Make sure your customers keep coming back

F. Stewart DeBruicker and Gregory L. Summe


Sellers must take into account the role of customer experience s it relates to the product life cycle

Jerry Evans, a sales applications engineer for Polyplastics, a plastic resin manufacturer, expected a rewarding day. For the better part of two years he had been calling on Universal Electric's new product design group. In the last year his efforts had paid off in hefty orders, as the group included several of his modified-nylon resins in their specifications for a promising new line of home appliances.

True, he now seemed to be spending increasing amounts of time with the procurement manager rather than with his original benefactor, the design group's leader. But the project leader had specifically asked to meet with him today. Jerry welcomed the chance to talk over some of the new applications he had in mind.

Jerry's optimism was short -lived. The design group leader greeted him with the announcement that the team was winding up its current assignment and members were being reassigned to various new projects in the company. In the future, he said, reorders of the modified nylon Jerry sold would be handled exclusively by the procurement manager.

Later, meeting alone with the procurement manager, Jerry tried to establish rapport and stimulate interest in his product. He mentioned how much he had enjoyed working with the design group and began to describe ideas for other product applications. " W e appreciate that, Jerry-we do," the procurement manager interrupted, "but I'll have to be honest with you. I'm looking for three things: price, price, and price. What can you do for us?"

Surprised at the manager's bluntness, Jerry floundered, joking lamely, "Well, as you know, we're not exactly the Chevrolet of the industry." Even as the words were coming out, he could see his customer's interest slipping. Later, when walking to his car, Jerry had the uneasy feeling that he was losing the account-worth more than half a million dollars in annual orders. It had all happened so suddenly.

Jerry Evans is a hypothetical salesman, but his problem is real and increasingly common. He has confronted the industrial Marketing Phenomenon of evolving customer experience. That is, his customer has evolved from an inexperienced buyer that leaned heavily on the support and services Jerry's company offered to an experienced buyer more interested in other benefits-in this case, price.

Jerry walked away with an empty order sheet because his marketing department had not prepared him for this predictable change in customer behavior. Had he been alert to the change, he would have noticed some telling signals: the increasing participation of a purchasing agent in the buying decision and the dwindling interest of the team in his application suggestions.

Jerry's problem illustrates a marketing strategy issue that affects all manufacturers of products sold to other businesses. Whether the product is a standard industrial product like sheet steel or a high-tech item like telecommunications equipment, the company will confront customer changes that result from this customer experience effect. Understood in its relation to the product life cycle, this effect provides insight into the customer's needs and serves as a guide for planning marketing strategies.

The customer experience effect

As customers gain familiarity with a product, they find a manufacturer's support programs to be of declining value. Their buying decisions become increasingly price-sensitive. They unbundle into components the products they once purchased as systems and open their doors to suppliers who sell on price and offer little in the way of product support. Even the most remote observer, once instructed, can spot this pattern.

The inexperienced generalist

Naturally, when a product family is at the beginning of its life cycle, most customers are inexperienced. Even as the product matures, it will continue to attract inexperienced customers. Novice customers are distinguished by two characteristics: they are generalists, and they place a premium on technical and applications support in marketing purchases.

They are generalists because companies dealing with a new product usually assign responsibility to people who are competent in traditional skills and trustworthy in dealing with uncertainties. In some cases, these people will be, by default, members of general management. There may be no other member of the organization who will take on the political risk of being associated with a bad decision.

Other inexperienced customers will be design engineers, systems analysts, and other "professional" generalists who are rewarded for introducing major new products and processes and for moving their companies into new businesses.

Inexperienced customers place strong emphasis on product support. They are attracted by a bundle of vendor-supplied benefits and proven technology. Their decision processes are slow and they rely on vendors for guidance throughout.

In such a market situation, vendors with strong marketing and account management resources compete most effectively. Companies that are unwilling or unable to manage prolonged decision processes and to provide turnkey solutions to problems will fail with this type of customer.

A look at the history of the mainframe computer industry's environment tells us much about inexperienced customers and the strategies that serve them. This industry got off the ground in the 1960s, when a few large corporations decided to remain a jump ahead of competitors (and get a better handle on working capital) by computerizing the enormous task of record keeping.

