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Reprinted from



The Magazine for the Corporate Strategist

January/February 2002 Volume 23 Number 1



Growing a business in tough times isn’t easy, but it can be done.

By Bob Lurie and Toby Thomas

G rowing a business seems next to impossible in tough

economic times. Your customers aren’t buying as much

or as frequently as they used to, and the usual programs

don’t seem to work as well anymore. And that’s frustrating,

because the benefits of growing your core business are clear. Nothing creates greater shareholder value or builds a more vibrant organization than generating higher and higher levels of growth in your principal business. But sowing growth in your own backyard is hard to do—really hard to do. Even talented and seasoned managers blessed with boom times have toiled with this problem year after year. They have broken their analytical picks trying to make sense of the complexities of their market, they have harvested all the low- hanging fruit, and even when they do spot promising new opportunities, their organization often rejects them in favor of business-as-usual programs. The reward for their hard work:

frustration and tepid growth. And yet, even in really tough times, and perhaps especially in tough times, there lies a golden opportunity. Slowdowns compel managers to take a hard look at their organizations, to challenge conventional wisdom, and to reconnect with their markets (lest they fall further out of step with it). To make the

most of the unfreezing of the way their company thinks and acts, they need a fertile, concrete approach to guide their thinking. Actually finding golden opportunities doesn’t require access to a silver bullet, just the discipline of employing the tried and true growth principles that deliver in good times and in bad. In fact, these principles consistently serve to double

and triple growth rates. Throw out the fads and begin the hard work—a cornucopia lies in your own backyard.

Take a Closer Look The first step is to look more carefully at the parts of your core market in which you have not traditionally participated. You may find the most attractive sources of growth in places where you haven’t looked before, or where you’ve looked but haven’t seen. Managers often fail to notice all the potential sources of growth in a business. No surprises here. Every company has its reflexes, its biases. It looks at the sources of growth that have worked in the past—say, poaching new customers from big competitors—not necessarily at those holding the most promise for the future—for instance, stimulating existing customers to use more of the product. For example, in the late 1980s, Fujitsu had an active busi- ness customizing its PCs for sales-force automation tasks at companies that sold big-ticket, information-intensive products. Salespeople at these firms would typically make two or three sales calls a day; then, at five o’clock, they’d enter the day’s activity into their home PCs, using Fujitsu’s software. But this method made little sense for the salespeople who supplied, say, snack foods to convenience stores and might make as many as 70 sales calls a day. They couldn’t possibly sit down at a PC and write memos about each call. And in the late-1980s many of them didn’t own PCs and were unaccus- tomed to using them. Fujitsu helped address the problem by building a portable, task-specific computer for Frito-Lay’s sales

Reprinted with permission. Copyright ©2002 EC Media Group

force. Ultimately, this gave rise to a huge new product category:

hand-held devices for sales and delivery workers, used routinely today by such companies as FedEx and UPS.

Break the Mold Top managers need to undertake a careful, disciplined search

for every opportunity to expand sales in the company’s core mar- ket. To lend structure to this task, we’ve divided all growth opportunities into five types. Running through this list one by one, and writing down as many growth opportunities as possible of each type, can help you break out of tradition-constrained thinking. The five types of growth opportunity are:

1. Retaining uses by existing customers (reducing attrition is

the same as growth);

2. Stimulating more uses by existing customers seeking to

satisfy the same basic needs as they have in the past;

3. Generating new uses by existing customers seeking to

satisfy new needs or a different combination of needs;

4. Stealing new customers from your competitors; and

5. Bringing in customers who are totally new to the product

category. To see how the categories work, consider the case of Cobra Golf. In the early 1990s, Cobra doubled its sales in just three years, by recognizing huge growth opportunities in categories 3 and 5—while other golf club manufacturers continued playing a zero-sum game in category 4. First, Cobra’s managers observed that many women were taking up golf, but Cobra’s competitors were focused on their traditional market of young and middle- aged men. So Cobra redesigned its clubs to suit the needs of novice women and enjoyed considerable success. This was a type-5 growth opportunity. Around the same time, Cobra introduced an oversized club with a graphite shaft, which helped older golfers drive balls as far as they had when they were younger. Customers who had bought new clubs mainly when the old ones wore out suddenly started buying clubs to satisfy a new need: the need to continue playing their old game after reaching a certain age. As a result, Cobra enjoyed sales growth of type 3. Whatever you do, when you look at categories 1 through 5, don’t limit your thinking to the growth opportunities that seem most “realistic” based on past experience. The whole idea is to

transcend your experience, so write down all growth opportuni- ties that occur to you.

