Some years ago, I worked with a major equipment supplier whose products were relevant to virtually every vertical market. The president of this company had decided to define a new sales model, motivated by his observation that “As I spent time in the market, I learned that we had customers everywhere, but that we weren’t special to customers anywhere”. That’s a common issue for firms with broadly relevant products and services, and there are always good reasons and strong advocates for almost every possible opportunity to make a sale to a customer. The president of the firm mentioned above had worked with his sales team and defined a set of priority markets on which he wanted to focus. His questions were “How do we do that?” and “What actions do we have to take so that customers see our focus and reward it by seeing us as ‘special’, hopefully elevating us to preferred supplier position?”
As we began to work with this organization on ways to achieve the goals they had defined, we first began to work to understand the selected markets on which they planned to focus. That yielded a surprising discovery. While all of these markets had scale, they were by and large mature markets, growing slowly (or not at all), and ones that offered margins that were minimal (and in some cases, non-existent). There were other vertical markets that were far more attractive in terms of growth and profit potential, albeit few with the scale that seemed to dominate the initial set of selections.
There was another issue with their choices. Reflecting the maturity of these markets, the customers within them largely selected products from the Good-Better position on the Good-Better-Best scale, and with the breadth of competitive offerings available for Good-Better products, typically made purchase decisions on the basis of price. This firm and its distributors often wailed about the “Three bids and a buy” mentality of these customers, and about failing to gain any traction with their innovations and upgraded offerings. In fact, this firm’s sweet spot clearly involved products in the Better-Best range, where it technology advantages had established a leadership position and a few instances in which its offerings were unique in the industry.
The first step in achieving focus is making sure the focus is the right one. The case study above defines the two dimensions which I emphasize in evaluating choices for focus. First, it is necessary to determine if the potential market has the right characteristics – sufficient scale, reasonable growth, and decent profit potential. Without them, in some reasonable combination, you can be successful in achieving a focused approach to markets and customers, but fail to realize rewards from doing so. When someone advocates a focus on a market that doesn’t pass that test of reasonableness (and there will always be such advocates), ask them to finish a presentation to the Board of Directors that starts with a slide saying “We are dominating our targeted markets, but unfortunately, those markets are small, shrinking, and unprofitable”. That deck will never appear, and you can move on to look at markets that have attractive scale, growth, and profit potential.
But that is not the only thing to consider in evaluating markets. As the example above suggested, it is very important to determine how well your firm’s competencies and position fit with the factors important to that market. In the case study, the fit was poor. Expertise in producing high-value Better-Best products was a poor fit for markets that were looking for highly-efficient, low-cost producers of rather standard Good-Better products. That was a serious problem for the firm in the case study.
And while matching well to the factors that drive customers’ purchase decisions is critical, there are other business drivers of similar importance. Another firm with which I worked was considering targeting an industry that was moving much of its R&D and design work to Asia, mostly to India and China, a region in which that firm had few resources and almost none that specialized in development or design. At minimum, that lack of fit ensured that the time frame for achieving success would be medium to long term, at best, and that a focus on the firms in that industry would require quite a bit of catch up.
A similar consideration involves the existing relationships with firms across candidate markets. If you have strong existing relationships, that provides a head start for strategies involving focus. If not, it is certain that any strategy involving focus (or other elements) will take some time to achieve customer penetration and will require supplanting the existing major suppliers. Long term strategies can be good, but only if they are recognized as long term and the firm selecting them has the appetite and resources to stay the course.
Still another firm with which I’ve worked had developed some strong competencies in energy efficiency in its products, a result of its own focus on sustainability. As it considered target markets on which to focus, it realized that some target markets had a similar business driver, and that their expertise would play well in those segments. A match in such business drivers is another good reason for considering a market for focus. A contrary example involved a firm that was considering a number of markets that were highly regulated. It recognized, fortunately early on, that it had no expertise or experience in working in a highly regulated industry, a factor that militated against selecting such targets for focus despite some other attractive characteristics of those segments.