Since the purchase decision involved changes in internal information flows and procedures and large financial commitments, it was usually made by a committee of senior managers each with a functional ax to grind. Decision making took 18 to 24 months.

IBM dominated this market from the outset because it had tailored its marketing strategy to the inexperienced buyer. Its marketing program included complete systems of reliable (rather than technologically advanced) hardware and software; a wide product line permitting future upgrading; extensive human resources for installation, education, service, and account management; rental options with liberal system-upgrading privileges and fees quoted on a whole-system basis; and a pricing strategy that yielded margins much higher than systems offered by smaller competitors.

IBM's was a formidable strategy, not so much because of the enormous resources behind it but because it was tailored to a market of inexperienced generalist.

Similarly, the robotics industry today confronts a market in which most customers are inexperienced and risk-averse. Buyers are less interested in the performance-price ratios of component robots than in proven, comprehensive, packaged solutions. Only companies that offer complete systems and products with unassailable reputations for reliability will succeed in this environment. Strong marketing resources are much more important than low price.

In short, inexperienced generalists buy systems, and they take a long time to reach a decision. Any strategy that offers them less than a complete, systematic solution in unlikely to succeed.

The experienced specialist

The initially successful vendor will falter, however, if it fails to respond to the growing sophistication and self-confidence of its customer base.

As companies become more familiar with a product and more confident of their ability to make judgments about it, they shift the purchasing responsibility from general management or support professionals to either functional specialists with detailed knowledge of the product or purchasing agents, who base the buying decision on standard specifications. In robotics purchasing, for example, the corporate-level committee at Fisher Body has in recent years been replaced by a smaller group of manufacturing and production specialists. They are more knowledgeable about component performance and system applications and rely much less on the guidance of manufacturer's account management teams.

Exhibit 1

Product experience emboldens customers to assume certain risks they once deferred to the vendor. No longer do they look for a comprehensive bundle of benefits. The bundle's components can be seen, sorted, and valued. Some of those components may be purchased from the original systems vendor, others are likely to be made by the customers themselves, and still others bought from specialist suppliers. When this unbundling takes place, customers tend to base buying decisions not no strong support from the account manager or on turnkey systems buy on price-performance trade-offs. Decision making is less time-consuming. (The few exceptions are products with complex component interfaces, such as integrated office systems and flexible manufacturing systems.)

Customers in the telecommunications industry have already embarked on the transition. Prodded by AT&T's divestiture and industry deregulation to make their own choices of equipment and long-distance service vendors, businesses are beginning to develop in-house staffs to manage their telecommunications needs. As these staffs become more experienced, they will increasingly unbundle telecommunications products. They will buy some components of equipment from one vendor and some from another, and select more carefully between service vendors. They will build their systems using the products and services offering the best price-performance benefits.

The point of transition from inexperienced generalist to experienced specialist is, of course, rarely as clear-cuts as in the hypothetical situation described at the outset of this article. But certainly inexperienced and experienced customers base their buying decisions on quite different factors.

Customer sophistication & product maturity

How does the customer's evolution relate to the product life cycle? The two can evolve in parallel, as in the telecommunications industry today, but the transition from inexperienced to experienced customer often takes place independent of product maturation. Product market evolution, in other words, is driven by customer forces as well as by product forces. The engineering plastics story with which we started illustrates the point: as the customers mature, purchase decisions are made first by applications engineers, later by purchasing agents, and then, in some cases, by the many thousand of operators of molding companies that process resins into finished plastic parts. Other factors, such as the length of time required to make the purchase decision and the benefits sought, also change as the customer gains experience (see Exhibit I). No wise marketer makes the mistake of assuming that customer evolution parallels a company's product life cycle.

The patterns of product benefits customers desire are definable and predictable. As Exhibit II shows, a product's market will be a mosaic of four customer profiles. These four possible stages (no customer goes through all four) can provide the basis for targeted marketing programs:

1. Early in the development of an industry, customers can be expected to reward vendors who provide not only reliable new technology but also high levels of technical and applications support. These first-purchase decisions, while potentially rewarding, are risky, and customers proceed cautiously for fear of failure. Customers may be attracted to promising new products, but the so-called FUD factor-fear, uncertainty, and doubt-will predispose them to pay a premium price for a product of known reliability coupled with effective support. Products whose markets currently fit this profile include aseptic packaging (which is familiar to consumer as the latest packing for beverages), fiber optics, and powdered metals.

