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Reprinted from

January/February 2002
Volume 23
JOURNAL Number 1

The Magazine for the Corporate Strategist

Growing a business in tough times isn’t easy, but it can be done.
By Bob Lurie and Toby Thomas

rowing a business seems next to impossible in tough

and triple growth rates. Throw out the fads and begin the
economic times. Your customers aren’t buying as much hard work—a cornucopia lies in your own backyard.
or as frequently as they used to, and the usual programs
don’t seem to work as well anymore. And that’s frustrating, Take a Closer Look
because the benefits of growing your core business are clear. The first step is to look more carefully at the parts of your core
Nothing creates greater shareholder value or builds a more market in which you have not traditionally participated. You
vibrant organization than generating higher and higher levels of may find the most attractive sources of growth in places where
growth in your principal business. you haven’t looked before, or where you’ve looked but haven’t
But sowing growth in your own backyard is hard to do—really seen. Managers often fail to notice all the potential sources of
hard to do. Even talented and seasoned managers blessed with growth in a business. No surprises here. Every company has its
boom times have toiled with this problem year after year. They reflexes, its biases. It looks at the sources of growth that have
have broken their analytical picks trying to make sense of the worked in the past—say, poaching new customers from big
complexities of their market, they have harvested all the low- competitors—not necessarily at those holding the most promise
hanging fruit, and even when they do spot promising new for the future—for instance, stimulating existing customers to
opportunities, their organization often rejects them in favor of use more of the product.
business-as-usual programs. The reward for their hard work: For example, in the late 1980s, Fujitsu had an active busi-
frustration and tepid growth. ness customizing its PCs for sales-force automation tasks at
And yet, even in really tough times, and perhaps especially companies that sold big-ticket, information-intensive products.
in tough times, there lies a golden opportunity. Slowdowns Salespeople at these firms would typically make two or three
compel managers to take a hard look at their organizations, to sales calls a day; then, at five o’clock, they’d enter the day’s
challenge conventional wisdom, and to reconnect with their activity into their home PCs, using Fujitsu’s software.
markets (lest they fall further out of step with it). To make the But this method made little sense for the salespeople who
most of the unfreezing of the way their company thinks and supplied, say, snack foods to convenience stores and might
acts, they need a fertile, concrete approach to guide their make as many as 70 sales calls a day. They couldn’t possibly sit
thinking. Actually finding golden opportunities doesn’t require down at a PC and write memos about each call. And in the
access to a silver bullet, just the discipline of employing the late-1980s many of them didn’t own PCs and were unaccus-
tried and true growth principles that deliver in good times and tomed to using them. Fujitsu helped address the problem by
in bad. In fact, these principles consistently serve to double 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: then trying to get your customer’s IT manager to give everyone
hand-held devices for sales and delivery workers, used routinely at his company Internet access is much better than lecturing
today by such companies as FedEx and UPS. him in general terms about the benefits of T1 lines. Again, it
aims for a particular type of behavior.
Break the Mold A word of warning here: You may find that your company
Top managers need to undertake a careful, disciplined search lacks the kind of data on customers and end-users that would
for every opportunity to expand sales in the company’s core mar- enable you to figure out which of their behaviors will result in
ket. To lend structure to this task, we’ve divided all growth the most growth. Either your data will not be sufficiently
opportunities into five types. Running through this list one by detailed, or you will have detailed data on customers and on
one, and writing down as many growth opportunities as possible end-users, but no way of matching the two up so that you can
of each type, can help you break out of tradition-constrained see all the way down the distribution pipe.
thinking. The five types of growth opportunity are: For example, say you’re a manager at Xerox, interested in
1. Retaining uses by existing customers (reducing attrition is improving sales of your company’s premier optical character
the same as growth); recognition software. You may see an opportunity to bundle
2. Stimulating more uses by existing customers seeking to your OCR software into fax/printer peripherals manufactured
satisfy the same basic needs as they have in the past; by companies like HP. You may already have detailed data on
3. Generating new uses by existing customers seeking to
satisfy new needs or a different combination of needs; Organize your market research, your
4. Stealing new customers from your competitors; and
5. Bringing in customers who are totally new to the product customer profiles, and your growth strategies
category. around segments that your company can
To see how the categories work, consider the case of Cobra
Golf. In the early 1990s, Cobra doubled its sales in just three somehow act on.
