It is common to gather the voice of customers (VOC) to understand their changing needs. This helps any organization to better serve its customers. By learning about specific needs; products and services can be customized. Thus over a period of time, organizations build the know-how of segmenting customers very precisely. This helps in creating and pruning targeted marketing campaigns, in addition to customized products and services. Such an approach is a staple component of most organization’s customer acquisition & management strategy.
But a serious flip-side to such an approach is that the cost of acquisition can become higher.
- Organizations need to run targeted marketing campaigns for each segment.
- With time, number of sub-segments will increase.
- This will lead to increase in the cost of production.
- Additional design costs, incurred for customization, will sky-rocket.
- After all, customization works against the scale of economy.
More importantly, customization puts organizations on a trajectory of high cost of reversal. What if, changing dynamics lead to change in customer needs that you cannot easily fulfill? Consider the example of Bajaj Auto & Kinetic Motors: ‘Cheetak’ & ‘Kinetic Honda’ were their flagship products. Around the turn of the century; stringent pollution norms, and changing demographics of customers (decrease in the average age for 2 wheeler users) led to the downfall and eventual extinction of these products. While these are just product lines, there are examples of large corporations that have disappeared too.
What many companies miss; is the opportunity to attract buyers who don’t resemble their existing customer segments. Their rationale, such inclusions distorts their well defined customer segments. But, in reality, they miss the opportunity to reach beyond existing demand. With shrinking markets, this is imperative for many industries today.
More importantly, knowing what your customers want will only help you serve them better. Never will it help you attract new buyers. Thus, to grow your business, organizations need to look at potential non-customers; understand their common needs and rework offerings to attract them.
To take this one step forward, let’s understand the 3 categories of non-customers as per Prof. Chan Kim and Prof. Renee Mauborgne of INSEAD as described in Blue Ocean Strategy:
Reluctant Customers
- Customers who minimally buy from your industry/company and out of necessity.
Strong Detractors
- Non-customers who refuse to use your industry/company offerings due to past bad experiences or because they can’t afford.
True Non-customers
- Non-customers who have never thought of your industry/company offerings as an option or you aren’t aware of such customers.
Let us learn this concept with an example from the cable TV industry.
A major DTH provider in India, TATA Sky and many other DTH operators in India, have reached out beyond their existing market demand (of just offering TV channels), and thus, have grown disproportionately.
There are many such examples of enterprises in B2B and B2C that have focused on common needs of non-customers. They developed simple products and services, and have successfully captured new markets. The story of how Gillette tapped retail shaving market beyond supplying blades to saloons, way back in 1900′s, is a standing example from yesteryear.
If you wish to create a growth strategy based on non-customers, then your organization’s Strategic Planning Process should drive the following
- Shift away from segmenting existing customers, and addressing needs by customization. Rather, look at common needs of non-customers and address them as a whole.
- List down non-customers for your industry/organization, and identify their common needs.
- Most importantly, prioritize these common needs based on market potential and opportunity.
- Revisit existing product and services to tap new demand.
- Integrate this strategic intent with organization’s overall strategy execution.
- Set up a mechanism to constantly tap the voice of non-customers too.
Thus, the approach is straight forward, but it would require an ample commitment from the leadership to divert their attention towards consciously targeting non-customers rather than customers!
Blue Ocean strategy shapes strategic structure to create new demand and generate high growth for the company. To create such a strategy, there are a set of analytical tools and frameworks used in formulating and executing it. The first and foremost tool in value innovation and creation of blue ocean strategy is the strategy canvas.
Also known as Snake Plot, the basic component of strategy canvas is value curve that is nothing but a graphical form of company & competition’s current state of play in the known market. This mapping makes us understand where the competition is currently focusing, the factors that the industry competes in selling its products, service and delivery and what the customers receive from the existing competitive offering on the market. Strategy canvas helps us to reconstruct the buyer value essentials by questioning its existing industry’s strategy and business model by shifting our focus from competitors to alternatives and from customers to non-customers of the industry thus making a trade-off between value and cost. It tells the story in one page.
How to read a value curve of strategy canvas?
The horizontal axis captures the key factors the industry competes on and invests in. The vertical axis of the strategy canvas is a rating scale that captures the current state of play of key competing factors
How strategy canvas is created?
Key factors are those value creating components a company invests in resources, processes and capabilities and involves strategic choices and impacts strategic purpose. To know the key elements the team has to do extensive research and analysis within the organization as well as outside, interactions with customers about the product, service and delivery. After determining the key elements, the team has to give rating to these elements. The rating given may be relatively low, low, medium, high, relatively high etc. The rating given to each key factor must be fair and unbiased. Let us consider an example from the professional development and education sector.
The above graphical depiction shows the professional development courses offered by the premium training providers and budget training providers. The horizontal axis has the key factor such as price, certification recognition, job/project opportunity, time to complete this course, relevance to industry/application, face to face interaction and market value for certification. The vertical axis shows the relative value buyers receive across all these key competing factors. For example, premium providers price their product/service higher than budget providers and so on.
Thus by preparing the strategic canvas the company is ready to explore how to redraw its strategy to create blue ocean. It forms the basis of value creation and value capture for a company and helps in creating value innovation.
The strategic canvas can be constructed for different strategic groups (organizations that differentiate themselves by pricing) or between the organization and its competitors.
The primary difference is in the application of strategic canvas after its creation. In case of Blue Ocean Strategy, the next step is to include substitutes and alternatives in the canvas rather than mean competitors within the industry. After inclusion, the team uses the 4 action framework to create Blue Oceans.
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