Customer Development Model: Understanding Customer Creation
The first two steps of the Customer Development model are all about learning and discovery. In the Customer Discovery phase, you are supposed to find out who your customers are, where they come from and how you can reach them. In the Customer Validation phase, you get out of the office to make sure that everything that you think you know about your customer is true.
When you have successfully validated your customers, it is time to move on to one of the meatier parts of the Customer Development model: customer creation. The customer creation phase comes third in model for a reason. Without all of the information that you have gathered and validation in the first two steps, it would be a struggle to start bringing in your main customers.
In this article, you learn the ins and outs of the customer creation phase. You will understand what customer creation is and how it differs from a traditional marketing plan. You will also learn more about how to customize your plan to the kind of market that you are entering.
WHAT IS CUSTOMER CREATION?
Customer creation is the third out of four steps of the Customer Development model. Businesses can move on to this step after it has found its initial customers and made its initial sales. The main goal of customer creation is to provide an experience that drives market demand straight into the sales channel of the company.
This is also the part of the model where businesses can start spending more on marketing. This is because it is only when you have validated your customers that you should begin to spend money marketing to them. This prevents you from spending large sums of money trying to attract the wrong customer to your business. It also helps prevent you from wasting time and money trying to position the business in the wrong market.
When your spending is targeted towards a validated customer and market, it is likely to be more effective. This means that you can control your cash burn rates by marketing to customers who are real and interested in the product.
Customer creation will vary depending on the startup. For this part of the model, it is essential to know the kind of market that you are entering. You will learn more about that later in this article.
CUSTOMER CREATION VS. MARKETING COMMUNICATIONS
In the customer creation phase, you have permission to scale up your marketing efforts. However, customer creation is not about marketing communications per say. While most of the essential marketing activities are included in this phase, you should avoid thinking about them solely as marketing activities. This is because building up your marketing is not about increasing funding to your marketing department. Customer creation is all about reaching out to your wider customer base.
Marketing communications is different from customer creation for several reasons. First, a marketing communications strategy requires an internal and an external PR audit for developing an understanding of customer perceptions. But a customer creation strategy also requires you to develop a unique position in the market for the product and the company.
Customer creation also requires you to enlist your market’s major influences. You have reached out to early evangelists and adopters in the previous steps. These customers are valuable because they validate your value propositions. They also demonstrate that you do have a real customer base. However, once you have your product and knowledge of your customer, you need to find bigger industry influencers. Of course, you do not need to go the route of Nespresso and enlist George Clooney. The influencer can make all the difference in providing legitimacy for your product.
When you’re using the customer creation method, you would need to start recruiting your beta customers.
Unlike a media strategy, your product launch happens with the first customer shipment. Your media strategy will begin before the product goes to the market. It is not solely about designing a product launch
A media strategy works to get your name out there. It is designed to make you more visible. It can also explain what your company is about. But a media strategy is more about communication with the media and the general public. But in customer creation, spend a lot more money on creating customers. This goes beyond dictating key messages and into reaching out and continuing the journey of understanding to reach your customer market
Additionally, the marketing communications strategy implies that your business is entering an existing market. This is not always the case. To create a customer creation strategy that works, you need to avoid following a prescribed marketing program. Instead, you must work through a framework that is right for your company and the market.
As a result, the customer creation phase is not about tactics. It is not about which messages as sent out through which channels. It is about your overall strategy to reach your customers in a way that is meaningful. To make sure that this happens, the kinds of marketing opportunities that you chose should be directly in line with the market that the business is entering. When you follow this rule, you will be sure to reach the right customers in the right way.
UNDERSTANDING YOUR MARKET TYPE
Starting a business was never going to be easy. If it was, more people would succeed. You can have all of the passion, money or energy in the world. But if you do not have customers, you have little reason to exist other than to boost your own ego. As you have learned, finding customers is not just about going out and searching for those early adopters. You need to get to know your market.
There is no one formula for finding your market. This is because there are four different types of markets and your company will fit only into one. Even businesses with identical products or teams can fail if they do not find the right market. Essentially, your market type dictates your entire business. You must dedicate the appropriate amount of time and resources into establishing it.
You started to work on finding your market earlier in the Customer Development model. But it is in the customer creation phase that you really need to get to know your market. When you reach customer creation, you need to be able to determine your customer needs, how your customer understands their needs, the customer adoption rate and how you will position your product within the market. Without an understanding of your market, none of this is possible.
The markets can be broken down into four major types:
An existing market is a market that is already developed. When you enter an existing market, you are offering a product or services that is of a higher standard or performance than the current products on the market. Ideally, it will do something that vastly improves upon what is currently offered. If you are entering an existing market, you can often count yourself lucky. This is because this type of market is relatively easy to understand. In many cases, your competitors will have laid out the ground work for you. As a result, examining your existing market is all about understanding your competitor. You will have a greater focus on your product and your product’s features in this market.
