Managing the portfolio of segments

Maximizing Revenue by Managing the Problem ....
... instead of the Symptom
Part two:

The Portfolio of Segments

All companies understand and can talk about their portfolio of products. They manage this portfolio carefully and enhance it continually. And yet, once again, the products themselves are only a “symptom” of a revenue opportunity. Revenue is generated by the problems and/or opportunities that customers feel those products will address. If the problem goes away, or a better way is found to fulfill it, the need for the product goes away. The company that doesn’t attend to customer problems as well as the portfolio of products may fail to see the shift until it is too late.

Just as there can be a portfolio of products, there can also be a portfolio of customer problems. Every provider of industrial products and services has such a portfolio, but they often don’t recognize it as such or explicitly manage it. As a result, the interaction of products with customer problems is not precisely understood. Companies sometimes discover this too late when a product becomes irrelevant to market needs, or when the problem is in the later stages of its life cycle and sales decline.


Advocating Problems

Everyone in marketing knows that customers cannot be expected to intuitively see the virtues of their product in preference to all other competitors. The art of marketing lies in advocating your particular product as offering the customer greater value than competing products. The same holds for customer problems: the problems you solve best “compete” with a range of other problems the customer could solve, and you must persuade the customer to “buy” your problem solution. Marketing can focus its efforts on delivering highly relevant, problem oriented contexts that the sales force can then “sell into,” improving win rates and decreasing sales cycles.

A corporations strategy starts with the identification of the customer problems they chose to address that is different than the customer problems their competitors address.
For instance, a company CIO may have a number of potential opportunities to improve processes in a given year, and will choose to address those that appear to offer the highest return within that corporate value system. The customer’s choice may hinge on how he or she defines a problem within a general category. In this case, defining the problem differently may lead to different evaluation criteria. For example, when Microsoft was competing with Borland in the office software market, they found that they were more likely to win sales when customers saw their software investment as a five year decision rather than a two-year decision. Even if competitors do not advocate for a specific customer problem, sellers face implicit competition from different problem definitions.

In either case, problems must be advocated much the same way products are. You must show how addressing “your” problem offers higher value to the customer than addressing competing problems. The same rules for articulating and measuring value apply here. Therefore it is essential to understand the problems you are competing against, and the differential value you offer in comparison.

Conclusion

The fundamental goal of marketing should be to understand which customer problems the company solves best, understand the customer situations and target segments where those problems are likely to occur, and market the value of addressing those problems. Only with these fundamental operating principles can a company maintain the alignment of core capabilities with the marketplace. In this way, a company can continually shape the competitive playing field rather than being shaped by it. Without the anchor of the identified “customer problems the company chooses to address better than anyone else,” a company risks being blown about by competitive trends of the moment, or finding itself trying to match competitors feature for feature (a game which a company can avoid losing, but can rarely win.) Marketing specifically runs the risk of expressing value to the market in a vague or irrelevant way which results in lost sales and a laborious, inefficient selling process.
By aligning with each of the (several) specific customer “problems,” you can sell not only on the basis of incremental advantages of individual products, but also on the overall ability to best address the need. Individual product advantages will not just be compared to features of competitive products, but will be seen in the context of the larger need, and will be seen as evidence of the company’s ability to meet that need. Perhaps more important than immediate marketing considerations, focusing on the fundamental customer problems will provide a consistently successful strategic direction for future developments.