What if the consequence of superficial customer relationships was more than weak pricing and diminished competitive advantage? What if failure to get close to your customers could obsolete your successful, respected company in an instant?
Following is a true story of how a company’s lack of customer intimacy put its whole existence at risk. This story has been sanitized to mask the actual company’s identity.
EquipCo supplies manufacturing equipment to companies that make and sell widgets. At the time, the widget equipment market was large and growing fast. It was the primary source of revenue for EquipCo and its best opportunity for growth. However, at 20% market share they were performing far worse than their top competitor. Management wanted the market share situation turned around.
The Strategy is Set
Max, EquipCo’s widget equipment product manager immediately began working on a Market Requirements Document (MRD) for the next generation system.
Max had been in the widget equipment business for a long time so he knew what to do. He checked with his applications team to make sure he understood all the process requirements. Countless sales engagements had taught him that that the highest throughput system usually won the order and garnered the highest prices.
Industry reports also indicated that a new, but small niche market was emerging for dynamic-widgets. These dynamic-widgets were only expected to be 10% of the overall widget market. But by adding just one new process requirement to the MRD, EquipCo could also address this new application and increase its revenue opportunity. The key product requirements in Max’s MRD are shown in the table below.
|Process||% of Market Opportunity||Anticipated Competitor Capability*||EquipCo's Next Generation System MRD Specification*|
*Widgets per Hour
Everyone was jazzed about taking the “Highest Throughput” position in the widget equipment market. EquipCo’s engineers had even developed a clear path to this competitive advantage. The days of playing second fiddle to the competition would soon be history.
However, integrating the dynamic-widget process capability created a problem. It compromised traditional widget throughput. Engineering made a convincing argument that you can have dynamic-widget capability, or you can have a big throughput advantage in traditional widgets. But you cannot have both in the same machine.
Max considered his situation:
- The traditional widget market represented 90% of the opportunity.
- Since they only had 20% share in the traditional market, they had plenty of room to grow without participating in the small dynamic-widget niche.
- Engineering had a clear path to creating a throughput advantage in the traditional widget market.
For Max it was a no brainer. He revised the MRD to focus on the traditional market only. Dynamic-widget capability was dropped from the product’s requirements. Everybody was happy.
From Hubris to Panic
Fast forward 12 months. Things were getting exciting. Engineering had hit all the specifications during alpha system testing. It was time to secure the first beta customer.
Max’s target was WidgetKing, the largest widget manufacturer in the world. They had historically made up anywhere from 25-50% of EquipCo’s business. The timing could not have been better. WidgetKing was just six months away from a major factory expansion. They had plenty of time to qualify EquipCo’s new system before making volume purchases. WidgetKing’s executives agreed to visit EquipCo to learn more.
The first part of the meeting was awesome. WidgetKing was over-the-moon about the throughput for traditional widget making. They confirmed that that EquipCo had left the competition in the dust. Then just as Max was ready to suggest that they move to the demonstration lab to take a look at the machine, WidgetKing’s manufacturing vice president asked:
“What about your new system’s performance for the dynamic-widget manufacturing process?”
Max was ready for this. “We know that traditional widgets will make up at least 90% of your business, so that’s where we focused our efforts.”
WidgetKing’s turn. “But every new WidgetKing manufacturing line must be capable of manufacturing both traditional widgets and dynamic-widgets. We cannot purchase your equipment unless it is capable of both applications. Most other widget manufacturers are taking the same approach. I’m sorry.”
It was like the oxygen had been sucked out of the room. EquipCo’s victory lap had just disintegrated into abject disaster. Panic set in. EquipCo’s new system would have no customers.
EquipCo did ultimately recover from this potentially company-killing crisis. But the crisis never had to happen. It was caused by EquipCo’s failure to get close to the customer. When EquipCo defined the new product, they relied on:
- Their Experience
- Sales cycle customer interactions
- Internal application data
- Third party market research
- Internal perspective for resolving specification conflicts
Their approach lacked customer intimacy. They relied on internal biases, superficial customer interactions, and third parties. They weren’t close enough to his customers. As result, they completely missed the subtlety that even though the dynamic-widget market was very small, every widget manufacturer would require dynamic-widget capability.
That miss could have been lethal.