8.
Create for Future Customers
Current customers are complacent; make big changes to attract the next loyal following.
Do you ever feel like the more you focus on keeping your existing customers happy, the more you feel constrained by their needs?
Age-old marketing principles tell us to reward loyal customers and use them as ambassadors for our brand. They also tell us it’s cheaper to retain an existing customer than to attract a new one. Often an unsatisfied customer can be retained with a personal gesture, such as a phone call or a small gift, while new customers require a long courting process before they can be convinced to switch to your product or service.
But the downside of a customer retention mindset is that it undermines your ability to innovate and create new products and services, because you’re focused on what your customers currently want versus what they might actually need.
Think about how mad your parents got when they had to replace their first smartphone with a new model, or how upset you get when Facebook changes its interface. If given the choice, your parents would likely stick with their old phones and you’d likely keep using the old Facebook interface, because you’re both comfortable with them. Your current customers often think the same way.
If Facebook never updated its features and interface because it was afraid of pissing off current customers, it would never have grown to be the largest social media platform in the world.101
The people who fell in love with your brand last year are likely not the same people who are going to make you more successful next year.
Many small tokens versus a few grand gestures
Picture a sprawling agricultural trade show in the middle of January. The heating system is working overtime to fend off the bitter cold, and inside, thousands of people in boots and ball caps sweat under their winter coats. The sand footing from the cattle and horse competition arenas has been scraped away, and now hundreds of trade-show booths crowd together in narrow rows.
Here, you can buy everything from a $4 tub of farm-fresh honey to a million-dollar tractor. There are snake-oil traders hocking miracle treatments for sore joints, livestock breeders hocking bookings for their prize bull, grain buyers hocking their low-risk-high-reward sales contracts, and seed companies hocking their newest variety of wheat.
Everyone has a something to give to visitors who stop by their trade-show booth. Advertising agencies can get rich quick by producing materials for the businesses that attend these shows. The client request will often look like this:
“We want a trade show strategy. Our goal is to get 100 new customers, which equates to $1 million in sales. We have a budget of $250,000 to produce branded giveaways. We expect 50,000 people to come by the booth, so we need 50,000 pieces.”
This type of request has always confused me. I’ve attended the trade shows, and after one day of walking the floor and visiting the booths, you could fill the bed of a truck with stress balls, mini-flashlight key chains, iPhone attachments, pens and notebooks, along with gloves, hats, and T-shirts.
No one’s tchotchkes stand out from the rest, yet every business feels they must produce them. They’re afraid that if a loyal customer comes by the booth, and their trade-show staff do not have a branded hat to offer them, that customer will be offended and take their business elsewhere.
Every company says their trade-show goal is to acquire new customers. Yet if you asked the marketing manager at the agriculture company, “Can you identify 100 farmers whom you would love to acquire as customers,” they would say, “Yes.”
And then if you asked, “Do you know what those 100 farmers want from your company,” they would again say, “Yes.”
Finally, if you asked, “Why not take your $250,000 and use it to do something really special for those 100 farmers when they’re in town for the trade show,” they would say, “We can’t because we would have nothing left to spend on small gifts for our existing customers.”
I’ve never understood the logic. I find it hard to believe that a loyal customer would walk away from their favorite brand if they didn’t get a laser pen from a trade-show booth. But a customer is often worth a minimum of $10,000 to a seed company, so it’s an expensive risk to take. Therefore, companies continue to spend hundreds of thousands of dollars a year on tchotchkes to mitigate that risk. At the same time, they abandon the opportunity to get new customers.
Innovation doesn’t come from places of comfort and security
Why do we set big goals but then hesitate to make the correspondingly big changes required to achieve them? With product innovation, we often opt for small, incremental product improvements. In marketing, we might split the budget so that half of the funds are spent rewarding existing customers and half are allocated to a new customer-acquisition strategy.
Organizational leadership may say, “We want our customers to grow with our product.” What they’re really saying is, “We need to get better so we can attract new customers, but we don’t want to freak out our existing customers to the point that they leave.”
In other words, companies want to have their cake and eat it, too. But innovation doesn’t come from places of comfort and security.
Branding expert Kevin Roberts says great ideas come from the fringes — from the places where resources are scarce, and you have nothing to lose and everything to gain.102 The people on the fringes (like disruptive start-ups) don’t have loyal customers to offend. Their outsider position creates the distance necessary to fully explore the needs of an ideal customer. Their mindset is fully geared to acquisition.