Focus on a Specific Goal You will need to figure out how much effort (or, equivalently, money) it would take to realize each of these opportunities. Here, it’s important to focus on the specific customer behaviors that would have to change if each opportunity were to be real- ized—because no matter what, the problem always boils down to getting a particular customer segment to change its behavior in a particular way. For instance, Listerine’s current ad campaign tells customers to “use Listerine for 30 seconds two times a day.” This is much more effective than just telling them to “use Listerine to have fresher breath and fight plaque,” because it identifies a desired behavior and tells customers why they should adopt this behavior. Similarly, if you are selling Internet connectivity to businesses,

then trying to get your customer’s IT manager to give everyone at his company Internet access is much better than lecturing him in general terms about the benefits of T1 lines. Again, it aims for a particular type of behavior. A word of warning here: You may find that your company lacks the kind of data on customers and end-users that would enable you to figure out which of their behaviors will result in the most growth. Either your data will not be sufficiently detailed, or you will have detailed data on customers and on end-users, but no way of matching the two up so that you can see all the way down the distribution pipe. For example, say you’re a manager at Xerox, interested in improving sales of your company’s premier optical character recognition software. You may see an opportunity to bundle your OCR software into fax/printer peripherals manufactured by companies like HP. You may already have detailed data on

Organize your market research, your customer profiles, and your growth strategies around segments that your company can somehow act on.

HP—from previous interactions with that company. But that’s not enough. You must also collect detailed data on HP’s customers, and on how each customer segment uses HP’s fax/printer bundle. If you can convince HP that some of its customers would be more likely to buy the HP peripheral if OCR software was a part of a bundle, then you can con- vince HP to change its behavior—by bundling your OCR software with a particular line of products, by advertising the OCR feature, and by working to make it more compatible with HP machines. In short, you may have to identify a desired change in the end-user’s behavior if you hope to promote some other behav- ioral change in your direct customer. And you can’t do this unless you know which end-user segments go with which direct customers, and vice-versa.

Set Priorities Let’s assume that you’ve managed to get detailed data on your own market segments, and on the corresponding end-user seg- ments. Now you should be able to pair each growth opportunity on your list with one or more specific changes in behavior— changes in your customers’ behavior, and in some cases corre- sponding changes in their customers’ behavior. Against each of these behavioral changes you will find that there are barriers. These could be internal barriers within your company, or they could be practical barriers in the outside world, such as existing customer preferences or the lack of a distribution channel to reach the desired customer segment. And, of course, overcoming each barrier will take effort and cost a certain amount of money. Thus, one can assemble a cost/ben- efit analysis for each growth opportunity: (1) Here’s how much growth I can expect, and (2) Here’s how much it will cost to remove the barriers that now stand in the way of the behavior change that will trigger that growth.

You can assign probabilities, take expectation values, con- struct decision trees, and so on. But ultimately, the goal is to use some sort of cost/benefit analysis to prioritize your list of growth opportunities. And if one or two on your list have a huge demonstrable upside, you may find that your organization is suddenly willing to do what it takes to topple the barriers pre- venting you from realizing those opportunities.

Know Your Customers Inside and Out Many companies, even if they do identify great growth opportu- nities, have a dreadful time trying to capture them. The problem here is often the lack of a fine-grained understanding of cus- tomers—which is indispensable if one hopes to influence par- ticular customer behaviors. You can address this problem by crafting an in-depth picture of the type of person who comprises a certain customer segment. The process starts with a description of that customer’s social, organizational, and physical environment. What constraints and opportunities set the context for this person’s behavior? Is she in a hurry? Is she at leisure? Is she with a family member? And so on. Next, we try to describe the desired experience that this cus- tomer associates with a particular product or service, bearing in mind that people really buy “bundles of experiences” more than they buy products. For instance, affluent teenage boys might visit Barnes & Noble not so much to purchase books as to be seen purchasing certain books—say, books by Albert Camus, Ayn Rand, and the like. And Barnes & Noble would want to be aware of this if these boys comprised a significant customer seg- ment. Finally, it is helpful to assemble a profile of the customer’s beliefs—beliefs about himself, about the relevant product cate- gory, and even about particular products. These three factors—the customer’s environment, the sort of experience he is seeking, and his beliefs—combine to form a concrete explanation of his behavior: Why he buys what he buys, and why he does not buy what he does not buy.

