Originally published in The Huffington Post on 02 April 2014.
Fact: The more we understand about the lives and environment of our target customers the better we are able to market our products to them and accelerate adoption.
Focusing on the use of technology by a market and their “Normal” level of technology sophistication can provide significant insight into the likelihood of that market’s adoption of new technology products and services, allowing firms and stakeholders to better define their target market and to refine their product offering for greater customer take-up.
Markets are complex and fascinating. Understanding how they work and how they pertain to and define your product or service are critical to the success of your business. “Will customers buy my product/service?” “Why will they buy?” The concept of “adding value” is core to any business case.
Generally and particularly so in the tech industry, your peer group – the guys you hang out with in Tech City, the guys you sit next to in your shared workspace – are not the right benchmark for your product to succeed. They are not representative of the mass market. If they think your idea is great and they are likely to use it, you really really need to double check whether less tech orientated consumers will adopt your product. There are early adopters but there are also too-early adopters. Niche products proliferate amongst tech folk, many of which will never get to the mainstream. There is a “market perception bias” due to peer group and the pressure to deliver cool innovation relative to localised behaviour. The product/service misses the mass market as it is too cutting edge.
The Adoption Curve
Most people are familiar with the Adoption Curve (The Bass Diffusion Model to give it its proper name – find out more on Wikipedia) that describes the penetration of a new product in a population. Be it subconsciously, it defines our forecasts when launching new products and, by inference, investment decision-making and capital allocation.
An issue with the model: keeping all parameters constant while varying the size of the market, the length of time to fulfil 100% market potential is always the same.
Estimates of the key parameters are made on existing sales data or synonymous comparables data. The size of the market variable is arbitrary – there is no prescribed science behind it. You can make it 1000 or 100 million and the key output, the estimate of customers, do not change except in scale relative to the initial input.
I hope you agree, this does not make sense. A firm launches a product, it is selling well. They then incorrectly assume that their existing customers are a sub-set of a very large market and build marketing strategy and estimates on sales revenue on this misplaced market definition. It will take them forever to “own” the market; it cannot be that the length of time to saturate a large, more heterogeneous market is the same as a small and more appropriate one.
Market segments are defined by habits and behaviours as well as in many cases, law. They are not defined by demography – age, location, density….though, in certain cases, demographics may act as a good proxy.
Banks don’t sell mortgages to the “UK market” they sell mortgages to people in the UK that are looking to buy property, a need driven by the behaviours the people within that group and in this example, the laws that apply, which further segments the broad market; commercial mortgages, investment mortgages, first-time buyers, etc. More granular still, individual mortgage “products” are defined to appeal to specific customer groups that are driven by even more granular behaviour; e.g. their level of risk aversion, their accumulation of wealth, their use of time.
Broadly (and maybe controversially?) speaking, I believe it is good practice for young businesses or for any business launching a new product to focus on a very small market segment, really understand it, own it, then broaden the market definition and leverage their experience and brand credibility from previous success to sell to new target customers.
Understanding your customer’s normal level of technology use is key to marketing and success
First, lets get everyone on the same page with a couple of definitions:
“Technology”, does not just relate to computers or electronics. It is more broadly defined as “The application of scientific knowledge for practical purposes” this could relate to machinery, pipes, a saucepan and even a comb.
“Innovation“, is not just invention, is not just a new product or service, I define it broadly as “something new that adds value”. This could relate to a process, a product or service, a business model.
Combining the two, “technology innovation”, therefore is the application of scientific knowledge to create something new that adds value.
Lets say there is an arbitrary line that represents the technology innovation that is available to us. The further along the line the more “high-tech” the product and service. We can benchmark a “Normal” (mean) for the sophistication of technology people within homogeneous groups are comfortable using on a regular basis. Either side of this Normal, is a range that represents the inferior and new technology that we are willing to utilise today. For a very large market definition, this is, unsurprisingly, normally distributed.
As time goes on and users accept and use more innovative technology, the normal shifts to the right, i.e. the normal level is at a level of more sophisticated technology tomorrow than it is today. This is usually an incremental transition and takes time. There are very few “disruptive” products or services that have led to a large shift in the normal level of technology utilised by a market. “New and Improved” trumps disruption every time. To ensure you acquire rapid acceptance and use of your service or product, you need to target somewhere to the right of the normal line. Excellent – all fits well with the adoption model.
But wait, we know there are more distinct groupings within the population. What if we were to consider the habits and behaviours of “technophiles” and “technophobes” as exogenous to the mass market?
To generalise, technophiles are more likely to adopt new technology innovations and will be less accepting of inferior technology, while technophobes are less likely to adopt, relative to the mass market. The chart is likely to look like this, with technophile and technophobe adoption of technology skewed appropriately.
Now let’s make this more useful; let’s multiply the y-axis by the size of each market segment to give us a representation of the number of consumers likely to use the product:
Where do you want your product to sit?
To me, it’s fairly obvious that, for a product to be successful in the mass market, a business should be targeting the technology sophistication of the product to be slightly inferior to the normal level of technology sophistication acceptable to a market of technophiles. I.e. if the guy sitting next to you in google campus or a.n. other tech workspace thinks your product is cool and innovative (for them), it should ring an alarm bell in your head – check, re-check, and check again what is normal for your mass market.
