(1995) Fomenting A Customer Obsession

Fomenting a Customer Obsession
Jean-Philippe Deschamps and P. Ranganath Nayak
Companies that innovate relentlessly and successfully are intriguing.

How do they manage? Can other oqanizations develop the competencies
and processes that foster obsession for customers and products? I n this
chapterfrom a recentlypublisbed book, the authorsshow that Rubbermaid
and other trailblazing firms have learned to listen continuously to the
“voiceof the customer, ” mashall customers’ help in designing products,
build a customer-driven osanization and culture and in so doing,
improve theirproducts relentlessly,
T
he product creation goal at Rubbermaid is staggering: Fill retaiI
shelves with up to 300 new items every year for the next ten years.
“Our objective,” says CEO Wolfgang Schmitt, “isto bury competi-
tors in such a profusion of products that they can’t copy us.”
Rubbermaids current goal is for at least 33 percent of any year’s total
sales to come from products introduced in the previous five years. With this
product development project as the spark, the Wooster, Ohio, company
has established a major growth objective based on doubling sales,
earnings, and earnings per share every five years. This goal would have
meant an approximate compounded annual growth rate of 15 percent
during the period from 1983 to 1992. During this period, sales increased
fourfold to exceed $1.9 billion in 1993, and earnings increased more than
six times to $211 million in 1993.
To sustain the pace of product creation required to meet its financial
targets, Rubbermaid decided in 1989 to pull together researchers, design-
Jean-PbiCippe Descbamps is ers, manufacturers, and marketers into product line or “business” teams,
a colporate vice president of Their mandate was simple: generate ideas and get products to market as
Arthur D. Little, Inc., based in quickly as possible. Rubbermaid’s market might be the bedroom closet,
Bmsels, Belgium. He is the
where shoes are piled on top of each other and ties and belts twist together
founder of thefinn’s interna-
tional technology and innovation on a single hook; or the pantry closet, often turned into a makeshift
management practice. P. recycling area. In these typical household spaces, Rubbermaid teams
Ranganath N q a k is a senior uncover new ways to meet old or new needs. They scour the kitchens,
vice president of Arthur D. bathrooms, and bedrooms of America to find out what customers want,
Little, Inc., based in thefirm’s need, or would like to have.
corporate headquarters in
Rubbermaid executives have expanded the word “customer” to
Cambridge,Massachusetts. This
article is reprinted by permission include the retailers through whom they do business. This dual focus-on
of Harvard Business School
Press and e x c q t e d f i m CCC 027 7 -8556/95/140489-3 4
Product Juggernauts. 0 1995John Wiley & Sons, Inc.
National Productivity Review/Autumn I995 89

Jean-Pbilippe Descbamps and P. Ranganath Nayak
the people who sell products as well as those who buy them-allows the
company to dominate many of its markets.
Rubbermaid continues to receive wide acclaim for its growth, quality,
profitability, and innovation. The company has regularly appeared on
Fortune’slist ofthe ten most admired U.S. corporations. In 1994,it achieved
the top ranking, displacing glamorous pharmaceutical giant Merck &
Company. With a return on average shareholder’s equity exceeding 20
percent since 1983, the company clearly ranks among the best and
steadiest U S . financial performers.
Many people, however, fail to see the underlying competency in
Rubbermaid’s success formula: exceptional attention to customers com-
bined with a quasi-obsession with providing them with value in the form
of innovative products and service.
GROWING BY PROVIDING VALUE AND

CHURNING OUT PRODUCTS TO WIN
Rubbermaid’sgrowth, says CEO Schmitt, flows directly from providing
value to customers. “Wedo not pretend to sell at the lowest price,”he says.
“But we do claim to offer the best value.” At Rubbermziid, that means the
combination of four inseparable attributes: quality and price, of course,
which the consumer is most interested in; but also service and speed,
which are primarily directed at the retailer.
In a highly price-conscious and mature domestic market where it faces
more than 150 competitors, Rubbermaid has achieved a reputation for the
quality aspect of value. It promotes this image in its advertising slogan,
which asks, “Don’tyou wish everything was made . . . like Rubbermaid?”
This perceived quality allows the company to command a price premium
without upsetting its customers’ sense of value.
Value comes from
Quality at Rubbermaid has traditionally been viewed in tangible,
providing a high-
measurable terms. These basic characteristics made former CEO and
quality product at a
current Board Executive Committee Chairman Stanley Gault particularly
reasonable price
proud of his products. “No one surpasses our quality,”he used to say. “We
through a satisfied
use more and better resin. We don’t buy any scrap resin. And we use a
and motivated thicker gauge.”
retailer, and doing it Value also comes through service, which Schmitt defines as “simply
faster. doing what we agreed to do.” Rubbermaid is constantly increasing what
it agrees to do for and with retailers. The company is not shy about its
intentions. If it can eliminate the adversarial relationship that characterizes
so many manufacturer-retailerdealings in the United States and replace it
with a mutually beneficial partnership, Rubbermaid expects to squeeze out
the competition.
Lastly, value comes from providing a high-quality product at a
reasonable price through a satisfied and motivated retailer, and doing it
faster. “If we can come up with an idea and bring it to market faster,”says
Schmitt, “that’s of value to Rubbermaid, to our customers, and to the
consumer. If a customer calls and wants a new ad or promotion piece and
90 NationaE Productivity ReviedAutumn 1995

Fomenting II Custmer Obsession
we can respond faster with a quality concept, that’sof real value. The same
applies when it comes to getting inventory to the store just in time.”
Rubbermaid managers believe that the company’s formidable reputa-
tion with retailers and consumers derives from this total emphasis on value.
Some 95 percent of American homemakers recognize the Rubbermaid
name. The brand is so well known in the United States that in some stores
it has become the generic term for the housewares aisle. The company is
capitalizing on this phenomenon by launching “destination shops,” a sort
of Rubbermaid store-within-a-store at large retailers, such as Venture.
Anyone doubting that Rubbermaid is customer- and product-driven
Rubbermaid’s should tour its company headquarters in Wooster. New products are
aggressive product everywhere: In the managers’ offices and the Customer Center (where
development policy is management regularly hosts retail customers), as well as the Best Practice
the single most Room, where they are lined up in attractive displays.
important reason for In the past three years, Rubbermaid has introduced an astounding
the company’s 1,000new products. At this rate, more than half the product line is less than
consistent growth. five years old. This product creation prowess enables the company to
maintain an unusually high level of activity in its customers’ distribution
networks.
A high proportion of these products-about one-third-are new from
the ground up. Under this strict definition of a new product, deriving 15-
percent annual growth from bulk plastic products is not easy. So
Rubbermaid’s product managers and designers have become adept at
tweaking mature products to provide incremental consumer benefits and,
at the same time, boosting sales.
Rubbermaid’s aggressive product development policy is the single
most important reason for the company’s consistent growth. Management
does not hide its ambition to overwhelm competitors in terms of both
magnitude of product range and rate of introductions. Rubbermaid
undoubtedly has the broadest product line of its kind in the world. Its
catalogue includes a formidable array of about 5,000 items, covering
applications in the house, in the office, in the institutional back rooms, and
outdoors. This product proliferation policy enables the brand to command
more shelf space in certain stores than all of its competitors combined.
Rubbermaid’s single-minded pursuit of growth has also meant taking
risks. Management requires some of its operating businesses to enter a new
market segment every 12 to 18months. Such stimulus produces results. In
1983,the company surprised the housewares industry with a line of plastic,
microwavable cookware. It pioneered the home-office market with a range
of desk and filing accessories. And its line of plastic outdoor furniture and
garden sheds helped transform the traditional casual furniture market for
decks and patios.
Of the 500 to 900 new product ideas generated at Rubbermaid per year,
between 350 and 400 get implemented and introduced. Of these, more
than 90 percent are market successes, an astonishing hit rate in the fiercely
competitive, mass-volume consumer goods market.
National Productivity Review/Autumn 1995 91

Jean-Pbilippe Descbamps and P. Ranganutb Nayak
Nonetheless, managers do not ignore the 10 percent that fail. “Each

time we have messed up,” says Schmitt, “it’sbecause we have forgotten a
fundamental truth and failed to deliver value.”
The lessons of failure seem to be well understood at Rubbermaid. As
Schmitt says, “We have low turnover in our staff, so we accumulate
experience. Second, we are good student-we learn fast from our
mistakes. Third, we believe in continuous improvement, and we give our
people the training and tools to improve steadily over time.”
At the idea generation stage, Rubbermaid gleans many suggestions
Rubbermaid collects from consumers. Executives are encouraged to read customer letters, visit
consumers’and stores, and listen to focus groups and user panels. These ideas pertain
retailers’ comments. mainly to improvements or line extensions. For example, a customer
complained that Rubbermaid’s traditional rack-and-mat dish drainer did
not fit in the small kitchen of a single-person household. The company
responded by designing a compact one-piece set. Rubbermaid also tests
color preferences through focus groups in several cities, then confirms the
results through sidewalk customer interviews.
At the product testing stage, Rubbermaid employs consumer and user
groups extensively and follows with in-home testing. The company does
not, however, test-market products for fear of tipping off competitors.
Rivals could fabricate molds in a few weeks and copy Rubbermaids most
innovative products before they could be launched nationally.
Once the product reaches the market, Rubbermaid does not stop its
investigations. It collects consumers’ and retailers’ comments. Specific
consumers are asked to record their reactions as they use the product. Their
diaries enable the company to collect suggested improvements directly
from real world users.
P A R T ” G WITH CUSTOMERS AND WATCHING FOR TRENDS

