George S. Day and Christine Moorman

Using Customer Insights to Grow in Emerging Markets

Monday Aug 22, 2011

Procter & Gamble is hitching a big part of its growth strategy to “$2-a-day consumers” in emerging markets. As noted in the Fortune article reporting this move, CEO Robert McDonald wants to acquire 800 million new customers by 2015! To do that, he’s focused on Asia and Africa, where per capita spending on P&G products is only $1-3 per year. P&G has discovered that the key to unlocking this largely unexplored wealth of consumers is not cutting costs, pricing accurately, or distributing to rural markets. Instead, the real challenge is to gain meaningful and predictive customer insights that will enable P&G execute these growth strategies with impact. In strategy speak, growth strategies have to be married with a complementary customer insights capability.

P&G learned the hard way that operating under untested assumptions about customer needs can be costly. Its razor launch in India failed because the company tested the razor with Indian men at MIT, instead of India, where lack of access to water made it a painful and ineffective product. Today, P&G is taking steps to learn about emerging market customers in ways that will yield insights that create value for the customer and for P&G.

At the heart of such strategies lies a simple notion—observation creates insights. As an example, water scarcity in Lanzhou, China makes lathering shampoo impractical for women with long hair. So why not cut it shorter? In-home observation by P&G revealed customer Wei Xiao Yan’s adamant belief that women “should have long hair.” Yan had long used laundry detergent to wash her hair for years rather than trim it! Understanding these types of motivations behind consumer behavior is crucial to P&G’s ability to satisfy customer needs. In Wei’s case, P&G found that leave-in conditioner served two needs—it softened her hair and conserved water. Additionally, the company is opening an R&D facility in Beijing to coordinate research efforts among all of its units. This facility also includes a hutong, or a simulated Chinese home, where researchers can observe customers interacting with products.

While surveys and experiments can produce useful insights, direct observation provides a rich understanding of how and why customers use products. Unique and difficult to imitate ideas are much more likely to pop up in observation. As another example, in the West, hair dye functions as a personal care luxury, but researchers learned that developing world consumers use it to make job seekers presentable for employment opportunities. Given this, reducing the price and the amount of water necessary for such dyes will be key to the success of these products.

The late management scholar C.K. Prahalad advocated serving these “bottom of the pyramid” customers. He knew, as P&G is finding out, that competitive advantage in such endeavors will be sharply divided between two types of companies—those that know how to understand these customers well and how to use these insights to drive growth strategies and those that don’t.

To review the Fortune article, see Jennifer Reingold, “Can P&G Make Money in Places Where People Earn $2 a Day?,” January 17, 2011.

Modules for Marketing Strategy Course

Thursday Aug 18, 2011

George and I have put together a set of twelve modules for use in a marketing strategy course. For each module, we offer readings from our book and a case study. These cases and readings have been used in our own marketing strategy courses at The Fuqua School of Business, Duke University and The Wharton School, University of Pennsylvania. Feel free to contact either of us if you want to learn more about how we tie the book and cases together for our classes. We have found these pairs of readings and cases work well. Details can be found on the resources page:

How to be a Price Leader

Sunday Mar 27, 2011

When Arthur Frommer speaks, travelers listen!  Mr. Frommer is, after all, the voice of the Frommer’s Travel Guides. Recently Mr. Frommer has been talking about the budget hotel chain, Tune Hotels, which after launching in Malaysia and Indonesia, recently opened in London.[i] Fifteen hotels are planned in London by 2017. Tony Fernandes, the Malaysian businessman behind the low-cost airline AirAsia, is the founder of Tune Hotels.

