synergies

Brooks, the running shoe company, was founded all the way back in 1914. In the mid-'70s, Brooks became the third-largest running brand behind Nike and Adidas. From 1978 to 1980, sales skyrocketed from $14 million to $43 million. With the growth came significant quality issues, which led to financial mismanagement and bankruptcy in 1982.

After being acquired out of bankruptcy for $1.25 million, the 1980s and 1990s were marred by eight consecutive years of losses, driven by an unsuccessful attempt at following Nike's strategy of expanding into tennis, basketball, baseball, and football with expensive endorsement deals.

In 2001, with $65 million in revenue, but yet again on the verge of bankruptcy, Jim Weber took over as CEO of Brooks. As Jim explains it in an Inc. article, "we were everything to everybody and were sixth, seventh, or eighth at everything.”

Once Jim focused on 35-54-year-old runners, the next step was to align all of Brooks' business model strategies to this target customer, including the value proposition, go-to-market, and operational strategies. He started by focusing the value proposition on $80+ premium running shoes, the sweet spot for 35-54-year-old runners. This customer focus was a dramatic step for Brooks, as Jim had his team cut half of the product line, which was worth $30 million in sales.

The next step was to focus his go-to-market strategy to better serve 35-54- year-old runners. In parallel to eliminating 50% of his product line, he focused his sales team and distribution on specialty running shoe stores, removing discount retailers and low-price sporting goods from distribution, including his largest customer, Big 5 Sporting Goods. Instead of re-marketing the company, he re-directed the marketing budget to fund the design and development of the next line of Brooks' premium running shoes. As Jim said in a NY Times article, “The big brands have huge marketing budgets, but the runner looking for the best shoe is the one in charge.”

Once the premium running shoe line was filled out, Jim then focused his marketing efforts on more than 500 grassroots running events across the country, which were highly attended by his target customer of 35-54-year-old runners.

With the value proposition and go-to-market strategies aligned with the needs of 35-54-year-old runners, Jim aligned his organizational and functional strategies to drive the efficiency and effectiveness of developing and delivering the value proposition and go-to-market strategies. He backed up his goal of building the best running shoes for his target customer, by creating a core competency in technical running shoe product development, with a team of product engineers and an advanced running lab.

Brooks focus on serving the needs of 35-54-year-old runners has paid off. Jim and his team grew Brooks' revenue from $65 million in 2001 to $500 million in 2014. In 2014 Brooks was #1 in specialty running stores with 31% market share. In 2004, Russell Athletics acquired Brooks for $115 million. Subsequently, in 2006 Berkshire Hathaway purchased Russell Athletics, and spun out Brooks as a separate operating company.

There are so many ways to think about and describe a target customer, which can be distilled into five dimensions (above). In the case of Brooks, they used demographic (mid-to-high income 35-54-year-olds), affinity (runners), and probably a bit of psychographics (likes technology, doesn't follow the masses) to define their target customer.

What customer dimensions are used to define your target customer?

If you are in a business-to-business (B2B) market, then the dimensions look slightly different. Instead of demographics, there are firmographics, which are attributes of the business, such as industry, size, and location. In B2B, affinity is more about the products and services a company may use. Also, the psychographic dimension deals more with the buying process, decision-makers, and influencers.

Step 1 of a customer strategy project is to conduct customer, market and competitive research utilizing both internal and external resources. The goal of the research is to start shaping the architecture of a customer survey, especially the value proposition and go-to-market sections, and scoping out potential areas to deep dive into for further validation and insight.

INTERNAL RESEARCH
What internal data & research do we have or can create? What insights are there? Who are our most valuable customers?

Typical analyses include:
- Internal Research & Analysis
- Pareto, Segmentation & Trend Analysis

EXTERNAL RESEARCH
What market & trend research is there on customers? How is the market segmented? Who are competitors targeting?

Typical analyses and tools used include:
- Market Research
- Problem Solving

HYPOTHESIZE
What is important to customers? What are potential customer segments to focus on? Why? How will we decide?