For example, if you are entering into the running shoe market, you are entering an existing market. Nike, Adidas, Reebok, Asics and many other companies have already created and established this market. But if you want to fit in, you need to find a way to do something better than these behemoths.
Not every existing market is so settled. Some markets have room for more competitors. As a result, not all existing markets are the same. This complicates the process slightly more.
Existing Markets: Niche Products
You do not have to enter the existing product simply as a new product. You may be resegmenting the market. When you resegment the market, you are creating space for your product that offers a unique value proposition that differs from your competitors in the general market.
When you offer a niche product, you are attempting to tell an existing market that you can offer something that is so radically different that it is worth changing the market for. When you do this, you are not trying to redirect customers into a lower cost service. On the contrary, you are trying to redirect established customers into your niche.
To continue on the running shoe example, you might consider the barefoot running shoe. By the time Vibram entered the market, the key athletics players had settled their domination of the running shoe market. But Vibram entered the market as a barefoot running shoe. It promised an entirely different running experience for customers. It did not cost less than the main players. In fact, its prices are higher than many. However, it successfully developed a niche in the running shoe market.
Vibram was so successful that it began to change the whole market. Now, main players like Nike offer barefoot or “lighter” running shoes. These shoes are designed to take back some of the business Vibram appropriated for itself through its niche.
Existing Markets: Low Cost
If a startup is not trying to enter an existing market as a niche product, it will probably be entering as a low cost alternative.
Low cost entrants aim to offer customers an option that comes without a few of the industry standard features. However, this sacrifice comes with a significant price break. Usually, companies target customers who are willing to spend on a product that works just well enough.
Even the running shoe market has low cost segments. Brands like Champion offer a low cost alternative to the expensive shoes offered by many of the market’s key players. However, Champion does not just offer a low cost option. It works to expand its product and its channels.
As a result, big brands have had to manage their sales in order to prevent those less-inclined runners from switching over to a more affordable brand. Some brands also now sell no-frills shoes in department stores and other retailers. These shoes are designed to compete with low cost entrants rather than take back the mainstream market.
A new market is an undiscovered market. It has a customer base who were not previously able to complete a task before your company came along. It relies on serious innovation or a dramatically price change in order to become a viable market.
New markets are fun because they do not require you to compete with other companies. You can also worry less about product features initially.
However, entering a new market is hard. You might think that trying to compete with the likes of Nike is significantly harder than entering a new market. But this is not always true.
When you are entering a new market, you are not worried about your competition. But at the same time, you do not even know if you have a market. Your customers and potential market are unknown and completely undefined. It is your task to find and define them. You have to prove that your idea solves a problem that is real.
This lack of information is harder than competing with corporate giants. This is because you could spend a lot of time and money on a customer base that does not exist. Alternatively, you could waste your resources on a customer base that has no interest in adopting your product. Either way, you are taking a real risk.
Adopting a new market is scary. But when you follow the Customer Development model, the risk does not need to be outrageous. In fact, the Customer Development model can help alleviate this risk because it allows you to look for customer but does not force you to move forward without first identifying and validating those customers.
THE FOUR PARTS OF CUSTOMER CREATION
In his book, Steve Blank outlines four different aspects of customer creation that you need to consider when you are putting together a strategy. If you want to be able to create a solid customer creation plan, you need to be able to identify the following things:
Year One Objectives
You need to be keenly aware of everything that you want to accomplish in your first year. These goals need to be specific and reasonable. For example, you cannot simply state that you want to be successful or profitable. You need to be able to define these goals. You need to be say what it means for your company to be successful. You need to be able to say how much profit you want to generate. The more specific these objectives are, the easier it will be to create a strategy to meet them.
Your typical year one objectives will include:
- An estimate of your sales in year one
- Establishing your market type
- Committing to year one sales figures
- Creating a customer creation strategy
- Executing a customer creation strategy
Company and Product Positioning
You need to know how you will position your company within your market. You also need to know how you will position your product within the market. These positioning activities are not a one-time event. Both activities will occur more than once, albeit infrequently.
Company and Product Launch
Your company launch will usually only happen once. But you need to know what you want to get from your company’s launch. These goals will help you articulate your strategy. Your product launch will also ideally happen only once.
Demand creation is a strategy that occurs continuously.
To create a demand creation strategy, you will need the following things:
- An identified and validated market type
- An understanding of influencers and analysts in that market
- An understanding of how customers make purchasing decisions and how they purchase products
You need all four of these building blocks to create a successful customer creation strategy. But more importantly, you must have a process and strategy to use them correctly. Many startups make the mistake of identifying and using these building blocks without a greater strategy in mind. When you are identifying these, you should always be mindful of how they relate to the overall mission of the startup.
MOVING THROUGH THE CUSTOMER CREATION PHASES
In his book, Steve Blank created a series of phases that every business should move through if they want to successfully complete the customer creation phase. He includes four major phases in customer creation. Each phase has a series of subcategories that should be completed before moving on to the next phase.