In what some call a “bloated hotel price” market, Tune Hotels offer customers a simple value proposition.  The hotel promotes “5 star beds at 1 star prices.”  This no-frills hotel operates on a business model that charges for everything except the bed and the lavatory.  For the price of £50 for a double room, Tunes offers its customers a great bed but little else.  In fact, the bed is said to be the same brand, a Hypnos, travelers would expect to find at a 5-star European hotel, according to one London reporter.[ii] All other amenities, or what some travelers might call “essentials,” cost extra!  Even towels and soap are noticeably absent, but are available for around £1.50.  TVs, telephones, and minibars are available for rent.  Housekeeping is provided only on checkout, but can be purchased as a daily service for an additional fee.  The buildings are brand spanking new, but facilities like pools, gyms, and conference rooms are nowhere to be found.[iii]

Tune Hotels is an excellent example of a firm that knows how to compete as a fierce price value leader.  It targets a customer who wants only the barest bone quality level on a hotel room.  Its rock-bottom low price in London, where even simple rooms routinely sell for £100-200, is like a breath of fresh air to travelers who don’t care about anything but a good night’s sleep.  By splurging on a 5-star bed and cutting all the rest from the hotel experience, Tunes is likely to hit a sweet spot in the London market (and around the world for that matter).  This strategy delivers what its target market wants and nothing more.  Like Ginger Hotel in India and other low-cost service providers across the travel industry, Tune built its strategy first by knowing exactly what its customers want and then by ruthlessly eliminating everything else.

As we discuss Strategy from the Outside In, most companies are unwilling to be this focused in their choice of target market, value proposition, and business model.  This hedging not only costs more, it is also confusing to customers who want to easily understand what they are buying.  In the end, such fudging  rarely works because companies with laserlike focus enter markets with a decisive stand for something customers want—whether it is low price, fashion, innovation, service excellence, or customization.  The result is that customers with clear expectations line up and the company delivers.  That’s a song that more strategies should sing!

[i] Frommer, Arthur. “Is this the future of hotels?” The Herald-Sun, Durham, North Carolina, December 12, 2010: D3.

[ii] Hotel details are described at


Are You Really Superior?

Tuesday Feb 15, 2011

A brand loses its customer value position when it is seen as merely OK for everyone. This was the problem for Jeep which used to be “best at off-road” until it was weakened by too many design compromises, and rivals caught up. In short, it became a “parity” player.

Parity is not a pejorative term. Instead it is a brutally honest recognition that most target customers don’t see a meaningful difference among the rivals on the sources of value. It usually means at least a moderate, and often a high level of perceived competence, which most rivals have also reached. Parity is an outside-in concept. The question is not whether there is an actual difference between competitors. It is whether customers perceive a meaningful difference. Inside-out companies often deceive themselves by believing that their carefully managed differentiation efforts matter to, or are even noticed by, customers.

How does a firm judge whether its offerings are at parity? The arbiter is always the customer, including those who buy from the firm now, those who have never bought from the firm, and those who have stopped buying from it. One way to assess parity is to ask a sample of customers to rate the firms or brands on key features and benefits. The rating scale could ask, for example, whether Xerox desktop copiers are ahead of, equal to, or behind competitors on print quality, technical support, price, and so forth. The comparisons could be against the market leader and/or against top competitors for the target segment of customers. A consistent rating of equality across offerings in a category is compelling evidence of parity.

Parity is also a moving target as rivals jockey to establish they are at parity on each of the sources of value (which we call the value vectors). It is not enough for a mid-tier hotel to offer cable TV and room service; to meet the competition it must offer high-speed Internet access and down duvets. From toothpaste to credit cards to orthopedic devices, the degree of perceived differentiation steadily diminishes because of the relentless process of imitation.

Keeping pace with rivals in the served market is a requirement for staying in the game. Falling noticeably behind on any one of the three value vectors erodes the overall customer value position. One effect of everyone keeping pace is that the parity level on each vector steadily moves outward: performance improves, real prices drop, and service is better. But in this challenging environment it is hard to sustain superiority.

Intuit’s Death and Resurrection

Saturday Jan 29, 2011

I hope it’s clear by now that I think deep market insights fuel an outside-in approach to strategy. Generating and leveraging such insights puts the firm’s strategic focus on the customer, and because it is difficult for competitors to imitate, a market insights capability provides a basis for a durable competitive advantage. Like all capabilities, however, a market insights capability is vulnerable to a common problem—the focus shifts from linking the company to the customer through the capability to building the capability itself (including making it more cost-effective, building customer databases, adding features, or training people to do insights work) or to other priorities such as covering short-term costs. The goal—staying close to the customer—gets lost or submerged under these other agenda items.

