Understanding Customers Can Be Hard

So if customer understanding is such a power tool, why aren’t more companies good at it? They’d like to be… a 2004 Booz Allen study of senior executives indicated that more than half were dissatisfied with their innovation performance and the thing they rated highest as a way to affect change was understanding their customers better.

So why don’t they? Because it’s not an easy thing to master. You may already be familiar with some of the limitations of typical market research. Did you know that approximately 80% of new products and services fail within 6 months or fall far short of expected results, even with the green light from market research? And focus groups, one of the most popular ways to test a new product or service offering, can cost hundreds of thousands to conduct (even more if you’re trying to get a truly representative sampling of customers).

Traditional quantitative research doesn’t tend to be much better. The good old standby, “satisfaction” scores have been shown time and again to be poor indicators of actual customer behavior. And even if they were a decent indicator, they don’t tell you much about what to do to change anything.

Another issue is that it’s very hard to be inside trying to see what you look like from the outside… it’s hard from within a company to see it the way customers do. A Bain study from 2004 showed that while 80% of firms believed they offered a “superior experience” to their customers, only 8% of their customers, on average, felt that way.

And finally, you can’t just “buy” successful innovation. Apple doesn’t spend proportionally more on R&D than do it’s competitors. A study done by Bain Capital looked at around 100 successful and unsuccessful software startups and found that what differentiated these firms was NOT the amount they spent on sales and marketing, NOT the amount they spent on R&D, NOT whether they were first to market, and NOT whether, even, they had the “best” product.

The difference? The successful startups were those that had a clear sales message that resonated with customers and had brought customer feedback into product development early on.