Understanding Why People Buy


We all hear that successful innovation depends on creating value for customers. Repeatedly, we see that the key to creating value lies in designing meaningful experiences. But what does this jargon really mean? And more important, how does it impact us as innovators in business?

Companies innovate for two basic reasons. For those with established products or services, innovation is the Darwinian response to competition. We devote resources to improving and evolving our products because we have to so as to sustain and grow our core business. For new companies or initiatives, innovation is about creating entirely new ways of addressing human needs and inventing "what's next." Often this means generating new business models.

LIP SERVICE. While these two types of innovation might require different approaches, the point of all innovation remains the same: To create value for customers.

This idea isn't exactly new. The concept has been promoted throughout the history of business. But it's amazing to me, after 25 years of working with the world's best companies, how regularly I see innovation subsumed by other concerns that move the priority away from the customer. The biggest, most common error corporations make is to focus too heavily on creating internal value.

What? Does that mean we shouldn't innovate by leveraging assets like our technology, core systems, supply chains, financial structures, alliances, channel partners, etc.? No, these are all proven ways to strengthen companies, and we need to leverage them whenever possible.

But first, we need to focus on creating value for the customer -- and only then leverage these other things in combination. While this might sound like common sense (and it is), the approach tends to get more lip service than commitment.

POOR TRACK RECORD. This isn't because there aren't smart, capable people working hard on it. It's just that it's fundamentally easier for companies to define what creates value for itself and its shareholders than for the customer. Reading the hearts and minds of ever more diverse customers is something altogether more slippery, especially when we are trying to divine information that only could or should exist in the future.

Isn't that what market research does? Well, that's what it has promised to do. The disciplines within market research do many things -- important work like tracking, monitoring, evaluating -- but only a tiny fraction of the industry actually focuses on providing customer insights to drive innovation and design.

And the poor track record by generalist market-research firms in this area is a testament to the difficulty in doing it well. What has emerged are a few hybrid companies that combine research and innovation consulting skills to fill the demand for customer-driven design.

"SWING FOR THE FENCES." Those of us who have spent our careers in this specialty have learned that a focus on creating customer value is the single most powerful driver of successful innovation. We know that successful innovation isn't just developing cool new products and services. It's about creating higher-margin, higher-visibility, and high-velocity products that deliver a host of financial, functional, and perceptual benefits to the developer.

Creating customer value isn't some soft West-Coast notion about making people feel good or delighted. It's about hard-nosed business. Ultimately, it's bottom-line performance and top-line growth.

So, how do you create customer value? My experience has taught me there are different kinds and levels of value. Most important, I've learned to "swing for the fences." Don't settle for designing a product that functions well at a good price. Instead, reach for one that delivers a meaningful experience.

EVERYONE HAS A STORY. But even when this is the intention, often here's where the company strikes out -- not understanding what the definition of "meaning" is, and how to apply it. Meaning is what humans create to construct a sense of reality. We are meaning-making machines. We constantly try to make sense of our life by forming a picture or story about reality.

The stories we create internally provide the background or context for our lives and are often not articulated externally. Yes, that's right, reality is something that we actively construct, and each of us generates a slightly different version.

This individual sense of reality is what we base our values, goals, and aspirations on, and, in turn, those drive our preferences. In short, our own sense of meaning defines who we are as people and the things we value.

EMBRACING CUSTOMERS' VALUES. In a developed, affluent world, a large percentage of purchase decisions are made to reinforce or express a sense of meaning. Put another way, we seek experiences that give our lives meaning or coherence.

For example, a young woman buys Ben & Jerry's ice cream because she believes it delivers a meaningful experience. What creates her sense of meaning is "community, connectedness, authenticity, and justice."

Ben & Jerry's brand promise aligns with that. Their ice cream may not taste better, but she likes that they use part of their profits to promote peace and tackle other global problems. And she will consistently pay more for it. In this case, everyone benefits -- including Ben & Jerry's for choosing an innovative approach to marketing by closely embracing their targeted customers' values.

MEANING COMES FIRST. The smartest and most successful innovators will create value by understanding meaning first. Then, they'll design and coordinate their products, services, brand, channel, promotion, and pricing to deliver an integrated experience to fulfill that meaning.

The companies behind all products -- even those considered commodities or industrial products -- can leverage this approach.

Next in this column, I'll explore how we can harness the idea of making meaning to drive innovation and describe the frontier of innovation research that's providing the foundation for best-of-class innovators.


American Apparel's Future
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