Let’s look at Intuit—a textbook case on this point. Providing superior relational value to customers through “customer listening” earned Intuit the dominant share of the personal financial management, small business accounting, and tax preparation markets. Intuit began in a California basement in 1983 and by May 2000 its products dominated the retail market—Quicken had an 84 percent share, QuickBooks an 87 percent share, and TurboTax a 60 percent share—and controlled 83 percent of the online market!

However, at some point, Intuit turned inward and lost some of its legendary fixation on customer input. As a result, Intuit’s loyal customer base began to look elsewhere. Growth for the standard Quicken product flattened, and the company became vulnerable to attacks from venerable competitors, including H&R Block’s TaxCut and new web-based services like, that were easier to use and provided valued features, such as storage, and better customer support. Intuit had stopped listening to its customers and the decision had taken a toll.

But then company founder Scott Cook and his team developed a formal strategy to get Intuit back on track. To begin, Intuit turned its attention to its flagship product, Quicken, rescuing it from a marketing-driven, feature-adding rut and reorienting it to focus on customer needs. Peter Karpas, the new unit manager, reminded his staff: ”Your job isn’t to make marketing’s life easy. Your job is to find unmet needs we can solve well.” In response to the charge to find and solve customers’ unmet needs, the Quicken team developed a portfolio of products tailored to specific customer needs, such as medical bill management and investment property management, rather than trying to make one software package to handle every situation. The transition to a portfolio of specific and separate product offerings and the improved usability of the standard Quicken were the result of Intuit’s renewed focus on identifying and understanding customer needs.

Next, Cook acknowledged the need to bring a 20th century product into the 21st century by acquiring, a company recognized by Money magazine for its leadership in online budgeting. Furthermore, Cook put Mint’s founder in charge of Quicken and to bring fresh thinking to those products. At the end of 2010, Intuit took customer engagement a step further and launched, a formal channel to invite, acknowledge, and integrate customer collaboration into its products.

Intuit is listening again. Are you? Is your market insights capability serving your customers or serving your firm?

Flying Blind: Why Market Insights Get Ignored

Friday Jan 21, 2011

Despite the compelling benefits from using market insights to inform and shape strategy, most firms are ineffective at consistently gathering market intelligence, making sense of it, and then acting on it. Let’s look at some of the problems that plague firms.

Many firms choose not to gather market intelligence in the first place or do so in a haphazard fashion. Managers are often overconfident, believing they know their markets so well that there is nothing to learn from their customers. Technology companies are especially prone to agree with an opinion that Ted Levitt attributed to engineers: “Consumers are unpredictable, varied, fickle, stupid, short-sighted, stubborn and generally bothersome.” This is surely an overstatement, and it dismisses the reality that markets are complex and that sustained hard work is needed to comprehend them.

Companies that do gather market data may fail to devote the time and talent required to collect meaningful information. Rather, key market insight activities are either outsourced or pushed into a support function. This virtually guarantees a lack of influence and squanders the potential of engaging the entire organization in listening and responding to customers. Every employee must be mobilized as a “listening post.”

Once market intelligence has been collected, firms fail to effectively analyze the data and translate market insights into actionable initiatives. Because market insights are foundational and often “obvious” once someone has done the hard work to unearth them, their strategic value can be diminished.  This is why it is important to clearly state what is known and not known before doing insights work.

Furthermore, companies keep what customer information they do gather in silos. As a result, it is impossible to “connect the dots” and arrive at a 360-degree view of the customer experience. Instead, the portrait of the customer is splintered into tactical-level fragmentary pictures.

Outside-in companies, on the other hand, invest in and profit from market insights. They understand that developing a strategy without deep market insights is like shooting at a target without aiming. Outside-in companies invest in a disciplined market insights capability, and learn to ask and answer insightful questions about customers (see blog entry from December 10), competitors (December 19), channel partners, and other market forces.  How does your company maintain a healthy focus on market insights?

