Operating a business without deeply understanding and actively managing both sides of the firm-customer relationship in an integrated fashion is somewhat akin to a physician treating patients without understanding their condition. The way firms often manage businesses might even be called egotistical. Egotistical firms may obsessively compare themselves with competitors, but the subject is the egotist, not the customer. In Lewis Carroll’s Through the Looking Glass, Alice is so fascinated by the images in the looking glass that she goes through it, into a world where backward logic and nonsense rule. Many business organizations . . . count themselves externally focused and do not recognize (that) in that looking glass, only the organization’s products, resources, and processes can be clearly seen, not real life customers....
—Michael J. Lanning, author of Delivering Profitable Value (2000)
In order to set business objectives, a realistic grasp of the market environment in which the business operates or will operate in the future, is necessary. This requires a deep understanding of the fundamental determinants of market structure and customer behaviour relating to an entire need arena, not just the product–market currently served by the business. Here are some examples of customer-based setting of business objectives that could lead to a totally different answer from the supply-side view, and open up huge opportunities:
For a country (market) where 21 million babies are born in a year, the current market size of the baby products FMCG and of branded apparel for children is very small in India (under USD 200 million). A new entrant setting long-term goals must understand why is it so. Is price point an issue? In the case of FMCG, is it the problem of global companies insisting on high margins, for example, Johnson & Johnson? Does the problem pertain to the lack of branding know-how amongst local apparel manufacturers and the dollar price conversion that global brands would like to get? What kind of special requirements do consumer feel babies have? Is there a huge opportunity for a certain kind of business proposition, and is that what your company can offer?
Tortuous demand analyses are made on the car market in India, based on modelling the likely industry sales based on a set of macroeconomic, demographic, gasoline prices and road construction type variables. Companies then set targets of market share of the forecasted industry sales and use them to define their long-term objective. If a company is a smaller player or a new player, the target market share is set much lower. But let us consider what would happen if we used a different consumer-based logic to define the long-term goals for a company. In many large cities in India, there is no organized taxi service despite many customers who have the money to spend on comfortable transport but do not own cars or if they do then drivers are scarce and the roads are tough to drive on. This points to a new and immediately available market to sell cars as taxis for a car company that is willing to make the effort to partner with others to build an ecosystem for offering a taxi service. This market could be as large and growing as that possible through fighting in a crowded market for personally owned or corporate owned cars.
The ready-to-eat processed food market in India has been small and, though growing fast, disappointing in size, considering the large population and rapid income growths and changing patterns of family life and gender roles. However, before deciding what the long-term business objectives should be based on supply side industry size estimates, consider this: In India, we eat about one trillion chapatis a year but have no sale of ready-to-eat or ready-to-cook chapatis. Are consumers resistant? No, Indian women do not like the negative labour involved in making chapatis; but for some reason, no player in the processed food business has been able to offer good quality chapatis to the market at a reasonable price.
Excerpted with permission from Customer In The Boardroom? Crafting Customer-Based Business Strategy by Rama Bijapurkar, published by Penguin Business.