How Design Thinking Creates Competitive Advantage
Erich Joachimsthaler says that identifying customer need is a surefire recipe for being in a blind spot, and not seeing your biggest opportunities for innovation and growth. Instead of focusing on making a tastier cupcake or a faster automobile, he recommends understanding the serial and behavioral episodes that make up people’s lives.
Then build on that reasoning when you go to the marketplace. Joachimsthaler offers plenty of business stories as evidence to support his assertion that the leaders of thriving, cutting-edge companies try to understand and analyze the structure, pattern and emotional code of consumer behavior in context.
Instead of studying needs and wants, market leaders first study behaviors. Progressive organizations understand the ecosystem of products or services, and how they intersect in the context of episodic behavior to help people take care of what matters to them: their daily projects, tasks and activities.
Hidden in Plain Sight – Summary in 2 Minutes
- Corporate success breeds failure. Success creates a smokescreen.
- It hides – in plain sight – the biggest and most obvious opportunities for growth. Study consumers’ routine behavioral episodes to discover the context and ecosystem of products and services in their daily lives.
- Learn a new way to understand what really matters to customers, the “Episodic Reconstruction Method.”
- Look “beyond” your current clientele, brands, category and industry, and your internal silos and divisions.
- Use the “demand-first innovation and growth” model to detect new opportunities.
- It can help you identify breakthrough innovations and set your strategy.
- Make innovation and growth a systematic and repeatable process.
- Formulate strategies around demand-centric growth platforms, not technologies or new products.
- Build strong brands and engage customers by creating total experiences around the behavioural episodes that define peoples’ lives.
Hidden in Plain Sight – Summary in 10 Minutes
Looking at the Big Picture
Corporations spend “gazillions” of dollars in research and development, hoping to deliver the next hugely successful product or service. But, in many cases, the answer to consistent innovation and growth is right in front of you, “hidden in plain sight.” Even companies with impressive track records frequently fail to see their biggest opportunities. When companies grow accustomed to doing business a certain way and get cozy in their customer relationships, comfy success can keep them from innovating. Many organizations depend on tried-and-true formulas, hoping that meeting basic customer expectations will somehow ensure growth.
Instead, push the envelope by using the “demand-first innovation and growth” model, a method of objectively examining the structure and patterns of behavior, instead of just studying people as consumers or potential accounts. Try to understand what makes them tick as they go through the day. Today’s consumer is less motivated by a desire to fulfill a need or want, and more driven to take care of pressing tasks, projects and activities in the behavioral episodes of daily life. This changes some customer-courting basics. The days of “building it and they will come” are over.
Netflix and Starbucks understand this idea. Netflix co-founder and CEO Reed Hastings recognized that customers found it inconvenient to return DVDs to stores and so they frequently incurred painful late fees. He devised a way for people to order movies through the Internet and receive them by mail – without ever leaving home. Netflix also encourages customers to rate movies and provide feedback, enabling it to tailor its offerings to individual tastes.
Starbucks does not just sell a better coffee or store experience. It sells a “third place,” a place between home and work where people can take care of their tasks, projects, activities and priorities: read the paper, do e-mails, meet people, or simply relax and unwind. Starbucks creates a total experience around people’s daily behavioral routines. It does not merely satisfy a need or want that has not already been satisfied by another coffee shop. It understands that its success lies in innovating around people’s routines and not in merely creating a better store experience.
To Break Through, Look Beyond
Demand-first innovation and growth can help any company expand its horizons. In fact, CEOs and top managers who refuse to think “from the outside in” may be condemning their companies to falling profits and customer dissatisfaction. Growth demands a wider perspective, which means embracing these “seven beyonds”:
1. “Beyond existing customers” – While existing customers are good informants for market research, they are not the sources for identifying new growth opportunities. If you study the behavioral episodes of people, customers and potential customers, you can see entirely new opportunities for growth.
2. “Beyond existing brands” – Studying brands and brand portfolios is an “inside-out perspective” that limits your ability to see what really matters to your consumers: the tasks, projects and routines that make up their work and their lives.
3. “Beyond the category” – Products and services no longer fit neatly into separate categories. Once, people looked at their wristwatches for the time. Now people look at their cell phones, computers and dashboards.
5. “Beyond silos and function” – Every member of a company, from the salespeople to the CEO, must commit to creating and capitalizing on opportunities, and sharing information. Always relay consumer observations and comments to the right people or departments.
6. “Beyond the boundaries of the strategic business unit” – Companies can follow the lead of General Electric, which encourages its unit leaders to identify and pursue opportunities company-wide. This requires studying customers’ work processes and seeing GE’s opportunities from this outside-in perspective.
7. “Beyond habitual domains” – Organizations – and consumers – benefit when specialists see things from one another’s perspective. That is, a firm’s public- relations professional should try to understand how its engineers attempt to develop consumer advantage.
A Sleeping Giant Awakens
Procter & Gamble (P&G) was going nowhere when A.G. Lafley became CEO in 2000. Profits had tumbled, investor confidence was waning, and P&G’s best-known brands and long-time market leaders, such as Tide and Crest, had fallen to No. 2. In addition to cutting costs by $1.7 billion, Lafley insisted that half of P&G’s new products should be developed outside of its labs.