years, by recognizing huge growth opportunities in categories 3
and 5—while other golf club manufacturers continued playing a HP—from previous interactions with that company. But
zero-sum game in category 4. First, Cobra’s managers observed that’s not enough. You must also collect detailed data on HP’s
that many women were taking up golf, but Cobra’s competitors customers, and on how each customer segment uses HP’s
were focused on their traditional market of young and middle- fax/printer bundle. If you can convince HP that some of its
aged men. So Cobra redesigned its clubs to suit the needs of customers would be more likely to buy the HP peripheral
novice women and enjoyed considerable success. This was a if OCR software was a part of a bundle, then you can con-
type-5 growth opportunity. vince HP to change its behavior—by bundling your OCR
Around the same time, Cobra introduced an oversized club software with a particular line of products, by advertising the
with a graphite shaft, which helped older golfers drive balls as OCR feature, and by working to make it more compatible
far as they had when they were younger. Customers who had with HP machines.
bought new clubs mainly when the old ones wore out suddenly In short, you may have to identify a desired change in the
started buying clubs to satisfy a new need: the need to continue end-user’s behavior if you hope to promote some other behav-
playing their old game after reaching a certain age. As a result, ioral change in your direct customer. And you can’t do this
Cobra enjoyed sales growth of type 3. unless you know which end-user segments go with which direct
Whatever you do, when you look at categories 1 through 5, customers, and vice-versa.
don’t limit your thinking to the growth opportunities that seem
most “realistic” based on past experience. The whole idea is to Set Priorities
transcend your experience, so write down all growth opportuni- Let’s assume that you’ve managed to get detailed data on your
ties that occur to you. own market segments, and on the corresponding end-user seg-
ments. Now you should be able to pair each growth opportunity
Focus on a Specific Goal on your list with one or more specific changes in behavior—
You will need to figure out how much effort (or, equivalently, changes in your customers’ behavior, and in some cases corre-
money) it would take to realize each of these opportunities. sponding changes in their customers’ behavior.
Here, it’s important to focus on the specific customer behaviors Against each of these behavioral changes you will find that
that would have to change if each opportunity were to be real- there are barriers. These could be internal barriers within your
ized—because no matter what, the problem always boils down company, or they could be practical barriers in the outside
to getting a particular customer segment to change its behavior world, such as existing customer preferences or the lack of a
in a particular way. distribution channel to reach the desired customer segment.
For instance, Listerine’s current ad campaign tells customers And, of course, overcoming each barrier will take effort and cost
to “use Listerine for 30 seconds two times a day.” This is much a certain amount of money. Thus, one can assemble a cost/ben-
more effective than just telling them to “use Listerine to have efit analysis for each growth opportunity: (1) Here’s how much
fresher breath and fight plaque,” because it identifies a desired growth I can expect, and (2) Here’s how much it will cost to
behavior and tells customers why they should adopt this behavior. remove the barriers that now stand in the way of the behavior
Similarly, if you are selling Internet connectivity to businesses, change that will trigger that growth.
You can assign probabilities, take expectation values, con- ple who run your marketing, sales, and operations will be able to
struct decision trees, and so on. But ultimately, the goal is to picture him as well. Everyone at the company will be working in
use some sort of cost/benefit analysis to prioritize your list of unison, because they’ll all have the same understanding of the
growth opportunities. And if one or two on your list have a huge sheepish, alienated, spoiled-rebellious teen who finds himself in
demonstrable upside, you may find that your organization is your marketplace.
suddenly willing to do what it takes to topple the barriers pre- So ask yourself: Can you tell this kind of story about your
venting you from realizing those opportunities. customers? Can you relate to them, spot them at trade shows,
guess what kind of bank they might use? If not, you may have
Know Your Customers Inside and Out trouble inducing the sorts of behavioral changes you will need to
Many companies, even if they do identify great growth opportu- generate growth. Behavioral change is an intimate business. It
nities, have a dreadful time trying to capture them. The problem occurs at the level of the human being, not at the level of “men
here is often the lack of a fine-grained understanding of cus- between the ages of 27 and 35.”
tomers—which is indispensable if one hopes to influence par- This lesson applies to those who sell to businesses, as surely
ticular customer behaviors. as it applies to those who sell to consumers. Consider the gas
You can address this problem by crafting an in-depth picture pipeline business. Pipeline operators sell long- and short-term
of the type of person who comprises a certain customer segment. contracts that give their customers the right to use their pipe
