September 2015 | Strategy
Research shows that the vast majority of innovations fail because companies don’t consider the consumer, and the market, first. The typical strategy involves what Wharton marketing professor emeritus George Day calls “inside-out thinking”: come up with a product or service based on your current capabilities and what you believe customers want. Day, who teaches in Wharton’s Strategic Marketing Essentials, says instead you need to start with the market.
Day’s premise, while seemingly simple, is “shockingly uncommon” in practice, he says. “For all the talk about ‘putting the customer first’ and ‘relentlessly delivering value to customers,’ most management teams fail to base their strategies on market insights. Most companies ask ‘what can the market do for us?’ rather than ‘what can we do for the market?’” That inside-out approach focuses on selling more, gaining more market share, and improving productivity by capitalizing on current capabilities and offerings. In contrast, an outside-in strategy looks at how to deliver new value to customers and what new capabilities might be needed to do so.
Looking at the market first makes sense for two reasons: first, the robustness of a market is almost always less certain than the technological ability to make a product or design a service. Second, if you discover that the market isn’t strong enough, you can head off a costly “technology push.” This syndrome often afflicts companies that emphasize how to solve a problem rather than what problem should be solved or what customer desires need to be satisfied.
Day’s approach is outlined in Strategy from the Outside In (McGraw-Hill, 2010). He and co-author Christine Moorman offer a unique perspective on creating a customer-centric culture — one in which companies test the market and base their strategies on deep insights. They focus on a number of key questions, including: How is our customer changing? What new needs do they have? and How can we solve their problems? “This perspective expands the strategy dialogue and opens up a richer set of opportunities for competitive advantage and growth,” Day explains.
He cites an example of a large database company that wanted to grow by leveraging its deep information about the company’s finances and spent several million dollars to develop a product for small- and medium-sized companies. It was a flop. “They never had in-depth conversations with potential buyers,” says Day. “Management believed there was a vast potential market, and their sales force assured them that customers would buy. No one asked what value the company would offer customers, or how the new product would offer more value than the status quo.”
Clearly, this company, and others who use an inside-out approach, have extremely limited market insights. Day says it is not enough to simply view your company from the vantage point of the market. “It takes smart investments in market intelligence and an organization-wide commitment to sensing and acting on the resulting market insights. These insights are even more important as customers get more and more demanding and data overload becomes the norm. That is why Strategic Marketing Essentials can be so powerful. We share over six days the essentials you need to bring back to work to start building an outside-in strategy. We’ve got a wide range of expertise in the Wharton Marketing Department, they have the latest research and best practices, and they understand the current landscape.”
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