Seeing the opportunities from the perspective of people’s routine, daily behavioral episodes, P&G created notable successes with the “Crest SpinBrush,” the “Mr. Clean Magic Eraser” and “Glad Press’n Seal.” “Crest Whitestrips” mark a collaborative effort between P&G’s oral-care specialists, home-care experts and corporate researchers. The Crest brand, once exclusively associated with “dental care,” is now synonymous with “dental cosmetics.” In formulating its innovation and growth strategy, P&G does not rely heavily on traditional methods such as focus groups. The company tries to put itself in its consumers’ shoes at home and in the supermarket. P&G’s marketers endeavor to understand exactly how the customer behaves, and to use the structure of consumers’ behavioral routines as opportunities for growth.
Staying Ahead of the Pack
Frito-Lay had little to complain about by the end of 2003. It controlled 65% of the salty- snacks market and projected 2004 revenues of more than $9 billion. Frito-Lay built its business by following consumer trends. It removed trans-fats from its snacks and debuted a “natural” line – both positive moves. But unit sales were falling because consumers had more snack options.
Facing the challenge of energizing Frito-Lay’s sales and charting a future course, marketing vice president Carlos Veraza decided to find out why consumers ate his company’s snacks. Video cameras in convenience stores revealed that customers did not purchase Fritos or Doritos as “impulse buys” off racks near cash registers – a long- held theory – but headed directly to the shelves. This realization motivated Frito-Lay to apply a new strategy, the “Episodic Reconstruction Method,” to study its consumers’ daily routines and their snack choices. The study, conducted mainly by having respondents keep 30-day diaries of “food-related activities,” found that customers associated certain brands with socializing, and saw other brands as side dishes to eat with sandwiches. Frito-Lay ultimately revamped its entire marketing strategy including refocusing its advertisements on the concept of enjoying its corn chips during life’s special moments or behavioral episodes. The company added substance to its brand identity, and boosted sales without raising prices or cutting the size of its portions.
The Nuts and Bolts
The three basic components of the demand-first innovation and growth model are:
- “Creating the demand landscape” – Rather than categorizing customers according to income level, age or social standing, find out how they lead their lives. Learning that one out of every 20 individuals exercises two times a week is more important than determining the type of sneakers they wear. The ultimate purpose of products and services is to enhance customers’ experiences during specific episodes of behavior.
- “Reframing the opportunity space” – Forget for a moment about creating offshoots of your successful products. Instead, imagine the context of a customer’s behavioral routine, and ask how your products or other products fit that person’s life. Apple could have marketed the iPod as a computer by-product. Instead, it promoted the iPod as a fun, essential item – part of an entire ecosystem of breakthrough innovations that are changing how people learn, buy, listen to and store music.
- “Formulating the strategic blueprint for action” – Define your strategy based on how to fit your product or service into a repeated behavioral episode in your customers’ lives by activating demand-centric growth platforms. Don’t define strategy in terms of differentiation and a bigger, better, faster arms race. Don’t just build brands around attribute differences, but connect with and engage your consumers.
“Axing” the Competition
Axe, a line of deodorants and related products that Unilever introduced in Europe 25 years ago, is now the world’s leading brand in the “male grooming aids category.” More impressively, Axe climbed to number one in the U.S. only five years after its American launch. Are Axe’s products that much more effective than competing potions? Probably not. But Axe’s brilliant strategy is based on understanding the behavioral episodes in young men’s daily lives. Its marketers mapped exactly what young men do in the course of a month: how they prepare for dates, how they meet and approach girls. Then, they targeted several specific episodes in the lives of 17- to 20-year-old guys that centered around the goal of getting girls. Instead of targeting demographic differences or touting Axe’s product superiority, it focused on helping guys attract girls.
This let to Axe’s highly innovative programs and experiences, such as holding “dark parties,” where people experience their first touch at a totally dark gathering. Axe developed a strong digital presence, including numerous Web sites that tell young men how to be better Casanovas. It created social-networking tools so that the large community of young males can share tips about what works and what does not work when pursuing girls. Axe doesn’t saturate the marketplace with new products, variants and line extensions. Instead, Unilever spends its money on fitting into the behavioral episodes of the Axe’s loyal market and staying relevant about what really matters to them: getting help in the mating game.
Making the Connection
Axe demonstrates the five factors of success in innovation and growth:
1. “Challenging assumptions and held beliefs” – Axe challenged the fundamental belief that what really matters to guys is dry underarms. A behavioral, episodic perspective on demand can unleash new ways of positioning your brand and connecting with consumers.
3. “Find customers where they are” – Studying people with ethnographic methods, like observation, is insufficient. Such studies don’t capture all the relevant experiences in people’s lives. Episodic reconstruction measures all the episodes that drive demand.
4. “Leverage the contextual and cultural code” – Study relevant, repeated behavioral episodes and then leverage their emotional code by innovating around them, and using them to connect with and engage consumers. MasterCard did this by capturing priceless moments and leveraging their emotional code to connect its card with pay-off events.
5. “Activate a driving idea around growth platforms” – A growth platform is a group of behavioral episodes around which a company can innovate. Apple spurred the iPod by activating the growth platform of “managing music,” including its behavioral episodes: finding, evaluating, selecting, buying, listening to and storing music. This approach leads to innovative opportunities far beyond the product itself.l’image courtesy of milliped
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