Exercises in Innovation #6: Segment sales by usage

In this thought experiment, write out which attributes you believe matters most about your product to the people who are buying it. It may not be traditional answers like price or durability. Read what people are talking about on social media when they discuss your products and compare that with your list.

Perhaps you have not heard of the Swedish firm The ABC Group, which make caps for student graduations at each grade level. The distinctive white caps are iconic as a symbol of achievement. What’s is interesting about this case is that when company leaders started observing customer buying patterns, they found that most customers were buying two hats — one for parties, that tended to get damaged, and one for pictures with the family.

By segmenting the sales, they found they could produce the party hat cheaply because all it had to do was look nice originally, because it was certain to be destroyed during the party. They then spent more time into quality crafting for the picture hat, because that is the one parents would see and perhaps put away as a keepsake.

A similar revelation came to me when I first observed customer purchase habits at an electronics reseller. I didn’t interfere or ask questions. I just stood in the corner and watched. I found that some customers were super-aggressive with the staff. They tended to be demanding and irritated from the moment they walked in the door.

The staff handled the customers one by one but never inquired about why certain customers were more upset than others. By observation and data analysis, I determined that these were the ones most likely to be upset were business customers dealing with equipment replacement problems or office expansions.

They were primarily coming in very unwillingly to buy cables and accessories. When cables stop working or there is a stressful change at the office, these customers might have had problems in their personal lives as well. All that mattered to them when they walked in the door is that they store should solve their problems with maximum efficiency. They didn’t have any time for failure.

I advised the electronics retailer to raise the price on cables and accessories because these customers were not sensitive to price, just performance. Shoppers were much more price sensitive around the computers because they had time to shop, compare, and talk to friends about big purchases. When a cable is missing, no one really cares to shop for prices. They need answers now.

You might wonder how things ended up and what were the results. In this case, the company took my advice. They raised prices on accessories, improved profitability, treated business customers in a hurry with more care and gained insights into how to better serve everyone.

Either by cost reduction or by additional revenue generation, you can adjust the profitability of your current business by segmenting of your inventory based on how your customers feel when they make a purchase and what’s important to them about that moment.

Never forget that you are not in business to please yourself. Once the customer makes the purchase, the item or service becomes their property and they may use it in ways you don’t expect or want, so be prepared to help them, not judge them.

This is what happened to James Gosling, founder and lead designer of the Java programming language. When I met him at a conference in Silicon Valley, he told me about something that still bothers him. He had recently found out that NASA, the US space administration, was using Java in their Space Shuttle missions. The graduates working on code for the mission control only knew a handful of languages and Java was among their primary choices because it is so widely used across industries. It’s a good choice career-wise for programmers, but Java was never designed to handle time-critical functionality and input/output flows at that level. These are multi-billion dollar spacecraft and human lives on the line. He said he was panicked about it, but the point is you have no control over what customers will do once they buy what you sell.

Look out for exercise #7.

Ps. Download the complete paper here Ds.