Customer Job To Be Done Growth Matrix

There is a very simple way to think about how to grow business. It requires us to think in terms of markets and products.

Markets – Current market segment you play in and new markets you do not serve yet
Products – Your existing products and new products you have not built yet (and are outside of your current product line)

That gives us four ways to grow any business

  1. Sell more of what you make now in markets you already play
  2. Sell something new – not just product extension, something outside your product line – in markets you already play
  3. Enter new markets with your current products
  4. Enter new markets with something new – not just product extension, something outside your product line

It is more popularly known as Ansoff Growth Matrix.

Ansoff Growth MatrixThe matrix tells us it is easier to do 1 and gets progressively difficult to do steps 2, 3 and 4.

Loyalty proponents believe in staying with 1 and may be add a bit of 2. Product proponents get bored with 1 and want to build new and great (facebook phone). Those who believe buying growth spend more time and resources on 2 and 3 by acquiring businesses that sell in new markets or acquiring companies outside their core (eBay/Microsoft acquiring Skype)

There is a problem with this matrix. It is product driven as opposed to being customer needs (jobs to be done)  driven. When you look through the lens of your current products and new products you end up with approaches like unnecessary M&A and Facebook phone that are not aligned with how customer needs and how those needs are changing.

Let us redraw the matrix but now with Customers (customer segments) and Jobs as the two axes. If you are not aware of the “jobs to be done metaphor“, please see here before reading further.

Briefly, the metaphor asks us to think about customer needs as jobs to be done. Customers hire products among many alternatives to fulfill those jobs.

Customer Jobs To Be Done Growth MatrixNow it is not anymore the question of how to sell more of same products or build new products but a question of what are the current jobs we are addressing and what new customers and new jobs provide us opportunities for growth with our core competence.

Here is the recommended strategy for each quadrant

  1. Existing Customers and Jobs: Continue product evolution that cements your product as the best candidate for the job.  
  2. Existing Customers and New Jobs: The new jobs could arise because of trends impacting customers or simply adjacent jobs you never positioned your product for. Remember positioning is telling customers which job your product is applying for. Instead of going after jobs that are outside your core competence you are better off investing your limited resources on evolving customer jobs and related jobs that can be served by product pivots vs. completely new products (facebook phone)
  3. New Customers and Jobs you currently address with Existing Customers: Here the invariant is the jobs – two different segments have the same job to be done but you chose one segment over other and now considering serving the second segment. Understand the reasons why you did not choose that segment in the first place – is it the challenges in reaching them?, is it their willingness to pay? etc.
    Understand that different customer segments have different alternatives for the same job and hence different reference price. Choosing to serve lower willingness to pay segment should not come at the expense of price erosion in higher willingness to pay segment.
    My recommendations are to focus on packaging and pricing innovations that help protect current profits and add net new profits from new segments. It is not revenue growth at the expense of overall profit drop.
  4. New Customers and New Jobs: You still have the option of better product positioning to help capture new markets. But most times you are looking at completely new jobs that require product innovations and business model innovations.
    But the advantage is your focus on customer jobs and not on products – your innovations are aligned with customer jobs. While this step once again proves to be most resource intensive with most uncertainty, taking the jobs approach helps you ease into this without taking big risks, pie in the sky product innovation or expensive acquisitions.

There you have it, your recipe for growth derived from customer job to be done.

Do you need to make a profit from every sale?

No.

I gave a one word answer only because this is a question that requires a yes or no answer and likely most won’t be paying any attention until it is answered with simple yes or no. Now that is taken care of let us look at the 50 shades of NO. As usual I don’t have answers only more questions that you can ask to arrive at your own answer.

It depends on what we mean here by “every sale” and “Profit”.

Does every sale here mean sale of each item (or SKU) treated in isolation from the rest of the basket?  Is there a basket of items – complements and other unrelated products – or there are only individual units? Is this a transactional sale with customer buying once and never ever buying another item or are there repeat businesses – for more of the same or complements (razor and blades)?