1. Preparing for Launch
First, you will spend time creating market-type questionnaires to begin to establish your market. Once you have established the market, you need to begin to understand your market type. Once you understand your market type and its capabilities, you can then develop and agree upon the first-year objectives and the sales objectives.
At the end of phase one, you should achieve and deliver the following items:
- The market type questionnaire
- Agreement on the market you are entering
- The official sales and marketing figures
- The customer creation budget
2. Positioning your product and your company
To position your product and your company, you are going to generally need a PR agency. The second phase should begin with you interviewing and selecting a PR agency that understands your market strategy.
Before you put that agency to work, you need to figure out how you see your company by performing an internal audit. You also need to figure out how analysts, press, customers and influencers see your company by performing an external audit.
When you finish these audits, you should be able to choose a position for both your company and your product that creates a match between the position and the market.
What you should achieve and deliver in phase two:
- Agreement upon a PR agency
- Audit summary
- Official positioning statements
3. Launching your company and your product
Phase three is the longest and most actionable of the three phases. To get started with the launch, you must first choose the appropriate launch from your market type. This means you will choose a niche, early adopter or onslaught strategy.
You also need to find the audience that you will be aiming your launch at. Your messengers are important at this phase of customer creation. You will need to identify the connectors, evangelists and experts that you want to deliver your key messages.
You also need to create the key messages for your launch. These messages should be motive but should also make the value proposition of your company or product clear. Before sending out these messages, you need to understand the context that they will go into. This will help prevent any miscommunications.
Now that you have your messengers and messages, you can begin to create your media strategy. With you strategy, you can set measurable objectives and goals that will help you define and measure the success of the launch.
What you should achieve and deliver in phase three:
- The strategy for your launch
- A description of your audience
- The names of the messengers you will use
- Your key messages
- The context summary
- Consumer-based media
- The metrics you will use: depth of coverage, leads, perception
4. Creating the demand for your company
Before the launch happens, you need to establish your first-year strategy. You will need to be aware of your first-year objectives in order to be able to do this. The strategy should be directly in line with these objectives.
You should also agree with your partners on the criteria that you will use to measure your success.
You can then determine whether your demand creation strategy is going to be effective for the market type you are working with. If so, you can move forward. If something does not fit, you can iterate. If the strategy is completely unsuitable, you should exit here before launching.
What you will achiever or deliver in phase four:
- The summary of your entire plan
- Your metrics
- A real pipeline for sales
- An understanding of whether you are ready to proceed to the company building phase
CREATING THE RIGHT STRATEGY FOR YOUR MARKET TYPE
Since there are different types of markets, there needs to be different types of customer creations strategies. As a result, there is not just one way to launch your company, there are three. You will have a different strategy for existing markets, new markets and regsegmented markets. Note the ways that each strategies vary below:
- Your company positioning should be to establish your credibility and differentiate from competitors.
- Your product positioning should be to differentiate your product.
- Your company launch strategy should serve to promote credibility and deliver the product.
- The product launch should happen with an understanding of an existing basis of your competition.
- Your demand creation activities should be to create and then drive customer demand into the business’s sales channel.
- Your year one objectives should be to gain market share.
- Entering a new market requires a different strategy to entering an existing marketing.
- When you position you company, you will focus more on your vision and the ways that you have achieved innovation.
- Your product positioning will require you to define your new market. You will also need to add value to your market by defining both the need for the market and the solution you offer.
- The company launch will focus on credibility and innovation.
- The product launch will be wildly different from an existing market. You will need to educate your market. You will also need to set standards for your market. Finally, you will need to identify and grab the valuable early adopters.
- Your demand creation activities will also focus heavily on the education of your customers. You will also be working to take your early adopters and drive them into the sales channel.
- Your year one objective should not be to take a market share but to get customers to adopt your market.
- When you are resegmenting a market to make space for your business, you will be using a strategy that looks like a combination of the existing and new market strategies.
- Your company positioning will focus on innovation.
- Your product positioning will establish how your product is different.
- Your company launch will focus on innovation to establish your legitimacy in the new segment.
- Your product launch will focus on the existing competition.
- Your demand creation activities will focus on your sales channel.
- Your year one objectives are all about taking market share.
In the previous two phases of the Customer Development model, you learned about how to discover and validate your customers. You focused on early adopters to prove that your problem was real and that your solution could actually solve the problem. But in customer creation, you need to move away from those early adopters and focus on your real customers – the larger market that will help your company grow into your full potential.
There are a lot of things to keep in mind when you working through the customer creation phase. But if you take anything away from this phase, it should be that your market is the beginning, middle and end of your strategy. Just like understanding your early adopters and their problems was the goal of the first few phases, understanding your market is essential here. You should be prepared to accept that there will be differences between your early customers and your wider market. With this in mind and a full understanding of your customer in hand, you will be prepared to move on to the final phase of the Customer Development model: company building.
For someone with very little to no background in accounting or financial matters, making business …