Tell the Whole Story The goal is to investigate your customer segments so thoroughly that you can truly “crawl inside the heads” of their constituent members. Managers at Barnes & Noble discussing “the seg- ment of affluent teenage boys” should all be able to envision the 17-year-old budding intellectual as if he were sitting right across the table from them. They should recognize this young man in their friends’ kids, in their own kids—perhaps in themselves. They should know him not just in broad generalities, but in inti- mate detail. He spends weekday afternoons in a coffee shop (the local chain, not Starbucks). He supports environmental causes. He listens to Korn. He resents being under the thumb of his banal high-school teachers and fantasizes about the inde- pendence that will come with college admission. And what about his books? Well, they are not merely his “pastime,” they are his badge of alienation, of independence, of his status as an intellectual. If Barnes & Noble managers can see this customer, and the segment he represents, at that level of detail, then they will know how to market to him. For instance, they might want to promote CDs by college bands near the store’s philosophy sec- tion. And if you as a manager can picture this kid, then the peo-

ple who run your marketing, sales, and operations will be able to picture him as well. Everyone at the company will be working in unison, because they’ll all have the same understanding of the sheepish, alienated, spoiled-rebellious teen who finds himself in your marketplace. So ask yourself: Can you tell this kind of story about your customers? Can you relate to them, spot them at trade shows, guess what kind of bank they might use? If not, you may have trouble inducing the sorts of behavioral changes you will need to generate growth. Behavioral change is an intimate business. It occurs at the level of the human being, not at the level of “men between the ages of 27 and 35.” This lesson applies to those who sell to businesses, as surely as it applies to those who sell to consumers. Consider the gas pipeline business. Pipeline operators sell long- and short-term contracts that give their customers the right to use their pipe capacity to transport gas from point A to point B. Simple enough. You might imagine that this is a pure commodity busi- ness, in which the sale always goes to the pipeline operator with the lowest price. Well, it can be that sort of business, but it doesn’t have to be—not if you’re a pipeline operator who has a nuanced understanding of his customer segments. For instance, think about the segment of “arbitrage mar- keters.” These professional traders buy, re-sell, and deliver gas to their customers when they see a higher than normal price imbalance in the market. If the price of gas in Eastern Ohio is 20 basis points lower than it is in Upstate New York, an arbi- trage marketer knows, if he’s quick enough, he can make money. In a matter of minutes, he must find someone who will sell him the gas, persuade someone else to buy the gas, and then contract with a third person to transport the gas. If he’s not quick enough, gas companies might adjust their price, or worse still, a competitor will beat him to the punch. Arbitrage mar- keters need information about gas availability and pipeline capacity and to talk to a decision maker at the pipeline company who can quickly say yes or no to a contract. Traditionally pipeline companies have regarded arbitrage marketers as nuisances and have been slow to respond to their requests, focusing instead on established relationships and long- term contracts with local distribution companies. A pipeline operator who takes the time to understand the arbitrage mar- keter might behave differently. He would learn how much time

No matter what, the problem always boils down to getting a particular customer segment to change its behavior in a particular way.

arbitragers spend trying to find the market information they need to concoct the deal. He would learn that most of the arbi- trager’s requests come first thing in the morning, precisely when the pipeline operator typically holds his staff meetings. He would also realize that if you tell an arbitrage marketer “I have to check with our gas control people, we will let know later this afternoon,” the arbitrager will hang up, hit the speed dial but- ton, and contact a competitor. He would also understand how much the arbitrage marketers resent the way most pipeline companies treat them.

If the pipeline operator acts on this insight and does an about-face, giving the arbitrage traders more information than they ever could have hoped for and making key decision makers available when the arbitragers call, he wins their business then and there. In the long run, the pipeline operator will be the first number the arbitrager will call, enabling him to sell more of his excess capacity, translating into higher margins—effectively a price premium relative to competitors.