If you have a retention mindset, you’ll wrestle with the Proximity Paradox. Rewarding loyal customers will become your MO. You’ll focus your attention on customer satisfaction surveys and net-promoter scores — items that show how your customers felt in past. This data cannot guarantee future performance, and worse yet, it keeps your attention on old actions. You’ll fail to see the new idea and opportunities on the fringes.
Is your product ten times better than the one a prospect is currently using?
Many entrepreneurs fall into the trap of building products that are only marginally better than existing solutions, hoping their innovation will be good enough to woo customers away from existing products.103
— Nir Eyal, Hooked
According to internet pioneer Bill Gross, you must be ten times better than your competition to get a potential customer to switch. If you want a competitor’s customer to step out of the comfort zone afforded by their current product choice, and willingly wrestle with the learning curve required to learn yours, your product must be irresistibly better to make it worth their while.
Consider this sobering statistic. John T. Gourville, a professor at Harvard Business School, says 30,000 new packaged goods are introduced to the US food industry every year. Only ten percent to thirty percent will survive on store shelves for more than twelve months.
Gourville goes on to say, “Consumers overvalue the existing benefits of an entrenched product by a factor of three, while developers overvalue the new benefits of their innovation by a factor of three. The result is a mismatch of nine to one, or nine times, between what innovators think consumers desire and what consumers really want.”104
Is your product nine or ten times better than the competition’s? If not, what will it take to get there? To make that size of change, you’ll need to temporarily put the needs of loyal customers on the back burner. It will be uncomfortable, and a few existing customers may jump ship along the way, but freeing yourself to pursue new customers will invite a new level of innovation and creativity into your organization.
When the hard-core gamer market was saturated, Nintendo found a new, untapped audience
You probably don’t realize it, but multinational Japanese consumer electronics and video game company Nintendo began as a manufacturer of handmade playing cards! That was way back in 1889, but Nintendo continued with that product focus for the next six decades. No one could have imagined the high-tech video game industry that Nintendo would eventually dominate.
The company has adapted and evolved over time. One of the reasons it has been able to both survive and thrive at different times in its long history is by continually innovating to attract new customers. This mindset was perfectly demonstrated by how it reacted when the hard-core video gaming market became saturated.
Nintendo entered the video game industry in 1974. In the early 1980s, it released its first major success: the iconic Donkey Kong game that introduced the now-famous Mario character. The video game industry exploded over the subsequent decades and Nintendo rode the wave. They subsequently developed a video game franchise around Mario and other popular games they developed, including Pokémon.
With the surging popularity of video games, the industry became highly competitive and saturated with a seemingly endless array of products. Advances in technology also meant that high-quality video games can be produced and distributed online by smaller start-ups.
In addition to Nintendo, dominant players that emerged in the video game industry include other multinational giants, such as Electronic Arts, Sony, Microsoft, and Sega. It became increasingly difficult for the established companies to grow their already large revenues in the face of intense and increasing competition.
The Japanese economy also experienced a prolonged period of recession in the 1990s and early 2000s when the market was reaching maturity. Nintendo’s then-president Hiroshu Yamauchi remarked at the time, “If we can increase the scope of the industry, we can re-energize the global market and lift Japan out of depression — that is Nintendo’s mission.”105
Nintendo realized that the best way to increase sales in the crowded and mature video game market was to try and attract new video game users with a revolutionary new product. By significantly differentiating their offering, they could potentially attract people that had previously never bothered with video games. That differentiation and the innovation it required became their primary focus.
The alternative — just making incremental improvements to their existing video game consoles and games — wouldn’t deliver consistent and long-term growth any longer. A retention mindset and preaching to the converted just wouldn’t cut it.
Nintendo already had products that would appeal to their existing video game users. But a revolutionary new product might encourage gamers who were using competitor products to switch to them. Focusing on new markets was unlikely to hurt them, and there was enormous potential upside.
Nintendo spent the early years of the 21st century focusing on developing the innovative new products they needed. In late 2006, they released the Nintendo Wii, a revolutionary new console that was designed to be more inclusive than hard-core gaming products like the Sony PlayStation and Microsoft’s Xbox 360 (which both were targeted at existing video gamers).