Our commenting function is finally fixed (!), so send your ideas in response to this question now.

Checkmate: Anticipating Competitor Actions

Sunday Dec 19, 2010

Competitor intelligence efforts often degrade into an undigested mass of news clippings and some comparisons of product price and performance. Meanwhile, the most important information may never come to the attention of those who can act on it. A first step in improving competitor analysis is therefore to direct employee attention to key questions about competitors that are likely to produce valuable insights. We recommend these questions, from Chapter 11 of Strategy from the Outside In, which mirror the ones in last week’s blog post on customer insight.

  • Who are the firm’s competitors? Unfortunately, most managers don’t know who their real competitors are. Industry classifications can tell managers which firms sell similar products or services. Publicly available data can also tell managers which firms are similar in terms of size, revenues, profits, or geographic or industry scope. However, these data rarely address the question of competition. Companies can identify competitors by providing an assessment of which current and future firms inside and outside the industry offer the same benefits to customers. Firms are increasingly being threatened by competitors from distant product and geographic markets who are targeting their customers. The COO of a local credit union in Durham, North Carolina, recently commented that his biggest threat was not from traditional banks, but from Walmart entering retail banking.
  • What are competitors’ value propositions? This may be the easiest aspect of competitive insights. Most firms reveal who their customers are and the nature of their offerings when they launch into markets. Reviewing products, promotional materials, Web sites, and packaging and talking to salespeople will often yield remarkable insights into what the competitors’ value propositions are.
  • How do competitors create and capture value? This deeper question about a firm’s business model is often harder to answer. Competitors sometimes reveal the answers to these how questions by announcing partnerships or opening a new channel. However, other capabilities, such as how advertising is developed, prices are set, and segmentation is determined, are more difficult to understand about a firm’s competitors. Benchmarking takes competitor analysis somewhat further by comparing the firm’s costs and performance against that of its best rivals at every step in its value chain. This reveals advantages in capabilities and processes that can be used to increase a competitive lead or provide a warning that improvements are needed. Firms like Xerox often use the outcomes of these benchmarking studies to shake up complacent manufacturing and service groups with the news they are slipping behind.
  • Why are competitors taking actions? This deeper motivational question is likely to be associated with the firm’s history, current leaders, board composition, or financial pressures. For example, under Jack Welch, GE made public statements about the rationale for choices in the firm’s product portfolio—brands (or lines of business) had to be larger than $1 billion in sales, or they would be dropped. Public statements to shareholders and press releases can often convey the firm’s strategic rationale, but they may be shrouded in secrecy or intentionally vague.
  • What are the moves of our competitors? How will competitors respond to our moves? It is not enough to answer these questions with a focus on what competitors are doing now. Companies must anticipate both competitors’ next moves and their countermoves. The key to anticipating how a competitor will react is to think like its management team, given its resources and market positions. Thus, McDonald’s and Burger King had different responses to the negative publicity about obesity and fast foods. As the dominant and most visible player, McDonald’s couldn’t ignore these concerns and introduced a variety of healthier options. Burger King, on the other hand, saw a chance to cherry-pick customers in the less health-conscious market segment and introduced high-fat, high-calorie sandwiches supported by in-your-face ads parodying healthy choices. Burger King also knew that there was no way that McDonald’s could respond to this attack.

Soul in a Bowl

Friday Dec 10, 2010

Customer insight builds on data and information to generate a novel understanding of the customer. In our book we discuss several questions that customer insight might address: who may be a good customer (i.e., what segments to target); what customers think, feel, prefer, or do; where and when customers use products and services; how customers engage in these internal activities (e.g., draw inferences about quality) or external actions (e.g., how customers search on the Internet); and why customers have these needs.