The process starts with a description of that customer’s social, capacity to transport gas from point A to point B. Simple
organizational, and physical environment. What constraints and enough. You might imagine that this is a pure commodity busi-
opportunities set the context for this person’s behavior? Is she in ness, in which the sale always goes to the pipeline operator with
a hurry? Is she at leisure? Is she with a family member? And so the lowest price. Well, it can be that sort of business, but it
on. Next, we try to describe the desired experience that this cus- doesn’t have to be—not if you’re a pipeline operator who has a
tomer associates with a particular product or service, bearing in nuanced understanding of his customer segments.
mind that people really buy “bundles of experiences” more than For instance, think about the segment of “arbitrage mar-
they buy products. For instance, affluent teenage boys might keters.” These professional traders buy, re-sell, and deliver gas to
visit Barnes & Noble not so much to purchase books as to be their customers when they see a higher than normal price
seen purchasing certain books—say, books by Albert Camus, imbalance in the market. If the price of gas in Eastern Ohio is
Ayn Rand, and the like. And Barnes & Noble would want to be 20 basis points lower than it is in Upstate New York, an arbi-
aware of this if these boys comprised a significant customer seg- trage marketer knows, if he’s quick enough, he can make
ment. Finally, it is helpful to assemble a profile of the customer’s money. In a matter of minutes, he must find someone who will
beliefs—beliefs about himself, about the relevant product cate- sell him the gas, persuade someone else to buy the gas, and
gory, and even about particular products. then contract with a third person to transport the gas. If he’s not
These three factors—the customer’s environment, the sort of quick enough, gas companies might adjust their price, or worse
experience he is seeking, and his beliefs—combine to form a still, a competitor will beat him to the punch. Arbitrage mar-
concrete explanation of his behavior: Why he buys what he keters need information about gas availability and pipeline
buys, and why he does not buy what he does not buy. capacity and to talk to a decision maker at the pipeline company
who can quickly say yes or no to a contract.
Tell the Whole Story Traditionally pipeline companies have regarded arbitrage
The goal is to investigate your customer segments so thoroughly marketers as nuisances and have been slow to respond to their
that you can truly “crawl inside the heads” of their constituent requests, focusing instead on established relationships and long-
members. Managers at Barnes & Noble discussing “the seg- term contracts with local distribution companies. A pipeline
ment of affluent teenage boys” should all be able to envision the operator who takes the time to understand the arbitrage mar-
17-year-old budding intellectual as if he were sitting right across keter might behave differently. He would learn how much time
the table from them. They should recognize this young man in
their friends’ kids, in their own kids—perhaps in themselves. No matter what, the problem always boils down
They should know him not just in broad generalities, but in inti-
to getting a particular customer segment to
mate detail. He spends weekday afternoons in a coffee shop
(the local chain, not Starbucks). He supports environmental change its behavior in a particular way.
causes. He listens to Korn. He resents being under the thumb
of his banal high-school teachers and fantasizes about the inde- arbitragers spend trying to find the market information they
pendence that will come with college admission. And what need to concoct the deal. He would learn that most of the arbi-
about his books? Well, they are not merely his “pastime,” they trager’s requests come first thing in the morning, precisely when
are his badge of alienation, of independence, of his status as an the pipeline operator typically holds his staff meetings. He
intellectual. would also realize that if you tell an arbitrage marketer “I have to
If Barnes & Noble managers can see this customer, and the check with our gas control people, we will let know later this
segment he represents, at that level of detail, then they will afternoon,” the arbitrager will hang up, hit the speed dial but-
know how to market to him. For instance, they might want to ton, and contact a competitor. He would also understand how
promote CDs by college bands near the store’s philosophy sec- much the arbitrage marketers resent the way most pipeline
tion. And if you as a manager can picture this kid, then the peo- companies treat them.
If the pipeline operator acts on this insight and does an categories that are far more meaningful, but still actionable.
about-face, giving the arbitrage traders more information than Why actionable? Well, it turns out that working moms are far
they ever could have hoped for and making key decision makers more likely to show up in the opening weeks of a movie’s run,
available when the arbitragers call, he wins their business then while stay-at-home moms, spared the guilt that plagues working
and there. In the long run, the pipeline operator will be the first mothers, save the movie for a rainy day. The lesson: If you want
number the arbitrager will call, enabling him to sell more of his to get people to attend the first run, pitch your message at work-
excess capacity, translating into higher margins—effectively a ing moms; target stay-at-home moms for later-run shows. Who
price premium relative to competitors. would have guessed?

