How many truly unique products or services can you think of? Hard, isn’t it?
The fact is that we now live in an environment of oversupply. There are many suppliers for just about every product we choose to purchase. If we take a moment to think about it, it’s obvious, but if that’s the case, how do we continue to grow organically? (That is to say grow without simply acquiring other suppliers).
Historically, we have spent huge sums of money on the supply side of the equation. Initiatives such as total quality management, six sigma, and ‘lean’ manufacturing are essentially focused on delivering goods of higher quality, and faster and cheaper than everyone else.
In professional services businesses too, online tools, ubiquitous reference information, unprecedented access to markets and platforms for extending the recruiting reach for potential employees have levelled the playing field allowing more firms to be established.
To focus on supply is in some ways easier than demand. Supply is more within our control and we are in contact with our processes every day. Demand is what exists in the hearts and minds of our market. Focusing on effective and efficient supply still has a role to play in business performance however incremental gains will become smaller. So how do we maintain growth?
Any marketing professional will remind us that we need to know our ‘target customer’ and the most common way to think about that has been as a demographic: age, position, gender, geography, industry etc. However, that won’t be sustainable with such an abundance of supply options. Understanding the demands of our market is now the key. This requires thought, rigour, analysis and discipline. But what is a useful definition of demand to begin with?
Demand has often been stated as “the quantity sought at a given price”. However, in their excellent book “How Companies Win”, Rick Kash and David Calhoun define demand as: what customers possess in terms of the needs and desires – emotional, psychological and physical – they want satisfied and have the purchasing power to satisfy. For example, we could need a drink on a cool day but demand much more from a bottle of water. Think of how many manufacturers of bottled water there are?
Demands have more to do with why customers buy what they buy, rather than what they bought. And to continue to thrive and grow, we need to understand their current, emerging and latent demands.
Current demand – These exist today in the market: Netscape beat Microsoft to the punch in the early 1990s with its easy-to-use web browser. Microsoft responded to this current demand with Internet Explorer and bundled it in with Windows to gain lost market share. (They were lucky they dominated operating systems with Windows. If they hadn’t got that distribution advantage, they could have been at a huge disadvantage).
Emerging demand – These are evolutions from current demand: Twitter! Smartphone users were already used to email, instant messages and online chat. For them, it was an easy-to-grasp extension of what they were already doing.
Latent demand – This is as yet unknown or immature. The key with this area of demand is that it’s hard to uncover from a customer survey alone as customers struggle with telling you what they want in the future because they don’t know they want yet! Millions of people didn’t know how much they wanted an iPod Touch until they saw one! (And then many of them upgraded to an iPhone when it was released).
Demographics can normally tell you what your customers have bought in the past but it doesn’t predict what they’ll demand in the future.
When it comes to thinking about demand, several different demographics (age, gender, geography, family size etc.) may have the key demand(s) you are able to satisfy. Here’s one example from the pet food industry – dog food specifically.
Dogs can be categorised demographically according to size: big, medium, small and puppy-sized, (which they all are at one time). They live with owner demographics such as children, the elderly, families of all descriptions, country or town dwellers and others. A successful dog food company decided to focus not on these owner and dog demographics, but on the demands arising out of the relationship owners had with their dogs. They found that some owners treat their dogs as a utility (or a security device), some treat them almost like extra children, while others like them as exercise and adventure partners. The company focused on this last relationship. These owners liked to take their canine pets on runs, hikes and walks. A range of foods called “performance fuelers” was developed and marketed specifically as food for dogs whose owners want them to perform at their optimal physical best. Of course when they had defined this category of demand, they also knew where to find the customers: at the camping grounds, trail heads and dealing with sports and outdoor equipment vendors.
This is a good example of latent demand – owners didn’t know they wanted the product until they saw it. It was the re-focusing of the lens though which the manufacturer looked at their market that led to success.
So where does this lead you? If you’re currently focused on improving your supply processes and you can realise profit growth there (faster, cheaper, better quality) that’s great. There may still be big gains for you there but beware, once you start reaching optimum effectiveness, gains from this source will begin to reduce and only a thorough understanding of demand will allow you to continue to thrive.
Want more advice on how to improve your supply processes? Check out Ian’s website or contact him!