While Rubbermaid’s attention to the consumer is extensive and
intense, its approach to its retailers is extraordinary. Retail managers from
across the country arrive in the marketing demo room in Wooster at the
rate of three per week. “Our people feel the real world heat from them
almost every day,” observes Schmitt.
In the past, harried retail managers came to Rubbermaid to unload their
gripes. “Wewould try to smooth things over,” Schmitt explains, “and then
sell them. Now we see our retailers as partners. We might even suggest they
carry a competitor’s product.” He acknowledges that though Rubbermaid
ultimately designs products for the consumer, “Our primary focus is the
retailer. We want to get them excited, to make them profitable.”
At these meetings with retailers, Rubbermaid product managers
describe ideas taking shape on the drawing board and listen to how retail
managers react. They discuss consumer trends, promotional opportunities,
product strengths and weaknesses, store layouts, pricing, packaging, and
whatever else might affect sales over the next 12 to 18 months.
In 1991, Rubbermaid’s top executives decided these contacts were not
92 National Productivity Revim/Autumn 1995

enough. They designed a second type of meeting specifically for high-level

managers to strategize on matters three or four years in the future. A
ranking executive at Rubbermaid sponsors such sessions, inviting vice
president-level executives from retail enterprises. The topics might include
how to mesh computer systems for faster ordering, delivery, and billing.
In this high-level forum, Rubbermaid also initiates discussion of radical
changes, such as its destination store-within-a-storeconcept, and proposes
new alliances.
As Rubbermaid’s first-line customers, retailers and distributors help
define consumer requirements. In return, Rubbermaid designers keep in
mind their concerns in terms of storage and merchandising when they
conceive new products. Its “litterless lunch-kits’’are designed not just to
be practical to the parents who pack school lunches and fun for the
children who use them, but to fit compactly and attractively on store
shelves.
This attention to retailers, plus superior trade margins and generous
advertising allowances, have helped Rubbermaid build one of the broadest
retail networks in the industry,with more than 120,000outlets in the United
States alone.
Ideas for Rubbermaids “leap-forwardproducts,” such as microwavable
cookware or recyclable refuse containers, often come not from consumers
or retailers but from analysis of social trends. In fact, says Schmitt, “almost
all our product concepts come about because of trends in housing, the
environment, or demographics.”
Rubbermaid seems particularly adept at translating societal and
lifestyle changes into tangible new products or product improvements.
Trend analysis involves in-depth statistical analysis complemented by old-
fashioned brainstorming involving managers from all functions.
The litterless lunch kit arose from several social trends, including
heightened concern for the environment, interest in healthier eating, and
Retailers and a preference for home-prepared food. To meet these trends, Rubbermaid
distributors help conceived colorful containers with airtight modules that can be washed
define consumer and reused. Rubbermaid calculated that ecology-minded parents who
requirements. worry about the accumulation of trash in landfills would welcome a school
lunch box that eliminates food packaging. Similarly,the oversized “Rough-
neck” mailbox line was developed after intense reviews of postal distribu-
tion trends, including the growth in volume of junk mail.
Two annual reviews give Rubbermaid management the opportunity to
participate in the product creation process of each business unit. Business
teams present their proposed lines, including additions and deletions, and
the justifications for choices made. “Managementwill challenge the teams,”
Schmitt says, “butwe avoid interfering. However, we always try to look for
opportunities to enlarge the scope of the product plan.”
To add value more systematically, management organizes an annual,
companywide product fair, where each product team presents its plans to
others. This event allows people from different divisions and teams to hear
National Productivity Review/Autumn I995 93

yean-Philippe Deschamps and P. Ranganath Nayak
firsthand about’the products being planned and why, and to exchange

ideas and opinions.
Companies do not become customer-oriented overnight, of course.
This corporate attitude generally arises from a clear, constantly reinforced
message from top management. In this respect, Rubbermaid managers
have been influenced by the passion of Stanley Gault and Don Noble, their
legendary former chairmen.
Managers love to tell visitors about the time when, while walking in
Manhattan a few years ago, Gault overheard a doorman muttering and
swearing as he swept dirt into a Rubbermaid dustpan. The CEO whirled
around and started grilling the man as to why he was unhappy. The lip
Management has not where the dustpan met the floor was apparently too thick, which meant
hesitated to that the doorman kept leaving a line of dirt on the sidewalk no matter how
decentralize hard he swept. When Gault returned to his office, he ordered engineers to
responsibility as redesign the product.
much as possible to During his decade at the helm of Rubbermaid, which ended in 1991,
multifunctional Gault’s personal, even emotional involvement with his products became
product teams. very much a part of Rubbermaid lore. “Mywife has come to accept that I
will never pass a hardware store without going in,”he is remembered as
saying.
What is unique about Rubbermaid is not the sophistication of its
consumer research and feedback techniques, which are well known and
widely practiced among fast-moving consumer goods manufacturers.
What sets Rubbermaid apart is its obsession, so often exemplified by Gault,
and now Schmitt, with satisfying both retailers and consumers.
To make its passion felt, management has not hesitated to decentralize
responsibility as much as possible to multifunctional product teams. “We
compete against smaller, very flexible competitors who behave like
entrepreneurs,” says Schmitt. “Weneed to replicate internally the manage-
ment structure of our competitors. This is why we have created our product
teams. They are highly focused, highly intense owners of the product
creation process.”
LISTENING TO THE VOICE OF THE CUSTOMER

Rubbermaid’s executives would almost certainly agree that the most
prominent cause of new product failures is an inadequate feel for or
understanding of the customer and h s or her needs. Thls fact was demon-
strated in a study of US. companies presented at the Planning Forum 1991
International Conference i n Toronto by Arsen G. Vuckonic and Robert
Cooper. Asked to name the main cause of new product failures, 45 percent
of the respondents cited deficientmarket analysis,which included inadequate
initial market study, product launch, test-marketing, market assessment, and
prototyping with custon:ers. Product problems o r defects, the second most
important cause, ranked well behind, with less than a 30-percent response.
As marketers know al: too well, the road to a customer-driven product
creation process is paved with complications. These complications gener-
~ _ _ _
~~ ~ ~ ~ _ _~~ _ _ ~ ~~
94 National Productivity Revim/Autumn 1995

ally lead into temptations and bad habits, such as bypassing the customer
and those who speak in his or her name. There are at least five obstacles
to finding out what the customer wants:
1. Customers all want daflerent things. Customers are diverse. So,

too, are their needs and wishes. Some companies see in this diversity a real
opportunity for differentiation because customizing products in a cost-
effective and timely way can only be achieved by those with superior
operational performance. George Fisher, CEO of Motorola, proudly tells of
being able to manufacture pagers in a lot size of one and with a cycle time
of two hours. Such performance is vital, he claims, because “pagers are not
commodity products. They have different frequencies, special labels, many
customized features. . . . You go to every customer and say, ‘What do you
want?Whatever it is, we can do it.’ If you drive that capability as a distinctive
competence, while your competitor is building a million of the same
gadgets at a very low cost, I’ll bet the company that does something
different for every customer is going to win.”
Many companies are either unwilling or unable to confront this
diversity. They limit themselves to developing middle-of-the-road prod-
ucts, aiming at the largest common denominator among their clients.
Ultimately, they meet all needs partly but none fully.
2. Customers db not know what they want or need This classic
dilemma awaits companies that want to innovate. For example, how could
any consumer have expressed the need for or desirability of a fax machine
before its invention?
Hal Sperlich conceived of a minivan at Ford but could not convince his
Many companies bosses to approve its development. Part of the difficulty in doing so,
Sperlich says, was that “in ten years of developing the minivan, we never
limit themselves to
once got a letter from a housewife asking us to invent one.” Ford
developing middle-of-
executives, he continues, “lacked confidence that a market existed,
the-road products,
because the product didn’t exist.” Seeing no way to argue Ford out of this
aiming at the
historical perspective, Sperlich took his personal conviction to Chrysler,
largest common
which turned the minivan into a profitable line of vehicles.
denominator among Confronted with this example of “gut feel” leading to a product
their clients. success--not unlike Sony’sfamous Walkman-some executives might be
tempted to eliminate market research altogether, or rely on “technology
push” as the predominant source of new ideas. However, while it is true
that customers are no better predictors of the future than the average palm
reader, they can tell you what their problems are today. That is where needs
analysis should start-with the customer expressing the difficulties he or
she faces. Customers should not be asked to solve their own problems.
3. Customers do not always buy wbat they need Customers have
objective needs that can be expressed in a rational, thought-out way. For
example, a new car buyer who is a young father with a moderate income
may stress the need for space to accommodate his growing family, safety
features to protect his loved ones, and fuel economy to minimize his
National Productivity Reviezv/Autumn 1995 95

yean-Phiiippe Descbamps and P. Ranganath Nayak
operating expenses. Needs are driven by usage requirements. They are