2. As customers gain knowledge, they purchase the product primarily for its performance characteristics. However, the vendor can still deliver value by helping develop new applications. For example, polycarbonates now face a market composed largely of experienced buyers, as do industrial robots (while many buyers of robots are inexperienced, most of the volume in that market is presently controlled by experienced buyers).

3. Customers entering the market late will be influenced by the availability of substitute products. Since competing vendors may have lower product development costs (by virtue of their later entry) and lower application costs (because they can imitate the innovating company), they are likely to offer lower prices. Customers in this environment, while seeking technical support and responsive service, will also tend to be price-sensitive. Portions of the electric switch gear and long-distance telephone service markets fall into this category.

4. Under the pressure of customer and competitive forces, most of the market will eventually assume the profile of the experienced customer buying an undifferentiated product. At this stage, customers will unbundle the original product-benefit package and strip away the benefits not directly related to their dominant buying needs. They will seek adequate rather than superlative quality, assured availability to ensure stable production planning and efficient use of related resources, and the lowest possible price. Polyvinylchloride, sheet steel, and glass containers are among the commodity products that fit this profile.


Marketing strategy implications

Once a good customer relationship has been established, the seller tends to cherish and sustain the status quo. But as customer needs change over time, sellers can be left holding an empty bag. Conversely, a competitive advantage exists for the vendor who understands and anticipates the customer experience effect and who designs strategies based on the benefits a given group of customers desires.

These benefits can be provided in many ways to the advantage of both buyer and seller. Four primary approaches, outlined in Exhibit III, are as follows:

Account management strategies

As long as most competitors fail to duplicate a product's core technology, the principal evolution in the product-market environment takes place on the customer side. In industries with a brisk rate of new product development, the vendor can slow this evolution by emphasizing account management-strengthening the account management representation and perhaps even adding top management to the teram. This strategy is designed to keep purchasing decisions under the regular review of general managers in senior positions, thereby limiting the impact of experienced specialists on important decisions. Its purpose is to sustain the vendor's influence and block competitive inroads into the account.

IBM used this strategy to great advantage in the computer industry. The company inhibited customers' transitions from inexperienced to experienced buyers by using a multilevel team account management approach. Including both high-level managers and data processing specialists in the decision-making unit ensured the continued involvement of inexperienced generalists in the decision-making process. These moves enable IBM to retain most of its customer base over the long term. Not until recently was IBM forced to address the price-sensitive needs of experienced customers.

In high-tech industries, the fast pace of product and systems development makes account management a feasible strategy, even when customers have achieved some sophistication. Making the strategy work, however, requires and enormous commitment to support skilled marketing resources. And to succeed, the strategy must add real value; in other words, the involvement of higher level managers must result in superior responsiveness based on a genuine commitment to meet the customer's needs efficiently and economically.

Product augmentation strategies

Advanced products eventually spawn imitations, and inexperienced customers become experienced specialist. Theodore Levitt has suggested that at this point "it makes sense to embark on a system-atic program of customer-benefiting, and therefore customer-keeping, product augmentation." In other words, sellers should emphasize a particular benefit-say, new applications support-that they know the customer is seeking. The thrust of this strategy is to keep differentiating the product in the customer's eyes, thereby drawing attention away from the price appeal of competing products. To do so, the vendor identifies the customer's product needs and adapts offerings to serve them. A supplier who can identify an associated product need and fill it through a unique service of continuing value to the customer will not be forced to compete on the basis of price.

In the industrial market for converted paper products, for example, one U.S. producer is differentiating its product on the basis of reliability and specialization. Its paper products, which are considered a mature line, account for a very small percentage of the cost of the customer's final product. But when they fail, the end product usually suffers costly damage. Having tested all the competitive offerings, this producer took steps to lower its failure rate through design and manufacturing changes. Next the company began working with its major customers to design products with superior loading characteristics for their particular applications. It is now changing its sales emphasis from customer relationships to applications expertise.

With its new augmentation strategy, this company expects to provide a product that commands both a significant premium and a large share of the market. The supplier benefits by slowing the movement of its product into the commodity category, where purchase decisions are based mainly on price. The customer receivers real value through increased reliability of its end product.