It is thus both the quality of the prospect market in terms of scale, growth, and profitability and the fit of the market with the company that determines if the focus is right. And making a careful assessment as to the quality of the focus strategy is a key first step in the process, one that becomes more and more obvious as some of the ideas about how to implement a strategy of focus, as described below, enter into the equation. Focus requires choices and investment. And it’s critical to remember that a decision to focus means that there will be some markets and customers on which the firm has to know and act from the perspective that “this isn’t our focus”. The latter is among the hardest elements of implementing a focus strategy, but unless that happens, the strategy is hollow and very unlikely to succeed.
After helping the firm in the case study above make a mid-course correction in its selection of markets on which to focus, attention was turned to the original question, to define the steps required to “make focus real”. The insights that emerged from that process suggested three key themes that must be addressed and that can help other firms that are looking at strategies involving market focus.
The first question that must be asked is “What are the things that customers in the selected markets care about, the things that they will notice if we focus on them and do them well, the things that they will say distinguishes us as a supplier?” The examples given above suggest possibilities – expertise in producing products at the right points along the Good-Better-Best spectrum, insights into managing in a regulated environment, expertise in energy efficiency, the right resources in key country markets, etc. Almost every element of go-to-market strategy can potentially enter into the equation here – products, services, pricing, channels, global presence, etc. – and should be evaluated as part of the process to answer this first question.
The most frequent failing I’ve seen in getting to an answer to this question involves firms that think they know the answer. My counsel is that wishing doesn’t make it happen, and far too often, the internal perspectives as to what will matter to customers in the selected industries are more wishes than reality. The real answer to this question must come from the market, from the customers in the industry on which focus is intended. And it takes a very strong, somewhat atypical voice of the customer program to get meaningful answers that contribute to decisions on how to implement a focus strategy.
Most voice of the customer programs are retrospective, and emphasize elements of the current transactions between suppliers and customers. A successful focus strategy will be very future focused, requiring insights as to what is keeping customers awake at night, the challenges on their own horizon that might define a supplier success story for the supplier that helps them to address them. A successful focus strategy will emphasize unmet needs, as opposed to just raising the bar slightly on strategy elements about which customers are largely satisfied. It is not only getting customer input, but getting customer input on hard and ill-defined questions that allows firms to come up with a winning answer to the key questions outlined above.
The second key theme that must be addressed in developing a focus strategy involves the question “Who in our firm must contribute, and how, if we are to succeed”? The firm in the case study had only involved the sales team in its first attempt to select targets for focus (and, to be fair, recognized that some other parts of their organization would have to make changes as the strategy was implemented). But it’s often not the sales team that will have to make the most significant changes in response to the decision made on focus. The examples above again provide illustrations. Had the firm in the case study gone forward with its initial choices, there would have had to be mega-changes in product development (to focus on the Good-Better segments) and in manufacturing (to shift the focus to low-cost operations). Had the firm considering an industry shifting key activities to Asia selected that industry as one on which to focus, it would have required building competencies in that region that could make positive contributions to key relationships. For sure, the sales team in both of these firms would have had to make changes, but they alone had no chance of success unless other parts of the organization also made parallel changes.
Change is a challenge, and requires very active leadership involvement if it to be successful. My earlier research on the obstacles to successfully implementing changes to a firm’s business model defined the two factors that most frequently stood in the way of successful change management: “Internal resistance to the new business model” and “The implementation process was poorly managed”. Moving to a focus strategy is a major change to most firm’s business model, and these two obstacles will rear their ugly heads and thwart the change unless executive-level leadership gets out in front of them, constantly selling the change and its importance, making sure that the right resources are in place, and underscoring the importance of the change through measurement, review, and rewards. Again, wishing doesn’t make it reality. Strong and ongoing leadership is required to implement a focus strategy.
