Do You Know What Your Customers Are Really Buying From You?

How does an enterprise create sustainable value? Through listening to customers and innovating products and services they want to buy? Or by creating a product and hoping the world beats a path to its door (or website) to buy it?

The better answer—listening to customers and innovating products and services accordingly—plays well in PowerPoint presentations under the Why We’re Customer-centric banner, but many truly smart people still don’t get it.

An article, The Innovation Illusion, by Sergio Zyman, contains a compelling real-world example. “While Sony was busy making colorful new versions of personal, portable CD players, Apple was out there redefining portable entertainment. Sony should have introduced iPods, not Apple. So what was the domain of Sony is now Apple’s forever.”

If Sony can find solace about squandering an opportunity it created almost 30 years ago, it’s in the fact they have plenty of company. In February, Polaroid Corporation announced it would cease manufacturing virtually all of its instant film, closing three plants in the process. Polaroid’s explanation: “marketplace conditions,” which is business-speak for “so few people want to buy our products that we can’t afford to produce them.”

If you were born before 1980, you’ll recognize these other not-seen-lately products to add to the dustbin: water beds, dustbusters, cigarette vending machines, mimeograph machines, and multi-media all-in-one stereo systems. The list goes on. The all-important wall-mounted pencil sharpeners that used to adorn almost every school and workplace? Made obsolete by computers and mechanical pencils. Many of the companies that were dominant suppliers are no longer in business. Marketplace conditions also likely claimed the financial stability of the ecosystems of people and companies that produced these products—parts suppliers, retailers, resellers and distributors, and sales forces.

So why do some companies closely tied to blockbuster successes like Polaroid Film and the Sony Walkman lose momentum while other companies perpetuate through other offerings? A new book, Think Two Products Ahead, by Ben Mack, explains why, making a case for understanding customer need and building brand equity to support it. Mr. Mack supports his point by describing how in the late 1800’s, Wells Fargo transitioned from a delivery company to a financial services company by understanding that trust was what their customers were really buying. “Trust is the essence of the Wells Fargo brand, more than its physical banks, checks, or even its name. The name became a symbol of this trust, but without this trust, the company would have evaporated when the government took over Wells Fargo’s express business. It was the customers’ willingness to do business with Wells Fargo that allowed it to continue when the business suddenly had to switch product offerings. It was the business managers leveraging Wells Fargo’s common thread that facilitated the company finding new business opportunities.”

What creates the success-failure chasm between companies like Wells Fargo and Sony and Polaroid? Could it be in the questions they ask—or not? Did Wells Fargo survive through astute introspection? Were senior managers from Sony and Polaroid so enamored with their own revolutionary technologies that they failed to later ask the same questions that ironically might have helped create their own breakthroughs? These questions include:

What does our next customer want to buy?

What emerging forces will impact our business?

Are there new business models or technologies that should be adapted to deliver radical improvements in the value we provide?

What proprietary advantages must we exploit to sustain or improve our market position?

Are there shifts in market power or industry fragmentation that create new sales opportunities?

A historical comparison will prove that asking questions such as these—and taking action on the answers—have played an important role in every successful product or business venture. Curiosity has great innovative power.

The next time I nostalgically remember a product or company made newly-extinct by marketplace conditions, I’ll just say “We bought one of those! It worked so great at the time.” But I won’t need to guess about what happened.