product- and service-centered. In theory, customers will always try to
satisfy their basic objective needs first.
But, as every marketer knows, customers do not always react ratio-
nally. Even those who share the same objective needs may have quite
different buying motives. Beyond needs, these motives may include a
range of wants, from the important to the mundane. Wants may be
irrational, emotional, and instinctive. For example, they may be driven by
a sense of image and centered on the total offering (product, service,
image, relationship, etc.) rather than on the product alone. The car buyer
Competitors often described above may have dreamed of a sports car for years. Once in the
follow different showroom, he may suddenly find himself ready to compromise his stated
strategies in trying to needs for space, safety, and fuel economy for the attractive styling of a
satisfy the needs and sporty looking sedan.
wants of their Finally, as they use the product, customers build personal experience
customers. and develop expectations, which the product will meet with varying
degrees. The family car buyer may discover that his sports sedan not only
is poor on fuel economy but is expensive to maintain, an attribute which
he had not considered in his purchasing decision.
Competitors often follow different strategies in trying to satisfy the
needs and wants of their customers. Some will put all their efforts in
meeting all the needs of a segment before addressing some of the wants.
Others will ensure they satisfjr some of the wants of their customers, even
at the cost of some needs.
The early success of Japanese car manufacturers in Europe in the late
1970s highlights very well their understanding of customers’ wants and
needs and their subtle handling of customers’ buying priorities. European
small car manufacturers had traditionally emphasized meeting objective
needs, such as fuel economy and road-holding ability. Their cars tended
to be technically well conceived but rather spartan in terms of interior
design, features, and equipment.
Japanese manufacturers, on the other hand, offered inferior perfor-
mance in some need categories, such as suspension and fuel economy, at
least in their earliest models, but compensated for these disadvantages by
providing a profusion of customer wants, such as comfort feature.-
adjustable steering wheel, driver activated locks, plush interior-and
superior finish. In the showroom, customers were attracted to their wants
and, in large numbers, forgot about some of their needs.
4. Customers do not always buy what they or others think they
want. Some years ago, Philips developed a portable radio-cassette player
for teenagers called “MovingSound.”The line was designed to appeal to
young customers, so Philips made the player a striking golden yellow
color. When prospective customers were brought in to test the product,
they were given two color choices: golden yellow or the more classic black.
An overwhelming majority said they preferred yellow. To thank the panel
members, Philips offered each a free radio-cassette player on leaving. Two
96 National Productivity Review/Autumn 1995

Fomenting a Czrstomer Obsession
piles of players were placed outside the testing room, one pile yellow, one
pile black. To the surprise of all but a few seasoned marketers, most of the
young people chose a black player.
Philips learned that the teenagers did not really mean that they would
buy golden yellow radio-cassette players themselves when they said they
preferred that color. What they meant was “the yellow sets are better
looking.” On their way out of the testing room, they showed clearly that
the black players were the color they would actually choose.
Managers often use such stories to justlfy reducing marketing research.
Some will be tempted to rely on past experience and extrapolate forward,
or to rely on the distribution network as the main source of information on
future customer requirements. These moves will surely result in a product
creation process divorced from the people it is intended to serve. The
challenge for management is to be smarter than customers-in other
words, to unbundle customers’attitudes and reactions in order to uncover
true buying motives.
5. Customers keep upgrading tbeir expectations. Customers do
change. They increasingly demand new products, and their expectations
are constantly raised by the continuous product improvements of competi-
tors. Given the complexity of keeping up with customers, managers are
naturally inclined to overlook shifting needs, ignore competitors’improve-
ments, and maintain old products until they become fully amortized. Such
actions result in missed market opportunities and delays in launching
products. There can be no pause in creating new products.
Listening intelligently to the voice of the customer requires that
companies iden@ the groups to whom they need to listen and develop
a good understanding of the distinct requirements of each group in the
supplier-to-customer chain: distributors, buyers, and end users.
Customers do change. The product requirements of these various groups may sometimes be
incompatible. Philips, for example, is convinced that customers want VCRs
that are much easier to use and program than current sets. The company
worries, however, that retailers would not support a change in program-
ming routines. Currently, seven out of ten sets sold in the world are
Japanese, and these VCRs share a similar programming approach. Sales-
people know the routine by heart and can easily demonstrate it. Any new
programming system, even if ultimately more user-friendly to the con-
sumer, might be resisted by dealers. This situation begs the question:
Should you design for the end user or for the dealer? The answer, as
Rubbermaid showed in its litterless lunch kit, is to design for both
simultaneously. The requirements of retailers and users may not always
coincide, but rarely do they differ so much as to be irreconcilable.
Every company does some market and customer research, formally or
informally.The nature of that research, its content, and the extent of its use,
however, varies considerably, particularly before the introduction of a new
product.
(Continued on p . 100)
National ProductiviQ Review/Autumn 1995 97

Jean-Pbilippe Descbamps and P. Ranganatb Nayak
How to Create a Customer Obsession
1. Remove obsfac&s.
Provide tangible euidence that managment really cams.
Set an example at a high level by having the CEO and all top managers visit customers
regularly.
Organize customer days featuring top management as customer advocates.
Publish lots of customer interviews, letters, complaints, and suggestions in company
magazines.
Fight the belief that dealing with customers is marketing’s business.
Organize regular internal PR campaigns to focus all people and functions on customers.
Build bridges between engineering and marketing through joint customer visits and staff
rotation.
Seed R&D with customer-oriented staff, such as long-term customer researchers and
application engineers.
Mobilize ail intermediaries to be@ c o n y a sense of the customer.
Bring customers and distributors to headquarters regulady for open management meetings.
Ask the sales channels to organize a process for customer visits that minimizes disruptions.
Use customer videotapes, not memos,to Overcome a lack of personal contact.
Overcome R&D and engineering’s iack of time and budget for travel.
Make customer visits a compulsory element of all other travel, such as to conventions
and suppliers.
Bring customers into R&D and engineering for idea brainstorms, design reviews,
and clinics.
Circulate customer reports, complaints, interviews, and videotapes to R&D and
engineering.
2. Build CapabPlities, resources, and means.
Teach, train, und conch stafSon customer relations.
Use TQM training to sensitize all suff t o the “chain of customers” concept.
9 ,Y Riatioiinl Productivity R r z ~ r e w Y u t i i m n1 YY j
How to Create a Customer Obsession (continued)
Teach managers the basic dos and don'ts of customer listening and watching.
Arrange for all marketing and R&D staff to spend at least a day at a typical customer site.
Enhcance the status and rdsibility of customer-related activities.
0 Appoint a high-level "customer satisfaction advocate," such as the CEO or the vice
president of marketing.
L Build a "customer relations" function, a must in consumer products, to support the
process.
9 Create a medium to disseminate broadly the gist of customer complaints and field service
reports.
Allocate resources to customer-mkztedactiuities.
Build "advanced marketing" capabilities and budget to focus on long-term Customer

research.
Allocate 5 to 10percent of the R&D and engineering budgets to customer-related activities
and contacts.
Create a "customer fund" at the top management level to support and reward customer
activities.
3. Motivate peopk to db bt.
Create momentum around the customer
Create, measure, track the evolution of, and publish key measures of customer
satisfaction.
Feature customer activities abundantly in company publications and management
memos.
Celebrate successes, such as new orders or sales growth, and link them directly to
customer orientation.
Mensure and rewwd customer oriewtation.
Include customer relations in the performance evaluation of marketers and product

managers.
Reward excellence in customer relations and special customer dedication at all levels.
Reward marketing for coaching R&D and engineering on how to interact with customers.
Nntional Productivity Reviedlutuwin 1995 99

Jean-Philippe Descbamps and P. Ranganatb Nayak
(Continuedfromp. 97)
Japanese companies have generally had much less exposure to
marketing theory than their Western competitors. For th~s reason, perhaps,
their marketers use research more selectively. They tend to distrust general
surveys of lifestyles, attitudes, and values. They prefer more concrete and
tangible impressionsfrom customers of actual products-specific likes and
dislikes. Kozo Ohsone, Sony’saudio executive in charge of developing the
portable Discman, reportedly refused the research study that the company’s
marketing executives wanted to conduct prior to launching the product.
He considered the effort a waste of money.
Japanese managers make a point of developing their own personal
market feel. They tend to put themselves in the shoes of their customers
as well as conduct informal, hands-on research, such as individual store
visits and customer watching-sometimes in their own stores or demon-
stration rooms. They make spot checks with chosen customers, even some
who have bought a competitor’s product. And they complement their
instincts with systematic visits to wholesalers, dealers, and retailers.
Distributors, who are often distrusted by manufacturers in Europe and the
United States, constitute a privileged source of market information in
Japan, particularly those affiliated with a particular manufacturer.The head
of Matsushita’s video products division once asked, “Why are Americans
spending so much money on market research? You can learn what you
need simply by traveling and visiting retailers that carry your products.”
Finally, Japanese managers balance the soft impressions developed
through their market contacts with a voracious appetite for hard facts. They
seek all kinds of data showing the movement of their products and their
competitors’through the channels of sales, inventories, and market shares.
Companies should
Companies should not become too rigidly driven by market research,
not become too
if that means abandoning corporate initiatives to respond simply and
rigidly driven by
effectively to today’s customer demands, to develop innovative products
market research.
that customers might never know they wanted.
Motorola CEO George Fisher recognizes this risk. “Customers will
always pull you in directions of interest to them,”he says. “Asa technology
leader, sometimes we have to show people what we can do. The portable
telephone is a good example. Motorola jumped way out in front of the car
phone. . . . We didn’t have thousands of people saying ‘Wewant portable
telephones that look a certain way and have particular kinds of features.’
We presented it to the world.”
SEEING THE INDIVIDUAL IN EVERY CUSTOMER

