Why is it that competitors offering comparable products or services in terms of function and quality often experience wildly different levels of success in the marketplace? Cases in point: Toyota Prius versus Honda Civic Hybrid; Facebook versus MySpace; Kindle versus Sony Reader; Netflix versus Blockbuster.
Welcome to the complex world of demand creation.
Adrian Slywotzky is an expert in the field. A partner of global management consulting firm Oliver Wyman, Slywotzky has consulted to Fortune 500 companies from a broad cross-section of industries since 1979, working extensively with CEOs and senior executives on issues related to new business development and growth. He is also the author of Demand. Creating What People Love Before They Know They Want It (Crown Business/Random House) and several more acclaimed books on business strategy and growth.
The research for Demand cast a broad net. “We started off with many of the usual suspects everybody knows of as great demand creators, then branched out from there to find good candidates in both the BtoC world and the BtoB world, and across lots of industries,” Slywotzky told Travel Weekly PLUS.
More than 300 customers were also interviewed to identify the companies, products and services they love the most in commercial, artistic and other arenas. Finally, researchers examined pairs of smart, well-resourced companies that offered functionally similar products or services but had a 300-500% difference in volume generation.
“It was fascinating, because when we were done we found that we live in a time of two economies,” Slywotzky said. “The major economy — the one we all know — is struggling to work against a lot of structural impediments to growth. Yet in that same economy, during the exact same time frame, you have companies in every industry that are experiencing double-digit revenue growth, ridiculously high margins and attractive pricing, and extraordinary levels of customer loyalty and enthusiasm. What is going on in this second economy? Is it all quirky, or is it learnable?”
Travel Weekly PLUS Editor in Chief Diane Merlino addressed those very questions in a dialogue with Slywotzky. This is the first of two excerpts.
Merlino: Let's start with the basics. How do you define demand?
Slywotzky: Demand is a funny form of energy, and it's got two parts — one is visible and one is not. The visible part is when you look at yourself versus a competitor or competitors, and you adjust to make sure that the products are roughly comparable in terms of volume, the actual buying behavior in the marketplace.
Then, many of us succeed in getting a lot of people interested in and wanting our product, service or offer, but they never buy it, or they buy it three, four or five years later. That’s because we didn’t find that catalyst that moves them from wanting something to actually buying it.
When you're trying to understand demand, you have to understand both of these components — the actual energy and the potential energy. For anyone who's been in business for a while, the greatest tragedy is that you’ve produced a great product or a great service and nobody's buying it. That happens all the time.
Q: Why should a business leader spend time trying to unravel all of the mysteries and complexities of demand?
A: One reason is that all of these companies that are living in that ‘second economy’ — experiencing double-digit revenue, very high margins, strong pricing and tremendous customer excitement, not just loyalty — are just having a wonderful time throughout their organization, and that tends to feed on itself. The role of employees in making that happen is fundamental, and is generally under recognized and under managed.
If you want to get to an even more basic level, the reason to get ahead of the curve on demand is that all of our businesses have high fixed costs and very tough competitive situations. Leaders who learn the skill of demand creation better than their rivals will have a much better time navigating through what might still be two, three or four more years of a difficult economy.
Q: How is the approach to the nature and cultivation of demand as you’ve described it in your book different from the way most business leaders approach generating demand for their products or services?
A: It’s a quirky thing. We are hardwired as human beings to be supply-side thinkers. We get up every morning thinking about my product, my people, my assets, my competencies, my revenue, my profitability. That's just the way we are.
The people who are really good at creating demand have, by hook or by crook, taught themselves to be the exact opposite. They get up thinking, what's the hassle map of my customer? What drives them crazy? What makes them angry? What frustrates them? What are their pressures? What are their economic problems? What are their internal politics?
Business leaders who do this use it as a tool to force themselves to see the world through the eyes and emotions of their customers. Once they understand the hassle map then they need to have the attitude they they’re going to connect the dots in a radical, significant and elegant way to solve those problems. That's how the process of demand creation gets started. And it's a tricky process because it can be punishing on the ego.
Q: Why is that?
A: Senior executives who go out and spend time talking to customers in non-ceremonial settings trying to find out what's really going on — what drives them, what keeps them up at night, what frustrates them, what makes them angry — generally come back from that experience with one or more of three reactions.
One is that their self-esteem plummets. Two is they get a migraine because customers are so different from each other. And three is they come back to their organization and say, “Folks, we love to do A, but our customers actually care about B. Maybe we have to learn to do B.”
Q: What’s your best estimate on the percent of U.S. businesses that approach demand creation in the customer-centric way you’ve just described?
A: I don't have a very precise answer, but I’d say it’s easily fewer than 10%.
Q: Well, it sounds like a very challenging approach as you’ve described it.
A: It's an extremely difficult psychological transition to get through. But when you get to the other side of it, it creates a phenomenal advantage in figuring out how to create demand.