Profit is easy to compute, it is revenue less costs. Profit per sale is easier as well (or is it?) – revenue from that sale less cost of sale. If you ever sell only one product once to a customer whom you will never see, hear or feel the impact of (ahem, Social Media, WOM), then YES, you need to make profit from each sale.

Except profit per sale is the wrong metric because of the points I raise above. The right metric is profit per customer (customer margin). It is the total revenue from a customer from a transaction (for the basket of goods) less the total marginal cost to serve them. Taking it further, it is the total lifetime revenue from a customer less the total marginal cost to serve them during their stay with your business.

But customer margin is not so easy to compute because we need to know all the revenue elements – all complements, incremental sales, now and later, and the truly marginal costs that are attributable just to this customer.

All the revenue sources must be properly quantified and not based on wishful thinking. You can complicate this further with other fringe benefits from a customer like referral sales (if you can quantify them).

The marginal cost needs little more explanation –  the cost your business incurs just for this sale and otherwise would not incur.  It is not the same as dividing all your costs equally among all your products (or customers).

In cases where there are incremental sales – now or future – it is okay to not make profit on each item as long as it would result in overall total profit from sales that would not have happened if not for selling this item at “loss”. The point to note here is to ensure that you considered all opportunity costs of selling an item at loss.

Let us look at these concepts in the context of running a promotion – Groupon promotion.

Say  you run a 50% off promotion for your cupcake that sells for $4 and costs $2 to make. I addition to selling it for $2 you give $1 to Groupon meaning you will lose $1 ($4*.5-$2-$1) on each cupcake sold.

If you will never see (or feel) these Groupon deal seekers again then you are doing it wrong.

If their visit results in incremental sales in the first visit that results in total over all profit or repeat visits that result in overall lifetime profit then you are okay (assuming you have carefully considered other factors).

So the right question is not about profit on each sale but,

Do you worry about customer margin?

How do you think about pricing? Take the quiz now!

I am making available again the pricing questions list I published last year. These are twenty questions presented in no particular order. Except for two deliberate red-herring questions rest were carefully chosen based on pricing strategy practice. Your task is to rank order them in what you think is the best approach to pricing strategy.

Here is the link to the questions: Pricing Questions

Fair warning, there are 20 questions and rank ordering 20 takes considerable time  but in the end it helps you have a framework – even if it is not the most precise – to work with.

Last year several pricing practitioners and product  managers took the quiz and gave their ordering. Two distinct paths emerged based on their first question. So spend more time on your starting point, rest of the ordering will flow from it and easier on cognitive cost.

After you fill it out you will see again the list of questions for your review. If you want to capture the order you chose, please take a screenshot before you hit submit.

Segmentation, Targeting, Positioning and Pricing As Customer Jobs To Be Done

The Customer Jobs to be done is a powerful metaphor introduced by Clayton Christensen in thinking about demand and new product development. Christensen’s framework requires us to view our product as something customers hire to get a job done. With different customers there are different jobs.

The term ‘job’ really represents the unmet need at hand. It covers both utilitarian as well as hedonistic (and hence needs and wants). It also makes sense to view this as ‘hire’ decision since they can either stick with what they already have or switch when they find better alternative.

He illustrated that with an example of why different customers hired milkshake from a fast food restaurant. Understand the different customers and the different jobs you find what product and what prices.

In some sense this isn’t new if you viewed what Ted Levitt wrote 50 years back – “customers are not buying quarter inch drill, they are buying quarter inch hole” – which speaks about the customer need and not the product and its features.

The other solid strategic marketing framework that came from Levitt is

  • (Customer) Segmentation
  • Targeting
  • Positioning
  • Pricing

And the Jobs metaphor fits perfectly well with this tried and tested framework (in strategic marketing there is really nothing new despite what some gurus say). Let me map the STPP to Jobs To Be Done metaphor

Segmentation: I am not talking demographics based indirect segmentation here but the right way of segmenting based on customer needs (or needs based segmentation). You are grouping together customers based on the similar jobs they are trying to get done.