Far too many companies still show very little respect to customers as
individuals, treating them as cold statistics. They amass tremendous data
on the marketplace, of course, but much less often do they try to
understand the many groups and individuals that it comprises. They
neither ask nor watch. Yet a worldwide innovation survey conducted by
Arthur D. Little showed that the greatest number of good ideas come from
~~ ~~~ ~~

customers, not marketing, sales, competitors, or top management. Cus-

tomer-sensitive companies use the most advanced techniques of lifestyle
analysis, perceived value analysis, and concept testing to discover not only
what people say they want in a product, but what they will actually buy.
In effect, executives need to think like customers, not like salespeople.
Some companies that lost touch at one point have managed their way
back after painfully reassessing their strategy. One that rediscovered its
customers in the midst of losing them is Harley-Davidson. The largest
motorbike manufacturer in the United States was caught unprepared by
Japanese competition. In fact, TV ads later on proclaimed how close Harley
was to financial disaster-three days.
Harley-Davidson traditionally sold huge, chrome-plated “hogs” to
Some companies that young male customers who enjoyed dressing and riding like Hell’sAngels.
lost touch at one In contrast, the newer Japanese motorbikes featured much sportier designs
point have managed clearly aimed at a different market segment: ordinary kids and yuppies.
their way back after Honda and Yamaha entered this new market with small engine bikes that
painfully reassessing even a teenager could afford.
their strategy. Perhaps the “bad-boy”reputation of its customers embarrassed Harley-
Davidson executives, or the Japanese success impressed them. In any case,
Harley-Davidson began to follow its competitors’ design and market
strategy by going down-market in terms of bike size. It could not, however,
match Japanese price and quality levels. The new bike-buying groups
perceived Harley machines as unreliable, and many old customers
defected to the Japanese when they later came out with “macho-looking”
super bikes. According to R.L. Polk & Company, which keeps auto industry
statistics, by 1985 Honda had swept up almost 47 percent of the motorbike
market, leaving Harley with just 9.4 percent.
Yet Harley-Davidson thrives today, a story of a rare rebirth. Corporate
executives literally went back to their customers, both buyers and dealers.
They found out that by going after the yuppie market they had given up
the reputation for power bikes they enjoyed with their traditional customer
base. A new managing director took over, and he interrogated customers
about their complaints. He found that lifelong customers believed that
Harley had abandoned its unique personality and image to become a
Japanese look-alike. These serious bike riders also missed what had made
Harley-Davidson machines famous-the aggressive chrome-plated look.
Harley, it seemed, was no longer satisfying any market group.
So the master of macho bikes decided to go back to its roots. That
meant gearing itself not to the pin-striped yuppies who ride motorcycles
to work, but to the leather-coated Hell’s Angel wannabes who ride for
weekend fun, Harley-Davidson then started a major effort to improve
quality and reliability up to the Japanese level and to move up-market again
in engine size.
In 1991, Harley’s share of the market rose to 31 percent compared to
26 percent for Honda. Demand for the super-heavyweight bikes today
continues to outstrip Harley’s ability to make them. Harley-Davidson is
National Productivity Revim/Autumn 1995 101

back in the race and even gunning its engines in Japan with an expanded,
more aggressive sales force.
Market research data is wasted unless it is turned into a creative,
distinctive, and useful segmentation. There are great differences among
industries and companies in terms of segmentation attitude and sophisti-
cation.
Fast-moving consumer goods companies have always considered
segmentation part of their basic game plan. They know how to divide their
markets according to all kinds of customer dimensions: demographics,
sociographics, psychographics, lifestyles, and so on. Most make deliberate
efforts to find new axes of differentiation. They segment and re-segment
until they unearth what marketers call a “micro-niche”-a relatively small
set of clearly identifiable customers whose common needs can be
addressed with a specifically tailored product.
Similarly, manufacturers of performance chemicals or plastics know
that their success hinges on their ability to gear a product to a precise need.
For that reason, they tend to segment their customer industries very finely
on the basis of their applications requirements.
By contrast, however, many other manufacturers base their product
strategy on nothing more elaborate than a classic price-quality segmenta-
A truly creative tion. Rare are the companies that have made the effort to develop a real
segmentation can be customer segmentation. And fewer still have adopted a creative segmen-
achieved in two ways. tation.
A truly creative segmentation can be achieved in two ways. First, by
proposing an unusual combination of product attributes, such as a high-
performance small car. Until the 1970s,European car performance roughly
correlated to car size. The larger the car, the higher the performance level.
This relationship lasted until Volkswagen developed the Golf GTi, a small
car with high performance aimed at a specific customer group: European
yuppies. This segmentation was so successful that all car manufacturers
imitated it. Today, the GTi segment-whatever name it is given-is
recognized as a standard and important part of the market.
Creative segmentation challenges the traditional price-quality relation-
ship. It changes-sometimes dramatically-the customers’ perception of
what they will get for what they pay. For example, in the 1980s Canon’s
Personal Copier made high-quality copiers affordable to the public. When
done boldly, as illustrated by Sony and JVC’sdream of making videotape
recorders available to the public, this approach is one way Japanese
companies create breakthroughs.
The second way to segment creatively is to introduce a new and
unusual segmentation factor, for example, ease of use for high-end
cameras. Single lens reflex cameras were traditionally segmented on the
basis of Performance and features versus price.
Automation and simplicity of use were not factors in that sophisticated
part of the market until Minolta and Canon introduced a series of totally
automated functions. Suddenly, manufacturers saw a market for sophisti-

Fomenting a Custmer Obsession
cated yet automatic and easy-to-use cameras. Today, user-friendly single

lens reflex cameras dominate the market. Similarly, Black & Decker
revolutionized the power tool market when it realized that many do-it-
yourself applications took place outdoors, away from a source of electric-
ity. Cordless power tools soon became an accepted segment.
BUILDING A MODEL OF CUSTOMERS’ PREFERENCES

Two approaches can help decipher customers’ attitudes vis-2-vis
products: distinguishing between needs and buying motives, and ulti-
mately adding some logical structure to the fuzzy world of customer
behavior. When used in combination, they provide a powerful tool to
model customer preferences. These approaches are the Image/Value/
Satisfaction concept and the Kano Diagram.
The Image/Value/Satisfaction concept is a simplified model of the
purchasing process. As illustrated in Exhibit 1, any customer starts his
purchasing process, implicitly or explicitly, with an assessment of image.
A negative response triggers elimination of the specific product or brand
from the purchase list.
Image plays a double function: reassurance and appeal. Reassurance
is important because image is associatedwith the firm’sestablished quality,
service reputation, or prestige, Appeal is important because image is
strongly influenced by design, technology, and product attributes. A turbo-
charger on a standard family sedan (and more recently a 16-valve engine)
inasmuch as they signal high performance, will be viewed as strong image
Exhibit 1. The Mental Purchasing Process
Lost Prospect
Lost
Sale
V
Lost Goodwill
~~ ~

boosters. By conveying prestige, they may appeal to a purchaser even if

he is not looking for a true performance car.
Management may or may not choose to emphasize attributes that will
directly influence the company’sbrand or product image. The recyclability
of a TV set will not create direct customer value or in-use satisfaction. If
provided before it is mandatory, however, recyclability will convey the
environmental consciousness of its manufacturer.
A positive response to the image test leads to consideration of product
value-”what I get for what I pay”-the second step in the purchasing
process. Value can be expressed as a fraction:
V=
Visible quality / functionalitv / excitement
Purchase cost
value is in the eyes Value is clearly in the eyes of the beholder, though it can be appreciated
of the beholder. more or less objectively at the purchase point.
Besides price, many attributes enhance customers’ value perception.
Some will reflect objectively stated needs. A safety conscious purchaser will
see value in an economy car equipped with two front airbags.Other attributes,
like the provision of electronic gadgets, will boost the impression of value at
the time of purchase in a more subjective and irrational fashion.
A firm’s product development and design process is often geared to
provide maximum value to customers, and value-creating attributes rank
high in the hierarchy of most product managers. To boost perceived value,
a new superior design or technology needs to be made visible and almost
palpable at the time of purchase. Goodyear’ssuccess with its new Aquatred
tire for wet road conditions is in part due to a design that conveys its safe
traction power in a compelling way, even in the dry conditions of a tire
dealer’s showroom. Value was made tangible by Goodyear, even before
use.
If value conditions purchase, satisfaction determines customer loyalty,
repeat purchase, and ultimately reputation and image. Satisfaction can also
be expressed as a fraction:
S=
In-use quality/functionality/cost + Unexpected delights
ExDected aualitv/functionalitv/cost Unexpected problems
Satisfaction attributes are what the customer experiences throughout the

life of the product. In car quality terms, if finish and quality feel are value
attributes, reliability and durability are satisfaction attributes. Noise level is
probably a strong satisfaction attribute for a vacuum cleaner user. It cannot
easily be promoted as a value attribute, typically because it cannot be fully
appreciated at the time of purchase. Statements about decibel ratings do
not easily convey the message at the point of sale.
Every marketer knows, at least intuitively,the difference between these
three categories of attributes. Few, however, distinguish explicitly between
I04 National Productivity Revim/Autumn I995

