Which scenario best describes the economy in which your business is operating — the one in which it’s a struggle to eke out an increase in revenues and profits while working against a variety of structural impediments to growth? Or, the one in which you are experiencing double-digit revenue growth and high margins as well as extraordinary levels of customer loyalty and enthusiasm?
The difference, says Adrian Slywotzky, has to do with whether your company understands and practices the principles of demand generation.
As a partner in the global management consulting firm Oliver Wyman, Slywotzky has been a consultant to senior executives at Fortune 500 companies from a broad cross-section of industries for more than 30 years. He’s also the author of a number of business strategy books, including Demand. Creating What People Love Before They Know They Want It(Crown Business/Random House, 2011).
The research for Demand included interviews with exceptional demand creators in various BtoC and BtoB industries, and with more than 300 customers who were asked to identify the companies, products and services they love most in commercial, artistic and other arenas. Finally, researchers examined pairs of well-resourced companies that offered functionally similar products or services but had a 300% to 500% difference in volume generation.
Slywotzky shares insights on how business leaders in travel can become expert demand creators in the third excerpt of a discussion with Travel Weekly PLUS Editor in Chief Diane Merlino, edited for clarity and length.
Merlino: We generally associate being first in the market with a significant competitive advantage. What’s your perspective on that?
Slywotzky: In the vast majority of cases, it's not who is first; it's who is the first to create and capture the emotional space in the market. The iPhone was not the first smart phone; Nokia was the first by years. The iPod wasn't the first MP3 player. The Prius wasn't the first hybrid. The Eurostar wasn't the first dominant service between Paris and London. Kindle wasn't the first e-reader. There are hundreds of examples.
Just because somebody is ahead of you doesn't mean that they've solved the entire equation of functionality and emotional connection. Now if you're second, you do have to move quickly. If you're second and you try to compete against a functional product with another functional product, that's going to be tough. But if you're second and you have as good or better a functional product and you have found a way to create that emotional connection, you can still have a three- to five-times volume advantage.
Merlino: What we’ve been discussing about demand creation is multifaceted and fairly complicated. Can a company do some of the things you recommend and create at least a little bit more demand?
Slywotzky: You can do a halfway job or a quarter-way job and get a little more demand. But here's an alternative way of thinking about it: consider all of the variables in the equation — the hassle map, making it magnetic, building a back story, finding a trigger, building a trajectory. A lot of those things involve questions that you may not have asked yourself before, and if your team works on them, you'll get improving results.
Merlino: What do you mean by building a trajectory?
Slywotzky: This is a big one. That means, very simply, if you ask the customer how much better your offer, service, or product is today compared with six, 12 or 18 months ago, what would they say? A halfway or a quarter-way improvement is absolutely fine if it's in the context of “I want my customers to say 12 or 18 months from now that my offer is 10, 20 or 30 percent better than it is today.”
The thing that's common across all demand creators is a funny little attitude. The day they launch their new offer or their new product, they'll say to themselves, “We are the ones who know best how incomplete, how defective it is.” And they get to work on a trajectory of improvements, which is often 40 to 45 degrees steep, to make that offer or product better. And very often it's the second or the third version that captures the emotional space in the market.
So, the fundamental answer to your question is yes, if you do more demand-oriented things, you will benefit. But if you put them in the context of a trajectory of improvement over the next year to three years, the rewards will become disproportionately greater to your customer and to your employees.
Merlino: Can travel companies — providers and distributors — effectively use the principles of demand creation as you’ve outlined them when so many things are outside of their control?
Slywotzky: All of our businesses are reliant on and vulnerable to the performance of others in the system. One of the things that demand creators have done, without exception, is to concentrate on managing that, whether it is an espresso maker developing relationships with 40,000 farmers and half a dozen equipment makers or Apple spending inordinate amounts of time making sure that its supply chain understands Apple’s objectives and delivers the right level of performance.
Demand creators know that they don't get a break from their customers when a partner or a key component in the system is the cause for a breakdown, so they focus their time and attention on negotiating with and working with partners and others outside the system.
It can be frustrating and difficult. It took Apple 18 months to convince the music industry to put their songs on the iPod. The iPod was beautifully designed, but in the first year it sold only 400,000 units. Can you imagine Steve Jobs going to genuflect to the music industry to persuade them to put their material on the iPod? But he knew he had to. And when they did, the iPod exploded, because at the end of the day people didn't want a cool-looking device — they wanted to listen to music. Jobs could have said, “Well, but it's not our music.” But he didn't say that. He said, “For this to really turn on the customer, we have got to get the content on it.”
I don't want to minimize the frustration that's involved in working with important partners and parties outside of our system. But I'm pretty sure that every one of the demand creators who did create that exceptional outcome had to go through a lot of that frustration with people who didn't report to them, who they didn't control, but who were very important in determining whether the customer's hassle map wound up being much better or not.
Merlino: Are demand creators born that way or can individuals — and even entire businesses — develop themselves into true demand creators?
Slywotzky: That is probably the single most important question. Nestle is a tremendously well-managed company, but nobody would say that Nestle is a cool company, like Apple or Nike. Yet, they made one of the most successful demand creation stories ever. And the person who made Nespresso happen at Nestle is no Steve Jobs; he is a person just like you or me. What he did was all of the things that Jobs did that pertain to demand creation. What’s important is not Steve Jobs himself, but the five or six ideas behind him, and those ideas are learnable.
Toyota is a great company, but it's not a cool company. Honda is much, much cooler. But Toyota's Prius not only outsells Honda (Civic Hybrid) by six to one, it outsells all the other hybrids in the market. The point is that the company doesn't have to be cool. And you don't have to have a charismatic leader. You can learn these ideas; Nestle has, Eurostar has, Toyota has.
And that's maybe the single most important message. This is not about a charismatic leader or a cool company. This is about understanding the hassle map of my customer. What makes them angry? What makes them frustrated? Where do they waste their time and money? And how can I and my team and my organization radically change that hassle map for our customers and build a powerful emotional connection with them?
It’s not an easy skill, but it is a totally learnable skill. And another thing: if you look at all these “cool” companies with charismatic leaders, a lot of them work harder than we do to make this stuff happen.
Merlino: Do you have any concluding pointers or practical advice to give to folks in the travel industry about demand creation?
Slywotzky: It’s worthwhile becoming familiar with all the variables that drive demand, but don't try to do it all in six months or a year.
One thing I would advise senior executives do first is to start that process of talking to customers. Bring a notebook. Neither Richard Branson, Richard Brown, nor Steve Jobs became really good at this in just a month or two: they talked to customers for months and months until they were able to understand their customers’ hassle maps even better than they did. That will become a springboard for challenging your organization and for generating new and creative ideas on how to fix things in a way that is cost effective for the company and tremendously appealing to your customers.
ALSO SEE:Make Your Company Magnetic: Here’s How