Targeting: Strategy is about making choices. Simply because you mapped out all different segments with their needs does not mean you can serve them all. No one has that level of infinite expertise or resources. You need to find where you will differentiate enough to succeed. There are multiple different customer segments and many different jobs, but which customer and which jobs are you going to target?

Positioning: Positioning is creating a unique, relevant and differentiated positioning in the minds of the customers for your products. From the jobs perspective it is telling them clearly which job you want them to hire for and why your product is the most suited candidate for that job. While your product could be hired for many jobs you want to go after those where you have sufficient differentiation and also pay well. You don’t believe Apple wants customers to hire iPad as a way to display photos on their coffee table, do you?

Pricing: Pricing is your way of getting your fair share of value you create by doing the job. It is what your product gets paid for getting the job done. (I did not run out of things to say on pricing, that has been the main focus of this blog.)

That is it to marketing strategy.

Surely you are not surprised by Groupon woes?

Update 11/1/2012: Groupon valuation is back in news because of its rival LivingSocial’s woes.

In Amazon’s 10-Q filing late Friday afternoon, it disclosed that Living Social saw revenue of $372 million for the nine-month period ended Sept. 30. While that is up 120% from the same period last year, it reflects third-quarter revenue of just $124 million – down 10% from the June period.

If that sequential drop reflects an overall weakness in the daily deals business for the third quarter, then it implies potentially disappointing results for Groupon when it posts its own results for the period next week,

When valuing a company’s stock it pays to understand what pressing customer needs it serves and what unique value it adds. That is assuming you are Benjamin Graham, Warren Buffett type investor who takes the time to understand the business before investing.

Business model is value-creation and value share. A business that creates net new value for its customers gets to share in it. A business cannot get its share of value it did not help create, let alone grow exponentially.

If you are such an investor then Groupon’s announcements about lax controls should not come as a surprise to you. I am not referring to the $2 drop in its stock today but the news that led to it.

It is hard to describe Groupon’s business. In fact even Groupon is not clear about what it is.

For starters, it is a two sided market. It essentially brings together small businesses on one side and end consumers on the other side.

In general a two sided market adds value by unlocking value, creating new value or removing inefficiencies. It then gets its fair share of the net new value added. A two sided market must be consistent in its positioning – it must serve as the enabler for the jobs the two sides are seeking to do. There should be no asymmetry.

Take for example, eBay. It positions itself as the market place for buyers and sellers to find each other. No asymmetry here. EBay adds value by enabling transactions that otherwise would not have been possible.

What about Groupon’s role as two sided market?

What is its positioning to deal seekers? It tells them about, “one ridiculously huge coupon everyday” and its tag line is, “Collective Buying Power”. In other words it wants the deal seekers to hire it as a sales channel to buy products at steep discounts.

What about its positioning to small businesses? It tells them about, “guaranteed new customers”, “big exposure”, and “measurable marketing”. The story line goes, “these customers fall in love with your service and visit you again and again, paying full price”. In other words it wants the businesses to hire it as a marketing channel.

That is asymmetry (to put it mildly) in its messaging. Groupon cannot be a sales channel to acquire ridiculously huge discount and a marketing channel to acquire valuable customers at the same time.

What value does it add?

Businesses bring value to the table in the form of 50% off discount. Deal seekers add no value but get 50% off. Groupon gets its share of 25% from the businesses.

 

You bring a full pie.
Give half of it to my email subscribers.
Give half of what is left to me.
Take home the rest and wait.
It will not only grow to become a full pie, it will multiply into many full pies.

To repurpose Omar Khayyam, “the deal seekers having scored a deal, move on. No level of customer service will bring them back to pay full price for your cupcake they can get for 50% with their next coupon in the bakery next door”.

There is no net new value add. Just value distribution – from businesses to deal seekers and Groupon.  Groupon cannot take its share of value it did not help create.

So we have a business that most do not understand, even it does not have clarity on the needs it serves and adds no new value. How can you place a valuation on such a business?