these attributes in market research or product planning. And fewer know

how to make tradeoffs between them when they speclfy a new product.
For example, how should the choice be made between increasing the
power rating of a vacuum cleaner, a typical value attribute,and developing
a costlier nozzle offering the same suction effectiveness at lower power,
a clear satisfaction attribute?
Deciphering customer behavior to model customer preferences and hit
the right success formula requires a careful identification and classification
of image, value, and satisfaction attributes for each product under
consideration. As shown in Exhibit 2, their relative importance, which
differs by segment, needs to be assessed from the customer’sperspective.
Image attributes will typically be rated higher in up-market segments.
Value and satisfaction attributes will, similarly, reflect the different behav-
ior of specific customer groups.
The Kano Diagram (named after its inventor, Professor Noriaki Kano),
well-known in the automotive industry but seldom used elsewhere,
classifies attributes by focusing on their impact on customer satisfaction.
It measures the level of satisfaction with (or positive customer response to)
a product against the product’s performance relative to the competition.
On a Kano Diagram such as the one shown in Exhibit 3, product
attributes, benefits, or features are categorized three ways:
1. Threshold characteristics are attributes that provide diminishing

returns in terms of customer satisfaction, once basic expecta-
tions have been satisfied. They do not offer any significant
opportunity for differentiation,provided the minimum level of
expectation-typically a function of each segment-is met.
To take an extreme example, adding more ashtrays to a car
The Kano Diagram
beyond the usual three or four would not increase noticeably
classit3es attributes
the appeal of a new car, but falling below two would probably
by focusing on their
be a disadvantage. For most customers, reducing car noise
impact on customer
below an acceptably low decibel level or improving winter car
satisfaction. starts beyond a certain point would not appreciably increase
perceived value.
Threshold characteristics are sometimes called “must”attributes.
Meeting these is the price to pay for being in business. Falling
below par will lead to customer complaints, and if the problem is
not rapidly solved,to defections. Exceeding competitors’levels on
threshold attributes does not bring any extra advantage.
2. Performance characteristics keep adding to customer satisfac-
tion when more of them are provided. Continuing improve-
ments in fuel economy fall in this category. As far as the
customer is concerned, there is no saturation effect. The higher
miles per gallon the better, provided of course it is achieved
without passing on unreasonable costs or sacrificing other
important performance factors.
National Productivity RevieudAutumn 1995 105

Exhibit 2. Relative Importance of Attributes: Vacuum Cleaners (illustrative)

I I
Relathre Importance usersatisfaction
Imageattributes in 1994 in 1998 attributes attributes
Brand 500h 40% Pricelpower ratio 22% 15% Effectiveness (dust)

Design 25% 25% Desigdcolor 19% 13% - carpet 20% 20%
Power rating 20% 15% Compactness 13% 16% - floor 15% 12%
Electronics 5% 10% Stability 13% 11% - hi-pile 12% 9%
Recyclability OO/O 10% Maneuverability 12% 150/0 Noise 12Yo 17%
Quality feel 9% 10% Storability 11% 13%
Features 7% 10% Maneuverability 10% 13%
Cord winder 5% 4% Effectiveness (threads 8% 5%
effectiveness Stability 6% 8%
Recyclability _.
5% Cord-winder 6% 3%
Relative Importance
Medium-end
Low-en 70%
Performance characteristics, which are sometimes called

“need” attributes, tend to be segment-specific. They will typi-
cally provide ample opportunities for valuable differentiation,
and hence are the favorite domain of competitive strategy.
Customers typically shop around to get the best deal on
performance attributes.
3. Excitement characteristics are unexpected yet highly appreci-
ated benefits that inspire a more than proportional surge in
satisfaction, and sometimes a “Wow!”from enthusiastic custom-
ers. A n antilock brake system on a small economy car at no extra
cost clearly constitutes an excitement feature, until every
manufacturer offers it, at which point it loses its potential for
competitive differentiation.
Excitement characteristics are the “wants”or “nice-to-have”
attributes in the must/need/want hierarchy. They provide a
window of opportunity for innovative suppliers who know how
to anticipate, spot, and exploit unmet or ill-met customer
wishes. But excitement attributes tend to be short-lived. They
will often be matched by competitors, and once everyone offers
the same excitement, it loses its appeal.
I06 National Productivity ReviewIAutumn 1995

Fomenting a Czcstoomer Obsession
Exhibit 3. The Kano Diagram
Low Performance relative to competition High
This brings us to the first crucial implication of the Kano concept for
management. By picturing customer satisfaction relative to competing
product performance and highlighting saturation and leverage effects in a
dynamic perspective, the Kano model provides a usehl framework to
devise product strategies.
As shown in Exhibit 4, an excitement attribute or feature may fall in
the threshold category after a few years. Product managers, therefore, need
to assess continuously the levels of performance and features at which
customer saturation starts appearing. This is essential if management wants
to prevent R&D from spending increasing amounts of resources on a
decreasing customer preoccupation, something they would not necessar-
ily do naturally.
The second implication of the Kano model for management is strategic:
it highlights what happens when a firm out-innovates its competitors.
Constant, repetitive innovations, coupled with fast operational strategies,
will typically allow the company to deploy its excitement characteristics
throughout the product range. In developing a low-cost ABS technology,
Ford has been able to offer antilock brakes in its entire range of cars,
including the low end of the market. This strategy has turned an excitement
characteristic into a threshold attribute before competitors have developed

Jean-Philippe Deschmps and P. Ranganatb Nayak
Exhibit 4. Evolution of Attributes: Low Noise in a Dishwasher
Low Performance relative to competition High
the capacity to compete, thus leaving them off balance.

The image/value/satisfaction concept and Kano Diagram can be
combined to illustrate customers’ product preferences and their evolution
over time. As shown in Exhibit 5, which charts hypothetical customer
preferences for men’s shavers, this kind of analysis provides ample
information and insight for product planners.
The process for arriving at such a detailed model of customer
preferences is straightforward,although rarely applied in practice. Product
managers must have a good understanding of the relevant product
attributes in their industry. They need to validate and rank them through
customer research.
The categorization of attributes according to image, value, or satisfac-
tion is obtained by researching customers’ reasons for buying or rejecting
a given product, as well as causes of satisfaction and dissatisfaction with
a product.
Some of the best-known investigative techniques for sorting attributes
along the threshold/performance/excitement dimension are depicted as
fishing lines in Exhibit 6. Of course, all investigative techniques or
information sources for probing into the customer’smind (Exhibit7) can
be used to sort product attributes along the three dimensions. Some,
however, probe more deeply than others. Clearly, an analysis of customer
complaints-for example, from customer service reports-will cover only
108 National Productivity Review/Auturnn 1995

Fomenting a Customw Obsession
Exhibit 5. C u s t o m e r Preference Model: Men’s Shavers (illustrative)
Image Value Satisfaction
1993 1997 1993 1997 1993 1997

-
10% 15% Pnce 25% 25% Duration of 7% 13%
Performance Design
quality Compactness 5% 7% charge
Shaving 10% 12%
cloSeneSs
Case design 3% 3% Cleanability 5% 7%

Excitement
shave” 5% Accessones 3.%
feature
Thmho,d Technological 5% Quallty feel 10% 5% Noise level 5% 5%

features Weight 5% _- Gnp 3% 3%
Display 5% ergonomy
basic, well-known attributes, those in the threshold category. They cannot

be expected to provide insights on new, unexpected product uses or
benefits in the excitement category. The latter will typically be obtained
through deeper probing and face-to-face contact. Holding customer
clinics, ideally with lead adopters, is a classic technique for probing deeper,
Lead adopters are those advanced customers who pioneer innovative
applications of existing products, or who develop their own solutions to
their problems. Closely observing customers-either lead adopters or plain
customers-as they use the product is another way of fishing for clues
about what might provide excitement.
The deeper the probing, the more apparent the excitement needs.
Performance and threshold attributes are typically distinguished by
measuring the customers’ expressed interest (or lack of interest) for
obtaining certain features, or a higher amount of a given attribute.
Quantitative modeling can also be used to build utility functions for the
customer.
If locating and hearing diverse voices of customers is a challenge,
broadcasting them to others can be even more complicated. How can one
convey the richness of customer input in a digestible way to people
throughout a far-flung organization?
The goal is to disseminate not just facts but also the feelings- customer
statements and reactions, for instance, ranging from formal focus groups
to informal service complaints. Organizing this broadcasting effort is no
simple task. It is often entrusted to the marketing department, and probably
rightly so. But marketing may lack the skills and the media to accomplish
the task. Corporate communications can often be helpful in capturing live
National Productivity ReviedAutumn 1995 109

Exhibit 6. Typical Customer Investigation Techniques and

the Relevance for Identifyhg/Catego&ing Kano Dimensions,
Shown as Ways to Fish in the Depths of the Customer’sMind
ComDIaints Focus groups
Type of
attributes:
customer reactions on videotape, and in orchestrating a campaign to

inform everyone.
The voice of the customer can be expressed in many ways and to many
functions and people in the organization:
The wide distribution of customer surveys helps make everyone

aware of the customers’reasons for buying or rejecting, patterns
of use, and so on, providing ample materials for internal
communications. The challenge here is extracting the meaning-
ful trends without overwhelming people with a mountain of
unnecessary details.
A systematic dissemination of service/quality reports allows the
voice of the unhappy customer to be heard and makes known
deficiencies in existing products.
The publication of customer interviews gives management an
opportunity to give customers maximum visibility in company
journals. Seeing direct customer interviews can be more effec-
tive than management admonitions in focusing all minds on the
customer.
ENLISTING CUSTOMERS’ HELP IN DESIGNING PRODUCXS