Typical customer research tools include:
- Brainstorming
- Problem Solving

Regardless of whether you have a defined target customer, conduct a customer strategy survey every few years. We live in a time where dynamics change overnight, competitors pop up from out of nowhere, and generational divides are ever-evolving. We're not going to cover proper survey design and execution (if you need help with that, drop us a note). Instead, let's focus on what you are trying to accomplish with a survey and the major elements to cover.

Too many companies go for the "what sticks on the wall" approach to surveys, as they throw in the entire kitchen sink, while often omitting some key aspects. One retailer I worked with conducted a survey that turned out to be fairly useless. They didn't include their primary vendors as a choice for customers to purchase products from, even though 30% of their vendors' sales were from direct-to-consumer channels (online, factory stores). By omitting vendor channels they didn't generate any insight into one of the largest market and customer dynamics.

Be very thoughtful and strategic in survey design. You have 15, maybe 20 minutes with survey respondents before they start giving you junk and dropping out. Prioritize what is important to ask regarding customer descriptors, the value proposition, and the go-to-market. When you think you are done with the design, go back and be clever about how you can shrink it more, and drive more insight. A well-designed and executed customer survey is the foundation to develop excellent strategies across your entire business model.

DESCRIPTIVE CUSTOMER DIMENSIONS
What are the important demographic, psychographic, behavioral, affinity, and value attributes for target customers?

Typical analyses include:
- Problem Solving
- Brainstorming

VALUE PROPOSITION
What do customers value in the products, services & pricing…now vs. in the future? How do we compare vs. the competition?
Typical analyses include:
- Polling
- Ethnography
- Brainstorming

GO-TO-MARKET
How do customers learn, decide, buy, use? What are effective marketing, sales, and distribution strategies? What are the trends influencing purchasing decisions?

Typical analyses include:
- Research
- Problem Solving
- Brainstorming

Once you have executed the survey and cleaned up and normalized the survey data, it is time for the systematic analysis and synthesis of the data. You want experienced data science professionals working alongside business experts to drive the continuous hypothesis creation and validation of insights. While there is much science behind the analysis, the art is in what you are looking for and how best to synthesize the findings.

Once you tease out potential target customer segments from all of the analysis, then you move on to engage the leadership team in problem solving workshops to deliberate and decide on the right target customer to unlock the growth potential of the business.

GENERATE INSIGHTS
What are the “aha” insights on customer segments, make-up, value, trends, gaps, and opportunities? Insights on competitors?

Typical analyses include:
- Cross-tabs & Segmentation Analysis
- Statistical Analysis
- Problem Solving

SYNTHESIZE
What are the top potential target customers? Why? What are the decision criteria and scores for the targets?

Typical analyses include:
- Decision Matrix
- Problem Solving
- Storyboarding

DELIBERATE & DECIDE
Which target customer(s) provide the most value potential for the company? Why? What are the implications?

Typical analyses include:
- Prioritization Matrix
- Facilitated Workshops

Once a team settles on a target customer the hard work begins with getting all the employees' minds to embrace the target customer in their thought process, problem solving, strategy development, and decision-making. Evangelizing is the first step, which is change management 101. Commit the resources for a robust internal marketing campaign. Also, reinforce the target customer in communications and throughout the training, materials, and artifacts throughout the employee journey. Put in place the metrics and governance to track success with the target customers. Most importantly, ensure all of the strategies (e.g., business model, value proposition, go-to-market, and functional) align with the needs of the target customers.

EVANGELIZE
What is the plan to market the target customer to employees, and drive change management in decision-making?

Typical analyses include:
- Marketing Campaign
- Change Management
- Employee Journey

MEASURE
What target customer success metrics should be measured and reported on? Will there be incentives?

Typical analyses include:
- Business Intelligence
- Governance

ALIGN STRATEGIES
How will other strategies align with and differentiate for the needs and persona of the target customer?

Typical analyses include:
- Strategic Planning
- Brainstorming
- Workshops

The majority of companies we work with either don't have a defined target customer or need to define their target customer better. Once they determine the right target customer, solving the rest of the strategies across a business model becomes easier. Customer strategy projects aren't difficult if you employ the proper methodologies and problem solving. The projects are always full of insight, fun, and impact.

If you want to talk about your customer strategy with an expert, set up some time with Joe Newsum, a Mckinsey Alum, and the author of this content and website.