George S. Day and Christine Moorman

How Market Insights Enable Outside-In Strategies

Friday Dec 3, 2010

This is the first in a series of posts examining the role of market insights in shaping strategy in outside-in companies. Further posts will elaborate on what makes for valuable customer and competitor insights, and why firms often fail to generate either.

In chapter 1 of Strategy from the Outside In, we wrote that strategically useful insights address such questions as: What are our customers’ real needs? Where are competitors likely to attack? Why are valuable customers defecting, and how can we keep them? How far can we stretch our brand? What happens if we selectively cut prices? What social media should we use? Market insights that answer such questions contribute to strategy decisions in four ways among outside-in companies.

Making Fact-Based Decisions
Outside-in companies develop and use extensive databases that capture what is known about market structures (segments and competitive positions), market responses (drivers of customer value), and market economics (profitability). The knowledge value in the data is unlocked with statistical analyses and predictive models. These firms also know the value of ethnographic work in getting to the truth about customers.

Anticipating Competitors’ Moves and Countermoves
We are living in an interdependent world, where the success of strategy depends on the actions of present and potential competitors. Nintendo took advantage of Sony and Microsoft’s focus on the hard-core gamer segment. Nintendo’s Wii focused on an enjoyable game experience that appealed to all demographics. Because the console didn’t have the expensive digital hub features of its rivals, it was launched at half the price. Best of all, Nintendo learned that because Sony PlayStation and Microsoft’s Xbox were so closely associated with hard-core gamers, the Wii was not likely to suffer attacks from these electronic giants.

Connecting with Online and Networked Customers
New media and channels are promising more points of access to customers, but at a cost of fragmented strategies that dilute the efficiency of marketing spending. Traditional communications approaches that rely on one-way broadcast of a brand message over mass media are losing their efficacy. Instead, market insight will come from engaging in two-way dialogues with customers to understand what they want as well as when and where they want it.

The possibilities can be imagined from Hewlett-Packard’s experience with an online contest to design the skin of a new special-edition entertainment laptop. The competition was launched with a low-key announcement via the Web and MTV. But word spread virally, and the contest site got more than 5 million hits, prompting HP to quintuple its sales forecast. Such stories of new ways to collaborate and interact with customers magnify the need for clear outside-in thinking.

Guiding Growth and Innovation
Firms that are armed with deep insights into their markets become adept at discovering and acting on growth opportunities ahead of their rivals. Walmart found that its pharmacy customers routinely broke pills in half because they couldn’t afford their full prescription. In response, Walmart offered $4 prescriptions for a limited list of popular generic medications. This was a real benefit, especially to the uninsured, and attracted new traffic to Walmart stores.

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