I note that it’s not just leadership that is required to address this second theme. Very often, the resources in place are not the right resources to deliver what is required to get customers to recognize and reward the firm for the contributions that it makes as part of its focus strategy. At a recent meeting of the Institute for the Study of Business Markets, one speaker addressed the emerging challenges in his industry with the comment that “If you learn that you now have to climb trees, you need to hire some squirrels rather than trying to retrain the horses”. For many firms, a focus strategy requires new competencies. Sometimes it requires new channel partners. Sometimes it requires new suppliers. A critical part of addressing this second theme involves an honest assessment as to whether the mix of squirrels and horses, distributors, suppliers, and other key resources is likely to yield success.
The third question which I believe is critical to success with a focus strategy involves competitive response. It is critical to ask the questions “In the segments on which we’ve decided to focus, who are the key competitors? How will they respond to our decision to focus on the customers on whom they are also focused? Why will we win?” Unless the segments your firm has selected for focus are ones in which you are already the market leader, there are competitors that are doing something right in those segments, firms that will not accept your hopes of gaining share without a response.
In my experience, I’ve learned two key lessons about how to think about these questions. First, competitive response and competitive advantage are only meaningful when you successfully put yourselves into the customer’s shoes and look at purchase decisions and supplier relationships from their perspective. In the case study I’ve used in this article, several of the sales team members with whom I spoke believed that customers in the initially-targeted segments would “love our products since they are clearly better than what they are buying”. The fact was that those customers knew that, had known it for a long time, and knew that the price points associated with those clearly-better products were outside their range. They were not going to change. Wishing, again, isn’t going to define reality. Understanding how customers evaluate competitors and their products, and determining whether a competitive strategy will respond to their priorities is critical to the success of a focus strategy.
The second lesson relevant to this question is that this evaluation cannot be static. That involves bad news and good news. The bad news is that the competitors’ offerings will not be static. Especially when they have strong positions in the segment, they will respond to your firm’s decision to focus on their competitors (unless your strategy involves wishes that they already know will not fly with their customers). And they will probably start out in a better position to make changes than your firm is in, if they have good relationships with customers. Experience and research confirm that customers are usually unwilling to embrace innovations and changes unless they have great confidence in the supplier with whom they will be working. And even very strong firms are often surprised that their reputation is not enough to convince a prospect to risk a change from a supplier with whom they are familiar and comfortable. The same offering is much more likely to be embraced from a trusted supplier, and many customers will accept a partial measure when they have confidence in the supplier over a full measure from a supplier about which they are unsure.
The good news is that what is important to customers today may change in the future, and some of the most successful focus strategies that I’ve observed have involved suppliers that understood and were positioned to respond to emerging challenges facing the customers in the targeted industries. You see that now in example after example. Customers placing a much greater emphasis on energy efficiency (e.g., the lightweighting initiatives in the automotive industry) are open to new suppliers with the right materials expertise. Customers entering new global markets are open to suppliers with expertise, presence, and the ability to help meet local content requirements. One of my clients in the telecommunications industry is an executive that has been in that industry “forever”, seeing the incredible changes that have taken place. He once told me that “The biggest change he had to confront was the dramatic change in the industry’s cycle times”. He went on to note that “Many of our traditional suppliers just couldn’t step up to that change, and we had to restructure more parts of our supply base than we had ever expected”. So, once again, a future focus is critical to the understanding of the ways in which a focus strategy can respond to emerging needs of customers.
Focus can be a very good thing, and I’ve seen numerous success stories that were built on a decision to focus on a selected set of industries and customers, to move away from the philosophy of trying to be everything to everybody. But those success stories always had two important chapters, the first involving decisions about the industries and customers on which to focus, the second involving the actions that would ensure that those industries and customers would applaud the effort. Good decisions along the first dimension involve assessing the relative quality of candidate segments and the match between your firm and those segments. The second dimension requires a customer-based understanding of what to do to make the focus strategy resonate with customers, a real and firm-wide commitment to implementing the strategy by the firm’s leadership, and a careful assessment of the changes that are facing customers and the responses that are likely from competitors. With high-quality insights and decisions along all of those dimensions, the focus strategy can create considerable value and allow the firm implementing the strategy to capture some of that value.
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