Create Meaningful and Actionable Segmentations Align Your Organization for Growth
Traditional market segmentation can succeed in identifying You also need to design your organization itself for growth. Every
groups of customers who share the same basic needs and department of your company—marketing, product design, even
beliefs, but it’s often done in such a way that no one can ever finance—must target the desired customer behaviors. Internal
find them. For instance, say you commission a study that con- factors that can retard growth range from organizational struc-
cludes that “You have tremendous growth potential among ‘feel- tures that focus on products rather than customer needs, to
gooder’ types,” or “You need to use a different pricing strategy on inconsistent reward-systems, to a growth-averse company culture.
‘self-assured’ young women.” Well, these assertions may be It’s also helpful to organize you company’s growth budget just
quite accurate, and “feel-gooders” and “self-assureds” may be as you would organize your growth plan itself: around particular
perfectly well defined groups in a laboratory setting. But many behavior changes in particular customer segments. You start by
managers will sensibly ask: “Where does a feel-gooder shop?” budgeting specific amounts of money to change behaviors:
“What advertisements do self-assureds see?” In short: How do I “$2.8 million to persuade the segment of office secretaries to
find these people? Too often the answer is, “We don’t know,” buy their office supplies on line.” Only later do you allocate that
and the manager is left with an honorary Ph.D. in psychology money to particular departments and product lines. Finally, if
rather than a growth strategy. you lack data on key customer segments, you may have to seek
The lesson here is always to organize your market research, out data specifically on those segments. Packaged-goods makers
your customer profiles, and your growth strategies around seg- have reams of scanner data from large retailers, but if the people
ments that your company can somehow act on. If your company in the chosen market segment do their shopping at mom-and-
and its distribution channels cannot isolate a particular type of pop stores, the companies might as well use their scanner data
customer—speak to him, market to him, and price to him— to paper a birdcage.
you’re never going to influence his behavior, no matter how inti- To summarize, if you want to generate superior growth year
mately you understand him. The game is to find customer seg- after year in your traditional lines of business, you need to do
ments that are relevant to the realities of your company—its the following things:
organizational structure, sales capabilities, distribution channels, 1. Divide your market into segments that are both actionable
and so on—and also economically well-defined, in the sense that and meaningful;
all members of the same segment have similar needs and experi- 2. Use the five types of growth—1 through 5 above—to help
ences concerning your product. In other words, your customer identify the most important growth opportunities;
segments must be both meaningful—in that those customers 3. Make sure you understand all the economic activity of
exhibit distinct behaviors, needs, and beliefs—and actionable, in each segment;
that your company can conceivably do something to affect their 4. Focus on customer behaviors you need to change to take
behavior. One of these without the other won’t work. advantage of those opportunities, and on the barriers that you
The right customer segments are not always the obvious must overcome to effect the desired behavior changes;
ones. For instance, studios that make animated films for chil- 5. Create a holistic, fine-grained picture of the relevant cus-
dren often gather their market data according to standard demo- tomer segments, to bring the customers to life for the whole
graphic categories, such as “mothers with young children.” But organization;
it turns out that this segmentation is not meaningful: The 6. Insure that your organization has a growth-orientated
movie-going needs of a working mother and a stay-at-home structure and mindset.
mother are so different that they render a single customer pro- Successful growth-oriented firms work on all of these tasks at all
file useless. In particular, the life of a working mother is often times and know how to integrate them so they work in harmony.
filled with notions of being tired, feelings of guilt toward her Hard work? It certainly is. But it’s well worth the effort. ◆
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 Bob Lurie is CEO of Market2Customer (M2C), and managing director
and global account manager of Cambridge, MA- based Monitor Group.
kids from one activity to the next, and regards children’s movies He can be reached at Toby Thomas is an offi-
as no more than a discretionary diversion. Subdividing the seg- cer and global account manager in M2C, and can be reached at
ment into “working moms” and “stay-at-home moms,” gives you

Reprinted with permission of EC Media Group

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