Getting customers’ help in defining or even designing products is the
surest way to come up with products customers will actually buy. Many
companies have discovered the potential of involving customers in the
conception of new products, and they do it systematically. One of the most
recent converts is Boeing. Its new aircraft, the giant twin-engine 777, was
planned and designed with the active participation of eight airlines,
representative of a broad range of customer needs. Boeing formed task
110 National Produnivip Revieul/Autumn 1995

Fomenting a Cxrtomer Obsession
~~
Exhibit 7. Ways of Probing the Customer’sMind
casual/Infolmal Structured/Organized
General Information Trade show visits Consumer interviews (home/store)

(trends; preferences) Store visits Focus groups/panels
Ad-hoc (in store) interviews Consumer-watching(at home)
Service counter interviews Dealers council
Key account interviews
Customer satisfaction research
Customer service reports
Specific Information In-store customer-watching Customer clinics

(project/concept) Lead adopter (user) interviews
forces consisting of customers and special design teams with its three
launch customers, United, British Airways, and All Nippon Airways. British
Airways is reported to have obtained more than 200 changes to the basic
specifications of the aircraft. Boeing admits this with pride. Involving
customers in its product creation process is tantamount to a cultural and
technical revolution.
General Motors is another company adept at involving customers in the
design of its cars. GM sought customers’ help after its Cadillac Division
received a severe warning from the market for having lost touch with its
customers.
Like Harley-Davidson, Cadillac is an American institution, one its
customers believe should not be casually tinkered with. In 1984, Cadillac
was under strong companywide pressure to meet the federal government’s
fuel consumption targets. Looking for ways to reduce weight, production
planners shortened the new models by an average of two feet. Customers
did not understand why they ought to pay such a price premium to buy
a car that looked so much like other cars. Sales collapsed rapidly.
Cadillac management reacted quickly. In 1985, it set up a very
extensive program to win its customers back. The Division set up three
groups of 500 Cadillac owners and potential customers and involved them
thoroughly in the design process--not just at the initial product definition
stage, but also at the styling evaluation and prototype testing stages. The
customer groups made hundreds of worthwhile suggestions, which
product planners and program managers dutifully implemented.
The fact that Cadillac’sDe Ville and Fleetwood were immediate market
successes is probably no coincidence. By 1988 Cadillac had regained the
~

market share it lost in the 1984 to 1986 period.

There are four main ways to get customers’help in designing products:
1. Watch theproduct in use. Often the best way to get customers’

help in defining new products is simply to watch them use your own or
your competitors’ current products. Customer watchers literally observe.
They ask questions only to confirm o r clarlfywhat they see. Few companies
practice this skill systematically.Too often it is mixed up with conventional
market research, where a customer is questioned either in a private
interview or focus group. In such standard research, the conscious or
unconscious actions of the interviewer, as well as the often loaded nature
of the questions, inevitably influence the answers. Watching customers
Watching customers allows you to see how the customer understands the product, handles it,
allows you to see how uses it in innovative ways, and overcomes any deficiencies. Such observa-
the customer tion often uncovers surprises in customer behavior and product use that
understands the prior market research focusing on traditional methods did not elicit.
product, handles it, In the Personal Care Product Group of Philips, the world’s largest
uses it in innovative producer of electric shavers, developers and designers practice customer
ways, and overcomes watching as a matter of routine. N o one at Philips would dare launch a new
any deficiencies. shaver without watching and documenting how trial customers in its
application center use the proposed product.
Designers at Bosch, the German power tool maker, are known for
asking customers in stores for permission to visit their homes to watch them
use the products. Bosch designers know that their customers, many of
whom are serious do-it-yourselfers, can teach them about product
innovations.
In the absence of customer watching, companies may often make
seemingly logical, though incorrect, decisions that waste money and effort.
A Swiss manufacturer of machine tools was so conscientious about his
products’ appearance that he designed a coverplate for one of his larger
machines in order to give it a smooth, finished look. Some months later,
he visited a customer and found that the expensive coverplate had been
removed. At the next stop on his tour of customers, he found the coverplate
propped in a corner. At the third site, it was stuffed under a pallet. Finally,
the manufacturer asked, “Why have you removed the coverplate?”
“The piece interfered with simple maintenance,”the customer replied,
“and besides, it served no purpose, did it?” The manufacturer finally
understood that if his costly coverplate served no purpose to his customers,
it was unnecessary.
2. Se&ct &ad customers and distributors. Most companies would
think twice before associating large groups of direct customers, as Cadillac
did, in their product creation process. Managing such an input may easily
turn into a nightmare. Customer-driven companies have found ways to
obtain the necessary input from customers without excessive risk or
complexity. As Boeing did with its launch customers, companies must
carefully select the right customers with whom to work.
112 National Produciivity ReviewIAutumn 1995

Fomenting a C m m e r Obsession
For example, Philips’s Personal Care Product Group has identified

what management calls “fine testers” for its shavers. To qualrfy as a “fine
tester,” a consumer must meet any one of three conditions: He must be
particularly sensitive to shaving discomfort, for example, from having
fragile skin; he should be representative of one of the statisticallyrelevant
consumer groups; or he should be especially discriminating about shavers
and articulate in expressing his feelings.
Professor Eric von Hippel and Cornelius Herstatt from Arthur D. Little
call such discriminating customers “lead users” or “lead adopters,” and
highlight the benefits of involving them directly in product specification
and design tasks, not just in product reviews. Lead adopters must fulfill
three conditions to be selected:
Lead adopters must be mare demanding. To be a stimulus

for progress, lead customers and distributors must be selected
from among the toughest and hardest-to-please in the market.
International groups operating in Europe know well the differ-
ing characteristics and specific demands of each national
market. It is common practice in certain industrial groups to
select lead customers and distributors from different countries,
depending on the success criteria for the business. At the risk of
generalizingexcessively, companies have found that customers
most sensitive to product performance and reliability are in
Germany; to product ergonomics and environmental friendli-
ness are in Sweden; to product cost and delivery flexibility are
in Italy; to product value-price/performance ratio-are in
Holland or the UK.
Lead customers and Lead adopters must be more advanced Lead customers can
distributors must be be trusted by management if they prove regularly to be ahead
selected &om among of the pack in terms of product demands or in the way they use
the toughest and products. Manufacturers who claim that they cannot anticipate
hardest-to-pleasein what the market will buy in the future have probably not been
the market. able to identlfy and exploit the insights of their most advanced
customers.
When Britain-based EM1 introduced its first CT scanner in 1974,
it did so in the United States rather than in Europe. To bring out
its breakthrough product, EM1 needed the recognition and
support of the world’s most prestigious radiologists. EM1judged
that they were in U.S. hospitals, such as the famous Mayo Clinic
and Massachusetts General Hospital. The twohospitals received
EMI’s first scanners for trial. Both contributed to the further
development of CT scanning and, ultimately, to its success.
0 Lead adopters must be convinced to cooperate. Associat-
ing customers with the conception and design of new products
requires, obviously, that these people be willing to help. They
must accept becoming partners with the company’s R&D
National Produtivity Review/Autumn 1995 113

department. This is generally achieved by giving them specific

advantages. In exchange for their cooperation, the two U.S.
hospitals received their first CT scanner, a $400,000item, free of
charge. They also shared the prestige associated with being first
in exploiting a breakthrough in diagnostic imaging. In the
industrial world, lead customers often value the competitive
advantage associated with being first to use an innovation, even
if only briefly.
3. E x p s e everyone,particularlyproduct developers, to custom-

ers. Marketing departments typically communicate final specifications and
features through product briefs. But these can easily be misinterpreted by
those developers who have never seen the prototype in the hands of a
customer and, therefore, lack the means to challenge marketing’srequests or
add refrnements of their own. Allowing marketing to remain the sole link to
the customer limits the work of development to simply meeting defined
product specifications. That narrow role jeopardizes the creativity of the
product creation process at the foundation of development.
The solution is to expose product developers, and generally all R&D
staff, to customers. But that suggestion sometimes runs into stubborn
opposition. Marketers who consider themselves the sole arbiters of
customer wants and needs may wonder, “If everyone has contact with the
customer, who needs us?” Many of them cannot conceive of any added
benefit from sending developers into their territory, the marketplace.
What these marketers fail to understand is that developers look at the
world through a different lens. Marketers are the sociologists of the
business world, developing a broad, often statistical, but shallow, view of
consumers. Product developers, on the other hand, act as anthropologists,
looking at an individual or family of customers in detail. A marketer takes
Marketing the broad view; the developer focuses narrowly. The marketer draws
departments typically quantitative conclusions about markets, the developer, qualitative. The
communicate final marketer brings analytical skills to the subject; the developer uses his or
specifications and her intuition. Neither function can rightfully claim to understand customers
features through without taking into account the complementary views of the other. For that
product briefs. reason, their opinions should carry equal weight as a company tries to
understand the marketplace.
In fact, the corporation needs varied viewpoints-from service and
sales as well as marketing and development-to capture accurately the
needs of a complex customer base. Marketing should be the prime
organizer of a company’s approach to the marketplace, but certainly not
the sole interpreter of customer needs and desires.
The benefits of multiple viewpoints can be clearly seen in the case of
direct customer research by an automaker. When confronted by a test
customer’s statement, such as, “I don’t like this car’s road holding,”
marketers would typically write the comment down and move on to their
next question. They would not know how to follow up on the customer’s
114 National Productivity Review/Autumn 199.5

