Agile Insights Blog

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When Your Business Stops Growing, Look Through A New Lens

Mar 16, 2015 3:37:01 PM

CEO Mike Lenahan built a thriving specialty recycling business around a unique cost model and excellent service and relationships. The number of customers – steel foundries - grew from 15 to 30 over the company’s first 17 years of operation. However, sales flattened in economic recession as competition intensified.

When growth stalls, what do you need to do to break out?

1. Don’t be single minded

Organizational growth is rarely inspired by a simple focus on one individual issue. In examining how managers think about their own competitive advantage, George Day and Prakash Nedungadi of the Wharton school, published in Journal of Marketing, identified four types of firms:

  • Self-centered firms focused internally, and not on customers or competitors. An illustration of this would be if Lenahan’s business were stuck in a “navel-staring�? rut, with executives constantly patting each other on the back about their competitive advantage but failing to look at how the world around them was changing. Customer- and competitor-centered firms paid attention to customers and competitors, respectively, but not both.
  • Customer-centered firms, on the other hand, focus on their customers. Which is important, but they risk failing to account for needed differentiation from competitors (in Lenahan’s case, a large, established international competitor).
  • In contrast, being competitor-centered might lead a firm to develop fierce competition around dimensions of value that may not actually reflect customers’ needs.
  • Day and Nedungadi actually found that market-driven firms – those that focus on all three fundamentals of growth (creating value for customers, beating the competitor, and leveraging capabilities to provide the value customers desire) -- perform better financially than businesses that have a single-minded growth strategy. By focusing on all three fundamentals of growth, a business can get a deeper view of what the customer values and how the firm can authentically differentiate itself from competitive offerings.

Unfortunately, only a minority of organizations implement integrated growth strategies that focus on all three fundamentals of growth (Day and Nedungadi found only 16% of their sample fit in the market-driven category). It’s true that it is often more complex to manage. Juggling multiple goals can mean higher costs, greater efforts, and potential conflict within an organization. However, while a single-minded growth strategy may be simpler, cheaper, and less complicated to implement, greater profitability and long-term success can be achieved through an integrated view of the market.

2. Look at your position in the market through your customer’s eyes

We Listen

It’s fair to assume that even managers in self-centered or competitor-centered firms feel at least some degree of kinship with and understanding of customers. After all, most of us do regular customer satisfaction research and have sales teams that meet customers on the front lines daily.

The problem is that these information sources can produce a tilted view of the value customers seek. Most often, customer satisfaction research is undertaken by asking customers “how are we doing?�? without also asking how we stack up relative to the competition.

Sales calls, in contrast, are more likely to involve persuasive arguments about our product’s superiority to competitors. But such presentations often don’t lead to an open conversation about customers’ actual needs. (In fact, salespeople would prefer to control the conversation rather than open up to the customer’s issues). Instead, the goal in the sales call is to influence the customer’s judgment of our product’s superiority over the competition.

So, customer satisfaction research seeks to understand our performance relative to customers’ needs, but often misses the competition. In contrast, sales calls seek to position us against competitors, but often misses the customer’s the greatest needs.

Here’s what Lenahan’s team did. They asked all of their customers about how they made choices – not how satisfied they were. This also wasn’t a sales call.

People Talking

Their questions included:

  • Who do you think we really compete with?
  • What are the most important dimensions you compare us on? Why are those dimensions important to you?
  • Who wins on each of those dimensions? Who is deficient?
  • Do you have any needs that neither of us deliver on effectively?

And they listened.

The feedback was mostly great, but one result stood out. The team had always believed their company’s small size was its real strength. Their ability to respond to customer service needs was unmatched by big firms. In contrast, customers saw the firm’s small size not as a strength but as a weakness. Their customers revealed a concern that the small firm might be less financially stable than its much larger competitor, potentially leading to future service interruption and uncertainty.

This insight was stunning to the team because their financials and customer relationships were strong. They therefore worked to change perceptions. Their sales strategy subsequently focused on directly addressing the concern about longer-term viability while stressing the value of their cost model and service responsiveness.

With this new focus, Lenahan’s team landed additional business from a customer that had been on the fence for a period of years. The incremental revenue was significant, representing 10% of the firm’s annual sales.

Lenehan and his team successfully integrated all three perspectives on competitive positioning -- company, customer, and competition -- by exploring customers’ choice behavior. This revealed how the customer saw competitive positions in the marketplace and viewed their performance on dimensions that matter most to them. Aligning subsequent communications to that customer perspective got them out of their rut.

The moral of this story? When sales are stalled, take an integrated look at your competitive position through the lens of your customer. What you see might surprise you.

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Topics: General

Joe Urbany
Written by Joe Urbany

Cofounder of Vennli and Professor at the University of Notre Dame

Joe is a core marketing faculty member in Notre Dame’s MBA program and past Associate Dean of the Mendoza College of Business with numerous publication credits related to customer decision making and growth strategy.

In 2010, Joe Urbany co-wrote a book entitled Grow by Focusing on What Matters: Competitive Strategy in 3-circles. The premise of the book is that growth and competitive advantage are about effective positioning. The model facilitates speed of understanding and action by focusing strategic attention on what impacts customer decisions. It has been applied in over 800+ MBA projects at Notre Dame. Co-founded in 2013 by Joe, Vennli is based on this proven model. Vennli brings the model to life through the use of collaborative technology and providing a platform that makes an already faster and more intuitive process even more accelerated and streamlined.

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