The Wii had a broader potential appeal than traditional video games. Instead of pressing buttons on a controller to swing a racket, steer a car, or do whatever action you need to do, the Wii allowed users to physically mimic the action. The Wii had a slim wand that wirelessly connected to its console. The wand contained motion sensors that detected three-dimensional movements. Rather than being stuck at a console, the Wii allowed users to move around and perform the actions they needed, and those actions would be mimicked on the screen.
Wii revolutionized the user experience and made it possible for more people to take part in video games. For example, instead of having to know which button to press to hit a ball in a tennis game, you just mimicked the action intuitively. This meant that the Wii was suitable for both video game novices as well as hard-core gamers. Suddenly, Wii made video games potentially accessible for everyone — people of all ages, male and female, whether they had ever used video games before or not.
At the time of the Wii’s launch, Nintendo America’s COO, Reggie Fils-Aimé, said:
Our visuals for Wii look fantastic, but in the end, prettier pictures will not bring new gamers and casual gamers into this industry. It has to be about the ability to pick up a controller, not be intimidated, and have fun immediately. The trick is being able to do that, not only with the new casual gamer, but do it in a way that the core gamer gets excited as well.106
The Wii’s ease of use certainly opened new markets for Nintendo. It allowed the company to capitalize on a significant demographic trend — the aging population in many countries around the world. For example, in the US, the Wii helped the over-sixty segment to become the fastest growing in the video game market.107 Nintendo strategically placed Wii consoles in retirement villages and other senior citizen venues and created a range of appealing games for this new audience, like simulated bowling, golf, and tennis tournaments.
A focus on sporting games also helped to encourage other first-time video gamers to use the Wii. Most people already knew the rules of popular sports and how to play them. They didn’t have to go through the common video game experience of learning how to play a new game.
Fitness was another favorable demographic trend that Wii exploited to capture new markets. In 2007, it developed the Wii Fit, containing a wireless balance board with multiple pressure sensors. These sensors allowed the user to physically mimic actions when doing exercise games, including aerobics, strength training, and yoga. The Wii Fit console was adopted in nursing homes, physiotherapy clinics, and fitness centers.
Nintendo actively encouraged third-party developers to create as many games as possible for their new and growing market segments, by ensuring that the development costs for Wii games were low. Developers could create games for the Wii at a fraction of the cost of traditional games, giving Nintendo a major competitive advantage.
Graphics and sound are typically very costly to develop for video games. But Nintendo deliberately kept the Wii’s graphics and sounds less sophisticated, because the focus was on the ease and physical experience of playing a game on the device. And the more games that are available for a device, the more likely it is for consumers to buy it over a competing product.
The focus on the user experience was a major point of difference for the Wii. When video games from Electronic Arts and Rockstar Games were trying to differentiate based on their graphics, Wii games differentiated through usability. Technology had reached the point where only small incremental improvements could be made to game visuals. Then along came the Wii with its revolutionary user-experience approach, which was reflected in a statement made by its then-president, the late Satoru Iwata, at the 2006 Game Developers Conference: “Above all, video games are meant to be just one thing: fun. Fun for everyone.”108
A year earlier when the Wii was still in development, he gave a strong indication of what Nintendo was trying to do: “We are trying to capture the widest possible audience, all around the world.”109
The Wii proved to be an instant and enduring hit for Nintendo. In the first year of its release, its half-yearly sales beat the combined total of its two main rivals at the time — Sony’s PlayStation 3 and Microsoft’s Xbox 360.110 The Wii’s popularity saw Nintendo struggle to keep up with demand in the early years, with stores around the world often quickly selling out of the device.111
The Wii console was also a profitable device for Nintendo to manufacture and sell, unlike the PlayStation or Xbox 360 consoles.112 Both Sony and Microsoft had gone with the approach of taking a loss on their consoles that they would recoup by having high profit margins on their accompanying video games. But Nintendo managed to have their cake and eat it, too. The revolutionary nature of their approach allowed them to make a profit on the sale of both the Wii console and its accompanying games. Company profits soared.
By 2013, the Wii console had achieved 100 million worldwide sales in just over seven years after its launch.113 Its Wii game sales ran into the billions, with the most popular being its Wii Sports range, which had sold more than eighty million units alone by 2017.114 A focus on chasing new markets proved to be a resounding success for Nintendo.