Fomenting a Custmw Obsession
answer. Vehicle engineers, on the other hand, would ask a dozen more
questions intended to make explicit the exact nature of the customer’s
road-holding dissatisfaction and, therefore, the technical cause. This
method underpins the quality function deployment approach now em-
ployed by many car manufacturers. This approach, indeed, offers an
organized process to decipher crude customer appreciation of a product
and translate it into design parameters engineers can understand and act
upon.
An existing contact with customers is often overlooked by many
companies. The employees who see customer problems first, the service
people, communicate with the designers reworking a product only
Job rotation is a through statistical reports. The strategic monitoring aspect of service
classic way to bridge should, like development, be included on any product creation team.
technical and To expose everyone in the corporation to the customer, management
commercial must send a clear message throughout the organization: our company is
functions. market- and customer-driven, not Marketing driven. Simply speaking, the
customer does not belong to Marketing!
Developers can be exposed to the market in four complementaryways:
Job rotation.Job rotation is a classic way to bridge technical

and commercial functions. Of course, designers should not just
be sent into the marketplace untrained. They must be given
some basic marketing tools for understanding what to look for
and how to interpret what they see.
Epson, the manufacturer of small printers, sends young devel-
opment engineers into the field as salespeople for six months.
There they experience constant contact with customers. The
next six months they spend in the service department, so they
will understand the high cost of product defects. Finally, Epson
places new engineers on the shop floor for six months, where
they can deal with manufacturing products that have not been
properly designed for production. Only after passing through
these phases will the engineers move into product creation, the
jobs they were hired to do.
Job rotation should not be limited to the initial stages of a person’s
career. It is also important to build bridges between functions over
a career span. It is easier, of course, to move from development to
marketing than the reverse, except in technology intensive indus-
tries in which everyone is technically trained.
Focus groups. Product developers can get a strong sense of
the market and people’s reactions to existing products at focus
groups, where customers discuss concepts and preferences.
Developers who are only creating generic products for a generic
customer cannot be obsessed with meeting customers’ needs.
Strategy sessions. Developers should, naturally, take part in
strategy discussions. Product strategy often remains the exclu-

Jean-Pbilippe Deschamps and P. Ranganatb Nayak
sive domain of marketing. Development sits on the sidelines,

with no role in market or competitor analysis and no voice in
discussions of strategy. Yet developers can be a rich source of
new product ideas, and they are the ones who must ensure that
product strategies and technology plans stay in harmony with
each other. Product goals and technological realities will
diverge unless multifunctional groups participate in strategy
discussions.
In the hallowed halls of Bell Labs, where basic research has long
been allowed to flourish untainted by the crass demands of
Developers and commercialization, R&D is being pulled toward the market-
marketers benefit place. “Fiveyears ago managers here didn’t even use the word
immensely from joint ‘customer,”’said Am0 Penzias, who oversees research. “Now
visits to customers. each of us has two jobs: working in corporate research and
serving on a team connected to one of AT&T’sproduct areas.”
This change means, for example, that Penzias himself spends
some days doing things you might not expect of a Nobel Prize-
winning physicist, such as consulting with a client like
McDonald’s.
Joint visits to customers. Finally, developers and marketers
benefit immensely from joint visits to customers. Signode
Corporation, the worlds leading manufacturer of machines that
tighten pallets at the end of a packaging line, wanted to diversify
by finding opportunities that would capitalize on the company’s
core competencies, its knowledge of plastic packaging technol-
ogy and of customer requirements. To ensure that its diversifi-
cation would be customer-driven, the company set up a number
of venture teams, each with senior managers from various
functions-marketing and manufacturing, of course, but also
R&D. The teams were instructed to go out in the field together
for three months and come back with product or service
opportunities.
Team members returned to corporate headquarters feeling that
this customer immersion experience was one of the most
enriching of their careers. More importantly to Signode, they
uncovered a number of unforeseen opportunities, such as
microwavable plastic products.
4. Maximize customer input throughout the process. The input

of the customer should not be limited to either the start of the project, the
product definition stage, or the end-the actual market reception. Expe-
rienced, customer-driven organizations know well the benefits accruing
from involving customers throughout the entire process.
Most companies recognize that customer input is critical at the
beginning, when establishing basic design and performance characteris-
tics. But stopping there, as many do, risks missing valuable information.

Initial specificationsare incomplete, since not all details can be specified

at the start of a new project. Typically, developers will be compelled to fill
in the gaps based on past experience. In the ideal situation, this
interpretation should be accomplished with the help of the marketing or
product management departments; in practice, however, developers often
find themselves left on their own.
Customer-driven organizations involve customers throughout the
process. Customers can look at sketches, preliminary models, and mock-
ups to test basic product concepts as well as overall design and configu-
ration. Sony is well known for using its showroomin Tokyo’sfamous Ginza
district to introduce realistic-looking mock-ups on demonstration shelves
next to real products. Designers and developers mix with the normal
showroom attendants, watching how customers manipulate the mock-ups,
and casually discuss product features with them.
Customers can also look at working prototypes to test product design
and features. Even if the concept and basic design are right, product failure
or success may hinge on a number of relatively minor details that users find
aggravating or pleasing. Working prototypes should, therefore, measure
not only functionality, performance, and reliability, but also customer
acceptance. Small modifications on items the customer might consider
important can often still be incorporated into the product at this stage.
Finally, preproduction models offer the company a last chance to
obtain customer feedback before product launch. At such a late stage,
modifications may no longer be possible, except on finish details. Yet
customer input may prove highly valuable for other purposes, for example,
to check instructions in the owner’s manual, to refine the packaging, and
to sharpen sales arguments and advertising themes. At this stage, far-
sighted companies also direct customer reactions to the group planning the
next-generation product.
Customer-driven BUILDING A CUSTOMER-DRIVEN ORGANIZATION AND CULTURE

organizations involve How can management turn a flabby, self-absorbed organization into
customers a customer-obsessed product juggernaut like Rubbermaid?
throughout the One response to this challenge is through education and training. Many
process. companies are now asking business schools and educational institutions
to develop in-company programs on consumer orientation, so as to expose
all their staff to the new philosophy. Education and training are, indeed,
very useful to create an awareness and introduce new management
thinking, but they are often insufficient to change management behavior
and habits. At least two other conditions are required from management:
1. Turning managers into product nuts. To redirect an organiza-

tion toward customers and products, the CEO and vice presidents must be
personally convinced that that is where competition begins. Executives at
the helm of innovators such as Honda, Sony, Hewlett-Packard, and
Rubbermaid express this conviction so well that they are often perceived
National Productivity Review/Autumn 199s 117

-7ean-Philippe Deschamps and P. Ranganath Nayak
by employees as their company’s foremost product champion. Sony’s

legendary Akio Morita was described by visitors as a real “product nut.”
This image came from his well-known habit of dropping into his R&D
department in search of innovations. He often kept prototypes in his
pocket to play with and demonstrate to visitors.
In contrast, many Western top management teams are or at least seem
to be far more interested in financial performance than in product quality.
In such companies, product issues seldom surface at the executive
committee level, and never in the boardroom. Jan Timmer, Philips’s CEO,
is very much an exception and personally takes the average customer’s
point of view when experimenting with his company’s new products. His
A growing number of bout of irritation that resulted when the first prototype of the firm’s CD-
companies are Interactive player could not be connected to his TV set sent a strong
choosing customer message to his organization. Product managers are now fully aware that
satisfaction as a main their boss is the first customer in the receiving line.
performance 2. Monitor customer satisfaction To reinforce their customer
indicator. orientation on a day-to-day basis, a growing number of companies are
choosing customer satisfaction as a main performance indicator.Mercedes-
Benz, for example, changed its traditional corporate slogan from “Thebest
or nothing” to “The best for our customers.” The revision reflects an
important shift in focus from internal technical excellence to outward
customer acceptance.
It is almost impossible, though, to keep an entire company perma-
nently motivated by a notion as abstract and intangible as “customer
satisfaction.” Managers, engineers, and all employees need concrete,
measurable elements on which to focus their attention. Therefore,
customer satisfaction must be translated into a number of measurable
parameters directly linked to people’s jobs- in other words, factors that
people can influence.
The process of measuring and comparing customer satisfaction has
become a standard management control feature in service industries such
as hotels and airlines. It is much less formally developed in manufacturing
industries. A good process for assessing customer satisfaction must satisfy
four requirements:
It should be based on a set of simple and fairly consistent

measures, to follow performance over several product genera-
tions and evaluate the impact of specific actions.
It should benchmark the company against its competitors.
External marketing research organizations will provide the
necessary level of objectivity and reliability to handle product-
by-product comparisons.
It should lead to specific actions, and hence be based on a
pyramid of measures. At the top, management needs a single
composite index. This index will typically break down into as
many measures as there are factors on which the company has
118 National Productivity Review/Autumn 199s

decided to compete. Finer elements can then be made directly

relevant to each specific function so as to make it feel it can
influence directly one or several satisfaction factors,
It should be widely communicated to keep people motivated
and committed to action. Customer satisfaction results must be
published rapidly, widely, and in detail. “Rapidly” means as
soon as collected, to ensure that corrective action can be
adopted immediately, if necessary; “widely”to ensure that each
function and department concerned gets the information first-
hand and at the same time; “in detail” to highlight not just the
overall company performance, but also gaps with competitors
by area.
Few companies have created high-level positions with the mandate to

monitor customer satisfaction.A survey of top management organized by
Arthur D. Little-Europe in 1989 showed that among selected European
countries, only 35 percent of industrial companies were formally monitor-
ing customer satisfaction (Exhibit 8). Very few have instituted a process
or mechanism to do so. Even fewer go further than monitoring.
To go beyond the usual approach of monitoring customer satisfaction
and reacting requires much more than a specialized function or mandate,
whatever its management level. It requires a holistic approach of product
creation, starting with the anticipation of customers’ desires and needs,
even before they are expressed, continuing with the design of products that
will truly meet customer needs and create excitement or delight, and
extending with effective support throughout the product life cycle.
IMPROVING PRODUCTS RELENTLESSLY

