By: Daniel Scocco
Many companies focus exclusively on the users of their products. If they would only widen their view to encompass the entire “customer chain,” they would see amazing opportunities for innovation, according to Daniel Scocco.
Most organizations identify their customers as one single entity. If a certain company is producing miniatures of racing cars its customer is going to be boys aged between 3 and 12 years right? Well, it is right, but only to a certain extent. Those young boys are certainly the “users” of the product, but they are not the only people involved in the buying process. Apart from the “users” you will also have the “purchasers”, who in this case will probably be the parents and the “influencers” who could be the close friends or family.
This three-fold division was proposed by Chan Kim and Renee Mauborgne in a Harvard Business Review paper titled “Creating New Market Space.” According to the authors, “while the three groups (users, purchasers and influencers) might overlap, they often differ.” Identifying the cases where the groups differ, in fact, could help companies to come up with successful innovations.
From users to influencers: World of Warcraft
Consider the online multi-player games segment. This market has been very fragmented over the past years. Despite the fact that multi-player games like Ultima Online or Everquest managed to create a loyal customer base none of them had a substantial market share and no software company could be seen as the clear leader.
One of the reasons for such fragmentation is arguably the marketing focus of the software companies. Most of them were paying attention exclusively to the “users,” meaning that they dedicated most of their time and energy creating a compelling user experience, beautiful scenarios, a vast collection of weapons and the like. While such user experience is one of the most important factors for the success of an online multi-player game it is not the only one.
Blizzard, a gaming software company founded in 1991 who created the successful strategy game called Warcraft, realized that other competitors were paying too much attention to “users” and neglecting the “influencers.” As a response, they developed an online multi-player game that would build on collaborations and micro-communities. Players would need to engage with other players to complete quests and create clans. The consequence was that users would have incentives to convince as many friends as possible to start playing the game also. Blizzard’s multi-player game, World of Warcraft, achieved a tremendous success and dominated the market segment, it has over 7.5 million active players that pay a monthly subscription fee of $15 just to play the game.
From purchasers to users: Bloomberg
Kim and Mauborgne used the example of Bloomberg to illustrate how understanding better the “chain of buyers” can help a company to develop useful innovations. Until the mid 1980s the online market for financial information was dominated by Reuters and Tele-rate. Those two companies traditionally focused on the purchasers of the product, that is the IT managers of brokerage houses and investment organizations. The only characteristic that such IT managers were looking for was the standardization of the product, which in turn would determine how easily it could be installed and managed.
The decision to focus on the purchasers had its logic, after all those were the people handing out the cash. Bloomberg was not 100% convinced, though. As the authors wrote “traders and analysts, not IT managers, make or lose millions of dollars for their employees each day. Profit opportunities come from disparities in information. When markets are active, traders and analysts must make rapid decisions. Every second counts.”
Bloomberg’s innovation was therefore aimed at users rather than purchasers. He developed a system that was much simpler to use and would incorporate the financial terms. Additionally it also had two monitors so that traders would be able to see all the necessary information without needing to switch programs and it included analytical functions to accelerate the market analysis. All those improvements made the overall product more efficient and user-friendly.
After some time traders and analysts inside investing firms started to pressure IT managers in favor of the Bloomberg terminals. Not surprisingly, Bloomberg managed to become one of the largest providers of online financial information in just 15 years.
Instead of looking for a single customer companies should identify “chains of customers”, composed of users, purchasers and influencers. The office equipment industry has traditionally focused on the purchasers (corporate purchasing departments) just like the pharmaceutical industry focus predominantly on influencers (doctors). As Kim and Mauborgne argue “sometimes there is a strong economic rationale for this focus. But often it is the result of industry practices that have never been questioned.”
Daniel Scocco is the author of the InnovationZen weblog.
Image: Consumer Sale Concept from Shutterstock.com