Customer service strategies

Sellers seeking to attract inexperienced customers who enter the marker late in the product life cycle may find a service strategy to be appropriate. The presence of substitute products in the market will make even first-time decision makers aware of how few differences exist between the offerings of competing suppliers, rendering product performance characteristics less important than they would be early in the cycle. Customer interest will likely focus not on product but on service-the distribution, customer education, and aftermarket support elements of the marketing mix.

Consider the situation in the micro-computer industry. Dozens of competitors have entered the market, with most products based on the same Intel 8088 chip. Their products are virtually identical in performance capabilities. This proliferation of vendors with similar products has affected end-user decisions by shifting the purchase decision away from issues of technical product capability. Some vendors-notably Apple Computer-have followed a product augmentation strategy for experienced users by developing extensive software for particular customer applications. Apple, along with others, targeting the inexperienced customer, have emphasized service areas: training, product maintenance, and related support. Still others, unprepared for this shift in customer needs, have fallen victim to the current industry shakeout.

The telecommunications industry provides another example. A current AT&T ad has this lead: "Our products come with the following standard equipment: technical consultant, account executive, systems technician." In other words, the strategy is service, and it is targeted toward the great mass of companies, inexperienced with large telecommunications systems, that can now select among competitive products.


Pricing strategies

Eventually, customer and competitive forces combine to drive a marketplace into a highly price-sensitive mode. If the vendor is to protect its market position, strategies that emphasize account management, product augmentation, and customer service must give way to a strategy based at least partly on price.

A supplier's strategic evolution

Companies can use an aggressive market-development strategy to respond to the mosaic of customer profiles that prevail at any given time. The experience of one company- a major producer of engineering plastics in Europe-illustrates how to do so successfully.

Historically, this company used strongly differentiated products and extensive customer-support programs to attract customers who were insensitive to price. The company simply voided markets that had become price-sensitive as products aged and users became sophisticated.

Through the late 1970s, the company's sales growth and profit margins outpaced the industry's. But by 1982, as one of the company's products, a branded resin, was maturing, several other companies had entered the market. These competitors sold standard grades of the resin at prices 10% to 20% less than the European company's. None of the newcomers offered comparable customer-support programs, but by concentrating on price-sensitive customers they succeeded in establishing positions in the industry.

Using customer-experience and product-differentiation analyses as guidelines (segmenting customers according to knowledge of the product and products according to intensity of the competition), the company discovered that its strategy of avoiding experienced, price-sensitive users no longer made sound strategic sense. It learned via interviews with former customers that while its applications development efforts were still expanding the market, the company was losing many customers who were switching to less differentiated, standard grades. Further, it was giving aid and comfort to price-cutting competitors by avoiding price-sensitive business. Management finally concluded that the price-sensitive segment was the largest and fastest-growing segment in a slow-growing market and that its market leadership would be jeopardized if the company let its customers slip away by failing to recognize both their experience and the commodity mature of the product.

Based on its customer-experience analysis, the company revised its strategy in three ways. First, it decided to continue the traditional strategy of developing new products for designated industries. It expected this portion of the overall strategy to be a vigorous generator of net income in the near term but to diminish in the longer term due to technical limits.

Second, the company elected to reduce prices on products for which the total contribution from price-sensitive customers (experienced specialists) was greater than performance-sensitive customers (inexperienced generalists). To preserve margins, it also cut back on the support resources allocated to these products internally.

Third, the company took steps to slow the passage of the remaining customers who were experienced but still performance-sensitive to the price-sensitive category. These actions included active pursuit of legal protection of patent and licensing rights, development of new product grades, and the further augmentation of the product by offering associated services, such as computer-aided design.

This story stands in sharp contrast to our opening anecdote. Two things, however, are clear from both: the effect of customer experience is a potent factor in the marketplace and does not exist in isolation from the product life cycle. The two forces are interactive elements in the evolution of a market. Companies have often ignored the customer-experience factor because it is not readily measured-it is a concept that pertains to the forest, not to the trees. But successful companies choose and manage their customers with the same care they put into choosing and managing their products. Anticipating the patterns of evolution in customer decision making is as vital to success as is the most technically sophisticate product development program. In their final product-market choices, customers are as important as products


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