Surely you are not surprised that such a confused business finds itself again in the accounting hot water?

There is a WSJ report that SEC may investigate Groupon. I see no reason for such an investigation at the expense of taxpayers. If irrational investors want to bet their money on a business they do not understand or chose not to understand, why should they be protected?

With marketing it is never just one thing

Marketing Gurus have simple and universal solution to your business problems. Perhaps, too simple. There is always one simple answer that broadly applies to all businesses. Whether the business is small or a large enterprise, whether it is a startup or a well established player and regardless of market conditions they recommend their one solution.

Based on the guru you pick or the point in time we get many such simple one size fits all edicts

  1. Tell better stories, because all marketers are liars storytellers
  2. Increase your price by 1%
  3. Keep your existing customers because 5% increase in loyalty increases profits by 75%
  4. Enchant your customers
  5. Generate remarkable content and just do inbound marketing
  6. Launch products like Apple does
  7. Give your product away, because free is free marketing
  8. Streamline user experience across all touch points
  9. Appoint women board members because organizations that have women board members saw 46% growth on return on equity
  10. To be fair I should add – Have two (or three) prices because if one price is good two are better (that is me indeed)

But in the real world, when you are facing declining revenue, changing market conditions, ever changing competitive field, technology disruptions and changing customer needs these one size fits all simple solutions woefully fall flat.

There is never just one thing any brand can do that can magically turn the business around.There is no glass to break to deploy the emergency solution.

You wouldn’t take the same prescription from your doctor because he recommended it to previous 100 patients, would you? In fact we do not even know what the problem really is before we can start to talk about solutions.

Take for example this struggling winery featured in The Washington Post case study:

Clos Du Val, a maker of fine Bordeaux wines found itself in troubled waters despite thirty years of success in the market. While the market was growing their sales fell. Analysts (Gurus) blamed the company for clinging to status quo and not changing when the customers’ taste changed. They were stuck in the middle between brands with bigger marketing budget and the nimbler boutique wineries.

Try applying any one of the popular solutions. Nothing fits.

Where would you start?  The marketer hired to fix Clus Du Val, Ms. Brooke Correll started with analysis and data collection to understand what the real problem was.

Correll set out to determine whether the “California wine with a French accent” had what it took to get back in the game.

It is the starting point of understanding the strengths and weaknesses and testing hypotheses.

She canvassed all constituents. She talked with distributors, retailers, restaurateurs, wine reviewers and consumers to assess the health of the brand.

You can’t test a hypothesis with made up data, by wishful thinking or by selective evidence seeking based on availability and convenience. You need to seek data from all stakeholders in the value chain, easy to access or not.

She conducted a quantitative pricing survey among peer Napa wines. She held interviews with its directors, management and sales force.

You can’t just worry about your products and your customers. Customers have choices. There is competition for customer’s wallet. It is not as simple as raising prices by just 1%. It requires quantitative studies to understand customer segmentation, their buying behavior and prices they are willing to pay – not just for your products in isolation but in the presence of all other choices they have.

Only after this data collection and analysis phase does a solution begin to emerge.

Clos Du Val simplified the product portfolio and took a long overdue price hike on the top tier. It unified the look of its labels to an updated version of the widely recognized terra cotta original. It created consistent brand imagery at every consumer touch point: a new Web site, a renovated tasting room, upscale branded merchandise and revamped wine clubs. Added PR component with product placements in shows like The Sopranos.

These actions would not have been possible without the initial diagnosis phase. No one action by itself would have been enough as well.

The results? With any turnaround, the results are not going to materialize overnight. It took them 18 months to turn around.

Still in love with simple solutions from Gurus for your difficult business challenges?


Note: I must note that we still do not know what other factors were at play in the turnaround. It is still likely we ignored other shifts in the marketplace or just plain luck in the Clos Du Val turnaround. After all any success story is laden with hindsight and narrative biases. But the recommendation to start with a clear understanding of your problem then define a comprehensive set of solutions remains true.