Strategies for creating distance from your existing customers
Your loyal customers are what keep you fed as an organization; they’re your lifeblood and why you get up in the morning. We love loyal customers and are not advocating for scrapping them. We just think it’s worth your while to explore some new customer groups.
Professors Chan Kim and Renée Mauborgne, the authors of Blue Ocean Strategy, and tech billionaire Peter Thiel, author of Zero to One, along with likely oodles of others, have written about the importance of finding new, untapped markets for your product or start-up. “Where is there a market with lots of prospective customers and low competition,” is the question that every forward-thinking leader is asking. We’re going to throw our hats in the ring with a few different techniques to answer that question.
Reposition an existing product for a new audience
When Nintendo developed Wii, they found a way to make a gaming system relevant to a completely new audience group. They already had expertise in the technology, and once they identified new market segments (seniors, sports lovers, and home fitness fans), they used their expertise to redesign the traditional game console and create something that the new audiences would love to use.
Are there ways you could redesign your product or service connect with a new, untapped audience group?
Try this brainstorming exercise to challenge yourself to consider completely new audiences:
- Assemble a group of twelve people and invite them to a sixty-minute brainstorm.
- Write each of the following audience groups on small pieces of paper, fold them up, and stick them in a hat:
- Retired senior couples
- Farm families with young kids
- Male Gen Zers
- New immigrants to your country
- Food bloggers
- Blue collar workers
- Fitness instructors
- Female empowerment groups
- University professors
- Interior designers
- Grade seven students
- Forty-year-old same-sex couples
- Advertising creatives
- Accountants
- YEMMies (young, educated, millennial moms)
- Civil servants
- Sports enthusiasts
- Small business owners
- Reddit users
- DIY home renovators
- Break participants into four groups of three people. Get each group to draw an audience from the hat and spend fifteen minutes brainstorming ways you could make your current product relevant to them. Here are a few questions for groups to consider:
- How can we change our product packaging to get the new audience to buy?
- How can we change the delivery method to get the new audience to buy?
- How can we modify our offering so it’s relevant and helpful to this audience?
- How can we change our product features to get the new audience to buy?
- If version two of this product was tailored exclusively to the new audience, what would it look like?
- At the end of the fifteen minutes, give each group three minutes to pitch their reinvented product back to the larger group. Document all the ideas.
- Change up the groups, draw new audiences, and repeat with another fifteen-minute brainstorm and pitch-back session. Document all the ideas.
Find your ten-times-better product
Earlier in this chapter, we talked about the fact that your product needs to be ten times better than the competition’s in order to get one of their customers to switch. What does that ten-times-better product look like? More importantly, will that product enable you to attract hordes of new customers without abandoning the existing ones who have taken your company this far?
Try this two-part brainstorming exercise to answer those questions.
- Brainstorm your customers’ future state
Get participants to answer the questions to complete the following matrix:
A |
B |
C |
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|---|---|---|---|
Today |
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Five years from now |
- Brainstorm customers’ needs
Get participants to answer the questions to complete the following matrix:
|
A |
B |
C |
|
|---|---|---|---|
|
Today |
|||
|
Five years from now |
Answering these questions in step one should reveal the type of people your current customers will become and why those people are considered to be valuable to your industry.
In step two, answering the questions in column A should guide future product and service development — they are ways you can enrich the lives of current customers to earn their loyalty. The answers in column B should reveal another group of people who you could target with your new products or services. Column C is a list of low-hanging fruit. These are the product and services that someone else will certainly begin offering if you don’t.
What’s next? These matrices are your beginnings of a business case. Pick a few ideas to elevate to your product development team, and see which ones you can implement this year. Then, add the audiences in step two, column B to your marketing plan.
Finding middle ground
While we want to be conscious of what’s next for our customers and who we might be able to target in the future, it’s hard (and usually not very wise) to abandon existing customers. What we want to do instead is leverage existing customer needs by examining future customer needs. Find specific initiatives that will allow you to access a new market while still remaining relevant for loyal customers.
Based on the last couple of exercises, try filling out one of these customer innovation charts. Populate the circles with information on one of your existing customers and a new, radically different customer with whom you’d love to connect. Identify what both groups want, and then implement the service or product feature that both groups desire. It will likely be a stretch, but you’ll know the new offering provides value to existing and new customers.