Alessandro Di Fiore November 30, 2011 blogs.hbr.org
It's well established market research fact that customers lie.
Business history offers innumerable stories of companies that launch whizz-bang new products on the basis of extensive quantitative customer research only to find that the customers didn't end up doing what they said they would.
But how else are companies to get a handle on what customers will do? To see an alternative approach, take a look at Geox, an innovative European footwear company. Founded in 1995 it has a turnover today of nearly € 900 million, a 20% profit margin (even in the crisis) and its products are distributed in more than 100 countries.
Here's how Geox happened. During a business trip to Reno, Nevada, to promote the family's wine business at a trade fair, Geox's founder, Mario Poletti Polegato, decided to take a walk. After a while his feet began to swell in the heat and irritate him. To cool them down he poked a couple of holes into the rubber-soled trainers he was wearing, and soon felt better. He had just discovered a simple way to let excess heat out of his shoes.
Now the invention of the rubber sole, over 50 years ago, was an important achievement which changed the lifestyle of millions of people. It made shoes impermeable, thus allowing people's feet to stay dry — especially in winter. The problem was that they didn't allow your feet to breathe. For Polegato, of course, this wasn't an immediate problem because it doesn't rain a lot in Reno. But millions of people had to face the uncomfortable choice of having hot sweaty feet or cold, wet ones.
The walk got Polegato thinking about this dilemma and, once home, he started experimenting in the workshop of a small footwear company in his town in the north east of Italy. After a few months, the idea became reality. Geox found a way to micro-perforate the rubber sole around the area of the foot with the highest concentration of sweat glands. Since a water molecule is 700 times smaller than a water droplet, vapor can still escape even though the sole remains waterproof, so Geox-clad feet are both cool and dry.
Michael Bloomberg did something very similar. Before becoming mayor of New York, he was considered a visionary business man for the insight behind his company's success. Providers of financial information needed to offer analytics to help users make sense of the data. The idea should have been obvious to anyone who had ever watched and experienced "a day in the frustrations of the trader" using Reuters or Dow Jones Telerate. Traders used paper, pencil and calculator to run analytics off the Reuters or Telerate raw data then made their trading decisions. As a former trader, Bloomberg had lived the frustrations of working that way and it was from that experience that he saw the market gap he filled.
These cases and many others (Netflix, Intuit ...) highlight an important managerial lesson. Time and again I've seen that a strategic insight into customer needs is very seldom the result about data crunching or analytics hype of today.
All you need is to put yourself few times — just eight or ten, my research suggests — into customer's shoes. Observing customers while they are using existing products and services is often the only way to detect latent frustrations that they may not even be consciously aware of. And it was in removing those unspoken frustrations, undetectable in customer surveys, that innovators like Polegato and Bloomberg found their opportunities.
Of course, it's not quite as simple as that. Where the main challenge comes is about who does those probes and observations. These people have to be smart about business, strategy, and people because they've got to be able to spot the really significant behaviors and issues. And the best people to do that are going to be the folks in the top management team: the CEO and the people just below him, who have the strategic understanding needed to recognize the opportunity and the authority to act quickly on it like Polegato and Bloomberg.
Bottom line, if you want to start a billion dollar business you can't rely on market researchers and consultants to find the strategic insight for you. If they could, why would they give it to you? Real market research should be a core part of any top executive's job and they should be going out doing observations and explorative probes of customers — preferably incognito — at least twice a year for a few days. That's how entrepreneurs work and it's what CEOs should do as well.
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