To think about these ideas, take the experience of Campbell’s Soup entering the Russian soup market in 2007.1 What he discovered was that soup played a deep and complex role in the hearts and stomachs of Russian men. Campbell’s researchers found that it was very common for a pot of meat bones to be boiling on the kitchen stove in a typical Russian home. Russian wives would spend several days nurturing the rich broth and recovering large chunks of meat and savory fats. This process puts the dousha (soul) into the soup. Given this context, bringing ready-made soup into this market was not going to be easy. Campbell’s duly noted that competitors had tried to enter with Western European bagged and premixed soups. Russian women scoffed, and Russian men considered the use of such products sacrilegious. These ready-to-serve soups “had no soul.”

As the purveyors of this dousha, however, Russian women were in a bind. Since they worked full-time, they could not tend to the soup that had such importance in the Russian household. This was the customer’s problem and Campbell’s opportunity. Through a process of ethnographic work involving deep interactions with Russian families, Campbell’s developed a product that could offer Russian women a way to solve the problem of preparing homemade soup with packaged ingredients. The Domashnaya Klassika (“Home Classics”) line of soups contains chunks of real meat and visible fat medallions, both of which build consumer confidence that the soup has been prepared with care. Brand images reinforced the message. All ads feature either the domovoi, an elflike “protector” spirit that “lives” in the kitchen cabinets of all Russian homes, or the family gathered around the table. These customer insights paid off, and Campbell’s expects the line of soups to be profitable in Russia by 2013. In 2009, Campbell’s entered a distribution arrangement to bring its products to 100 cities in 12 regions of Russia.

Campbell’s insight work delivered the key ideas that drove all of the firm’s subsequent strategies. First, it uncovered an unmet need for “soup with soul” among Russian families that were too busy to follow old-fashioned recipes. Second, it exposed what product features Russian consumers were using to judge that “soulful status” (e.g., visible fat medallions and chunks of meat). Third, it revealed what consumer behaviors could not be sacrificed. In this case, the soup pot needed to be on the stove for more than a few hours. This meant that Campbell’s could play a role as a soup starter, not as a soup substitute. Fourth, key symbols such as the domovoi and the family gathered around the table were established for use in packaging, in ads, and on the Web site.

1 Case based on a presentation made by Bob Woodard at the Marketing Science Institute Board of Trustees Meeting and Conference on Sustainable Marketing Strategy, San Francisco: Marketing Science Institute, November 14-15, 2008.

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.

Outside-In Thinking About Growing the Top Line

Monday Nov 29, 2010

Most firms follow a narrow spectrum of the possible innovation pathways in their search for a higher rate of top-line growth. Their menu of pathways is limited by inside-out thinking as a consequence of (1) inertia (this is how we’ve always grown), (2) path dependency (this is what we know and can do), and (3) the necessity to match rivals (they did it, so we should follow). The full spectrum could span as many as fifteen innovation pathways.

In industries in which the competitors move in lockstep, there is a conventional wisdom about what customers value and how to innovate. Software companies tend to focus on developing code. Bioscience companies concentrate on curing cancer or cardiovascular disease. Advanced materials companies devote most of their innovation efforts to customer applications. These are important avenues for innovation, but they should not preclude other pathways.

Pursuing an innovation pathway that others are not following can be a game changer because it takes competitors a long time to understand the move, and it requires new capabilities that these rivals cannot develop quickly. These are the ingredients of a first-mover advantage.

Outside-in innovation thinking begins by asking, “How can we create new value for customers – that they will pay for?” The answer comes from stretching, pushing, and reimaging each dimension of the strategy—the customer value proposition (the target segment, the offering, and the competitive profile) and the business model (the value-creating and value-capture systems). This yields a full spectrum of fifteen possible pathways ranging from meeting the needs of non-consumers, to creating integrated solutions, to finding new ways to capture economic value such as renting rather than selling.

To apply outside-in thinking to your firm we find it best to review the innovation pathways on page 100, and then asking the management team the following questions:

1. Pick a successful customer value innovation that you or a competitor brought to your market.
Which growth pathway (or pathways) was followed? Why did it succeed?

2. Which growth pathway gets the most innovation spending in your market? Do all competitors
behave the same way? How is the innovation budget allocated?

3. Which pathways mean the most to our customers? Why?