The customer-obsessed company is not compatible with complacency.
F e w companies have When the highly acclaimed Honda Accord receives a 75-percent satisfac-
created high-level tion rating, 25 percent are left who are not pleased. Customer-driven
positions with the organizations keep improving both their products and their service, even
mandate to monitor when they have proven highly successful in the marketplace. In other
customer satisfaction. words, the organizations become even more demanding than their
customers. They know that the product race is never won, that any good
product they introduce today will spur a scramble among competitors to
produce an even better or cheaper (or both!) product tomorrow.
Successful Japanese companies promote a continuous improvement
philosophy around three rather simple principles:
1. Dissect competitors’ products systematically to find im-

provement clues. Before becoming good inventors of their own, Japa-
nese manufacturers were master product improvers. They developed
elaborate reverse engineering techniques; they know how to dissect
competitors’or licensers’products to identify improvement opportunities.
This process is a formidable source of information on competitors on three

Exhibit 8. Monitoring Customer Satisfaction: Percentage

of Firms Formally M o d t o r i n g Customer Satisfaction
in Selected European Countries
21Yo
20%
14%
Never
I1 Occasional
14%
Extensive
;ource: Arthur D. Little-Europe, Unpublished survey (1989) conducted in the United Kingdom,
3enelux/Sweden, and France (n>200)
levels: first, on their technical sophistication level, in product technology,

product design, and manufacturing technology; second, on their rate of
progress, product generation after generation, thus on their ability to catch
up or reinforce their lead, if already ahead; and third, on their experimen-
tation with or pace of adoption of new technology.
2. Keep in touch with customers after the sale. Since no product
is perfect, Japanese manufacturers look anxiously for customer feedback
after the launch of a new product. Sales data and market shares are
monitored systematically; so are quantitative customer reactions (reasons
for satisfaction or dissatisfaction, patterns of use, suggestions for improve-
ment, and so on). In many Japanese companies, this active product follow-
up is carried out by the product development team. Product teams are,
indeed, seldom disbanded immediately after the product launch. They are
expected to assess the shortcomings of their products from the customer’s
perspective either for launching immediate improvements or to prepare
the next product generation.
One of the reasons Western companies have difficulties in keeping in
touch with customers after the sale is that no one has been clearly assigned
I20 National Productivity Review/Autumn 199s

that responsibility. The sales force tends to focus more on selling and
convincing than listening to customers. Marketing research, unless it has
set up customer panels for that purpose, may simply not be in a position
to monitor qualitative customer reactions with new products, and it may
not even have been asked to do so. But even if it did, who would follow
up on the findings? Frequently the project team responsible for the new
product is disbanded just after the product introduction, and everyone is
busy working on other projects.
Western consumer goods companies could easily fill that gap by
beefing up and reorienting their “customer relations departments” (or
creating such departments, if they do not exist). In most companies,
customer relations departments tend to be reactive. They focus primarily
on the handling of customer complaints and requests for information. By
asking them to take the initiative to search for customer reactions, and
suggestions for improvement, companies could reinforce and formalize
their links to customers. The main challenge would then be to ensure that
the information collected by that department is communicated to and taken
seriously by R&D.
Industrial goods and equipment manufacturers tend to be better
Companies that have equipped to follow up on customers’ suggestions for improvements,
not set up an particularly those who have set up an application engineering function.
application Application engineers are supposed to support customers in the use of the
department should company’s products. This puts these engineers in a unique position to
obviously do so to assess product effectiveness and identify product improvement opportu-
reinforce their links nities. Being technical people themselves, they can also better communi-
with customers. cate their suggestions to R&D. Companies that have not set up an
application department should obviously do so to reinforce their links with
customers.
3. Improve products relentlessly and incrementally.Japanese
manufacturers evolve their products faster than European or American
competitors, in large part because they improve incrementally(Exhibit 9).
They choose to proceed through minor product changes for two reasons:
They want to limit their risk level. Small technical changes are
less risky than bigger ones. Japanese companies are careful not
to introduce too many technological innovations in the same
product generation. Automobile manufacturers, for example,
will typically test a new engine on an existing car before
mounting it on an entirely new car.
They are flexible enough to respond quickly to customer
demands or feedback. Their greater operational flexibility
comes from working in a much more responsive supplier and
worker environment than in America or, especially,Europe. The
Japanese change their products more frequently than their
Western competitors because they can afford it. The penaky is
lower in terms of cost or time.
National Productivity RevieudAutumn 1995 121

Exhibit 9. The Japanese Philosophy of Continuous

Product Improvement
A
Quality,
Performance,
Features
r
4 Generation 3
I I Generation 2
I Generation 1
I Time
Rubbemid and other high-performing companies know that foment-

ing a customer obsession is just the beginning of product development.
The knowledge and experience gathered about customers must be
translated into a bold new game plan to deliver products that go far beyond
what people think they need or want. Developing such superior products
requires a consistent, repeatable product creation process that can deliver
innovative products to the marketplace quickly time after time. 0

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Fomenting a Customer Obsession

Jean-Philippe Deschamps and P. Ranganath Nayak

Companies that innovate relentlessly and successfully are intriguing.

National Productivity Review/Autumn I995 89

GROWING BY PROVIDING VALUE AND

90 NationaE Productivity ReviedAutumn 1995

National Productivity Review/Autumn 1995 91

Nonetheless, managers do not ignore the 10 percent that fail. “Each

P A R T ” G WITH CUSTOMERS AND WATCHING FOR TRENDS

92 National Productivity Revim/Autumn 1995

enough. They designed a second type of meeting specifically for high-level

National Productivity Review/Autumn I995 93

firsthand about’the products being planned and why, and to exchange

LISTENING TO THE VOICE OF THE CUSTOMER

94 National Productivity Revim/Autumn 1995

1. Customers all want daflerent things. Customers are diverse. So,

National Productivity Reviezv/Autumn 1995 95

operating expenses. Needs are driven by usage requirements. They are

96 National Productivity Review/Autumn 1995

National ProductiviQ Review/Autumn 1995 97

How to Create a Customer Obsession

Provide tangible euidence that managment really cams.

Fight the belief that dealing with customers is marketing’s business.

Mobilize ail intermediaries to be@ c o n y a sense of the customer.

2. Build CapabPlities, resources, and means.

Teach, train, und conch stafSon customer relations.

How to Create a Customer Obsession (continued)

Enhcance the status and rdsibility of customer-related activities.

Allocate resources to customer-mkztedactiuities.

Build "advanced marketing" capabilities and budget to focus on long-term Customer

3. Motivate peopk to db bt.

Create momentum around the customer

Mensure and rewwd customer oriewtation.

Include customer relations in the performance evaluation of marketers and product

Nntional Productivity Reviedlutuwin 1995 99

SEEING THE INDIVIDUAL IN EVERY CUSTOMER

100 National Productivity Review/Autumn 1995

customers, not marketing, sales, competitors, or top management. Cus-

National Productivity Revim/Autumn 1995 101

102 National Productivity Review/Autumn 1995

cated yet automatic and easy-to-use cameras. Today, user-friendly single

BUILDING A MODEL OF CUSTOMERS’ PREFERENCES

Exhibit 1. The Mental Purchasing Process

National Productivity Review/Autumn 1995 103

boosters. By conveying prestige, they may appeal to a purchaser even if

Satisfaction attributes are what the customer experiences throughout the

I04 National Productivity Revim/Autumn I995

these attributes in market research or product planning. And fewer know

1. Threshold characteristics are attributes that provide diminishing

National Productivity RevieudAutumn 1995 105

Exhibit 2. Relative Importance of Attributes: Vacuum Cleaners (illustrative)

Brand 500h 40% Pricelpower ratio 22% 15% Effectiveness (dust)

Performance characteristics, which are sometimes called

I06 National Productivity ReviewIAutumn 1995

Exhibit 3. The Kano Diagram

Low Performance relative to competition High

National Productivity Review/Autumn 1995 107

Exhibit 4. Evolution of Attributes: Low Noise in a Dishwasher

Low Performance relative to competition High