Create Meaningful and Actionable Segmentations Traditional market segmentation can succeed in identifying groups of customers who share the same basic needs and beliefs, but it’s often done in such a way that no one can ever find them. For instance, say you commission a study that con- cludes that “You have tremendous growth potential among ‘feel- gooder’ types,” or “You need to use a different pricing strategy on ‘self-assured’ young women.” Well, these assertions may be quite accurate, and “feel-gooders” and “self-assureds” may be perfectly well defined groups in a laboratory setting. But many managers will sensibly ask: “Where does a feel-gooder shop?” “What advertisements do self-assureds see?” In short: How do I find these people? Too often the answer is, “We don’t know,” and the manager is left with an honorary Ph.D. in psychology rather than a growth strategy. The lesson here is always to organize your market research, your customer profiles, and your growth strategies around seg- ments that your company can somehow act on. If your company and its distribution channels cannot isolate a particular type of customer—speak to him, market to him, and price to him— you’re never going to influence his behavior, no matter how inti- mately you understand him. The game is to find customer seg- ments that are relevant to the realities of your company—its organizational structure, sales capabilities, distribution channels, and so on—and also economically well-defined, in the sense that all members of the same segment have similar needs and experi- ences concerning your product. In other words, your customer segments must be both meaningful—in that those customers exhibit distinct behaviors, needs, and beliefs—and actionable, in that your company can conceivably do something to affect their behavior. One of these without the other won’t work. The right customer segments are not always the obvious ones. For instance, studios that make animated films for chil- dren often gather their market data according to standard demo- graphic categories, such as “mothers with young children.” But it turns out that this segmentation is not meaningful: The movie-going needs of a working mother and a stay-at-home mother are so different that they render a single customer pro- file useless. In particular, the life of a working mother is often filled with notions of being tired, feelings of guilt toward her children, and a desire to share with them special, potentially educational experiences, such as going to see an animated movie. The stay-at-home mother spends half her life carting her kids from one activity to the next, and regards children’s movies as no more than a discretionary diversion. Subdividing the seg- ment into “working moms” and “stay-at-home moms,” gives you

categories that are far more meaningful, but still actionable. Why actionable? Well, it turns out that working moms are far more likely to show up in the opening weeks of a movie’s run, while stay-at-home moms, spared the guilt that plagues working mothers, save the movie for a rainy day. The lesson: If you want to get people to attend the first run, pitch your message at work- ing moms; target stay-at-home moms for later-run shows. Who would have guessed?

Align Your Organization for Growth You also need to design your organization itself for growth. Every department of your company—marketing, product design, even finance—must target the desired customer behaviors. Internal factors that can retard growth range from organizational struc- tures that focus on products rather than customer needs, to inconsistent reward-systems, to a growth-averse company culture. It’s also helpful to organize you company’s growth budget just as you would organize your growth plan itself: around particular behavior changes in particular customer segments. You start by budgeting specific amounts of money to change behaviors:

“$2.8 million to persuade the segment of office secretaries to

buy their office supplies on line.” Only later do you allocate that money to particular departments and product lines. Finally, if you lack data on key customer segments, you may have to seek out data specifically on those segments. Packaged-goods makers have reams of scanner data from large retailers, but if the people in the chosen market segment do their shopping at mom-and- pop stores, the companies might as well use their scanner data to paper a birdcage. To summarize, if you want to generate superior growth year after year in your traditional lines of business, you need to do the following things:

1. Divide your market into segments that are both actionable

and meaningful;

2. Use the five types of growth—1 through 5 above—to help

identify the most important growth opportunities;

3. Make sure you understand all the economic activity of

each segment;

4. Focus on customer behaviors you need to change to take

advantage of those opportunities, and on the barriers that you must overcome to effect the desired behavior changes;

5. Create a holistic, fine-grained picture of the relevant cus-

tomer segments, to bring the customers to life for the whole organization; 6. Insure that your organization has a growth-orientated structure and mindset. Successful growth-oriented firms work on all of these tasks at all times and know how to integrate them so they work in harmony. Hard work? It certainly is. But it’s well worth the effort.

Bob Lurie is CEO of Market2Customer (M2C), and managing director and global account manager of Cambridge, MA- based Monitor Group. He can be reached at Toby Thomas is an offi- cer and global account manager in M2C, and can be reached at

Reprinted with permission of EC Media Group 11 Penn Plaza • New York, NY 10001 • (800) 430-1009