You have to keep working at it. For some people, it comes naturally, and I really envy them. But for most of us, we have high fixed costs, we have a sophisticated operating systems and networks. And our first thoughts are how do we utilize that network? As opposed to performing this almost psychological trick of asking ourselves how do I look at the world through the eyes and the emotions of our customers?
Over the last 15 or 20 years we’ve learned a lot of things — how to do quality, how to do marketing — and we’ve developed a lot of management disciplines. But demand creation is still not prevalent, although it's phenomenally valuable.
Q: You mentioned marketing. Where does marketing figure in this approach to creating demand?
A: Marketing is certainly important, but it's just one component. Because if you start with the hassle maps of your customers and work your way back from there, it takes you in a lot of different directions. You may have to develop or launch your services differently. You may have to learn how to deliver different levels of quality and consistency and service. The customer doesn't care what function they interact with; they just want a great experience.
Q: You’ve talked a lot about the ‘hassle map’ and the basic idea of it is pretty clear. But can you give us a definition, and explain the relationship of a hassle map to developing demand.
A: Take any customer purchase or activity — flying from point A to point B, buying a smart phone or a used car. A hassle map is simply stepping into the shoes of the customer and going through every single step that they have to go through to buy and use and dispose of that product, service or offer, and to count a few important things.
These include things like how much time do they have to spend or waste at each step along the way? How much money do they have to spend or waste at each point along the way? And at what points along the way do they confront maximum uncertainty and frustration? What makes them really angry?
The process can take anywhere between 15 and 50 steps, and it literally involves stepping into the experience of the customer and saying, ‘Okay, if they're going to use my phone, my airline, my rental car, my hotel, what is it that they have to go through?’ Demand creators do this, and then they say, ‘Boy, this doesn't make a lot of sense. How can I change it? How can I cut out the steps that are unnecessary? How can I make things easier, more streamlined.”
Q: This approach sounds related to the field of ethnographic research.
A: Yes, perfectly put — ethnographic research and anthropology. It's actually going in there and observing what they do.
Q: I don't believe most companies in the travel industry do this.
A: You're probably right. And it's a little bit paradoxical because it's almost easiest to do it in the travel industry. You can make a reservation and go on a trip as a potential customer, and simply observe and note everything that happens to you. And then, if you have the courage, do it with your family. And write down everything from the initial idea and discussion to the first research and the first phone call to getting into the cab, going to the airport, and so on.
I actually did that myself a couple of times when I tried to compare what happens to me and my body if I try to go from Paris to London by plane versus going from Paris to London by train. I came up with something like 30 to 35 steps and a lot of money by plane, and far fewer steps and hassles by train.
Q. That doesn’t sound like it was too difficult.
A. Well, that’s the point of departure. Of course, it's a little bit more complex than that. You have to step through that process several times because there's never just one hassle map; there are usually four or five because the hassle maps can be different for different types of customers or travelers.
But it all begins with having a street-level understanding of what is actually happening to your customer at each step along the way. How much time are they wasting? How much money are they wasting? How are they feeling through each step of the process?
By the way, it’s not just about the hassles. Are there any things that make them delighted? You want more of those, and fewer of the hassles.
Q: How would you sum up the relationship between developing a hassle map and demand creation?
A: I think all good and extraordinary demand creation pretty much begins with understanding what the hassle map is and then asking how can we — my team, my organization — significantly improve that hassle map for the customer. That’s almost always the first step towards creating that demand differential between product A and product B. Fix the hassle map and people will start voting for your offer, for your service, for your product, rather than your competitor's.
Q: What about product development? Does that look different if a business approaches it with the hassle map at the core?
A: I'd say most product development happens based on ‘here’s some neat stuff we can do,’ especially in the technology world. Demand-driven product development happens when you start by asking ‘What customer problems are we going to try to solve, and are they the ones that are the most important to the customer?’ That's a scary question, but that's the essence of it.
Q: Why is that scary?
A: Because you might not have a good answer, or the answer that you have is too expensive under today's system. And that's okay, that's the place to begin, because it's much better to solve the customer's problem than to have a cost-effective new service that they don't care about.
Q: In your book you say there are truly huge gaps between what people buy and what they really want.
A: That’s true in almost every industry. We are pretty far away from the performance frontier from the customer's point of view in just about every industry you can think of. It's hard to think of an exception. Haven't found it yet.
Q: It seems kind of crazy that so many industries are falling short of customer expectations.
A: It is and it isn't. It’s important to understand that every successful business did something really smart in the past, 10 or 15 years ago. Whether they intended to or not they probably solved some major hassle, or cluster of hassles, for the customer.
As a consequence they became bigger and more successful and created a way of doing things with fixed costs — networks, an operating system, a set of factories — and well-defined rules. But customers don't stand still. They evolve, and what hurts the most changes over time. It’s paradoxical that the success of the past led to very well defined systems that are hard to shift in the customer's direction.
NEXT ISSUE: Adrian Slywotzky addresses how to develop magnetic demand for your products and services, including examples in the travel industry.