Originally published in The Huffington Post, 05 November 2012.
Its been brewing inside me for a while and I need to shout it out; “BANKS ARE USELESS AT TECHNOLOGY”.
Its not the people that work there that are at fault – given the salaries paid to technologists, product managers, project managers and the like, banks probably do have some of the best and brightest talent. No, its not their fault, well, not directly anyway. It’s the incentives; conflicting objectives between teams and departments lead to bureaucracy, bureaucracy leads to inefficiency, inefficiency leads to costs and long delivery time frames leading to poor projected and actual returns…leads to anger, anger leads to hate, hate leads to suffering. Yoda kind of got it, I am sure you do too.
Please bear with my statement of the obvious – we live in a remarkable digital age. The evolution of technology, the invention and innovation, over the past 15 or so years has been astounding. Do you remember the computer you had as a child? A Commodore 64 or Amiga? An Amstrad CPC? Do you remember your brick of a first mobile? Do you recall sending your first ever email, MSN messaging someone for the first time, the introduction of Google, Facebook, Twitter and Skype?
It really is staggering when you think of how technology has moved forward at such lightening pace and the way that services you could not have dreamed of (and did not, or else you would be filthy rich) have been enabled to enhance our lives.
Today, our needs in relation to services are fundamentally shaped by technology. We explicitly and directly infer what is possible through innovation in analogous services. Implicitly, the way our lives have been re-structured as a result of technology enabled services gives rise to irritation and frustration when we are slowed down by core services that lag way behind in terms of usability. Technology enabled services have helped service providers reduce their costs, the benefits of which, in turn, are passed on to customers in terms of lower prices – we expect most apps/services to be low cost or even free.
If you haven’t got it yet, wake up – financial services, to a troubling degree, are dominated by banks, Banks, particularly commercial banks, don’t do technology at all well. We want user friendly, intuitive, low cost and value added technology enabled services. Pigs might indeed fly before I get an online solution from a leading bank that actually gets close to what it could and should do.
Let’s take international payments as an example. At present, 85% of all international payments are still conducted with a bank. Making a cross-border payment is complex and time consuming; the process lacks transparency on pricing and has unnecessarily high operational risk – over 30% of international payments run into “problems” that are costly to repair, both financially and reputationally.
The infrastructure designed to support the hundreds of thousands of transactions taking place each day is archaic – developed in the 1970’s. Shockingly a lot of the process is still manual. All of these inefficiencies are passed on to the customer as a cost; SMEs in particular often pay through the nose for a service that is far from satisfactory and consumes too much resource to manage. The most ridiculous thing? A bank cannot tell their customer when the payment is going to arrive in the beneficiaries bank account, nor tell the customer how much the full cost will be.
We have gotten used to lacklustre service, become apathetic to the status quo.
In contrast, non-bank cloud-based platforms – whether Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) — connect businesses more effectively to a host of currency exchanges and deliver optimisation across and within international payment networks, delivering more transparency on fees and reducing the incidence of failed payments. The level of automation across processes and the use of cloud services, enables low cost operations and scalability, enabling them to lower their fees. It goes without saying that these technology led businesses make the lives of customers easier by delivering user friendly and intuitive solutions that significantly improve the customer’s workflow and reduce administration overheads.
We need banks, but the way in which use them has to change in order to receive better financial services.
I believe that the future of financial services has parallels to the evolution of the telecoms market or the way we use electrical power. There are utilities that deliver and manage the “plumbing” – the lines and power stations etc. On top, sit a plethora of service providers that can package these services in an effective way to meet the needs of their customer niche. Focusing on a core set of capabilities at each level such as this allows the operators of the pipes to benefit from massive economies of scale that they then pass on to their subscribers, who in turn share the benefits with their own customer base.
If banks focused on the “plumbing” – capital markets and their operations, deposit taking and making decisions on the allocation of capital – rather than trying and failing to compete in technology enabled customer services, they would unquestionably be more efficient. Customers can be better and more cost effectively serviced by the raft of “New Finance” firms focusing on packaging specific services, such as international payments, loans, asset finance, cash management etc, that are emerging and sit on top of the bank’s plumbing, These firms are principally technology businesses and marketing specialists. They are focused, they are agile and they are the right way to access financial services. Of course, just as in other industries, some of the banks will evolve exceptional capabilities in servicing customers, but only if they change their approach to product development and innovation; they need to stop focusing on delivering products that they think the customer needs and start delivering products that customers actually want – pull demand rather than push supply.
Imagine the benefits of logging-in to an independent personal finance application in a new world of financial services. The application connects directly to a host of banks. Aside from getting a better more useful view of your finances and budgets, you would, for example, be able to request a new loan and you would get the best rate for which you were eligible and qualified for, across all banks, click a button to accept, and its done. No forms, no applications, no bank names – you interface with financial services through the application provider, not the underlying institution. It doesn’t really matter where your money is held as long as its safe, it does not matter who is lending you money.
We need to re-wire our minds, re-think what is necessary and what is not. Better understand the pros and cons of one way over another. Actually, scratch that – we don’t have time to think. Just listen to me. New Finance services are here NOW. The more customers vote with their feet and switch to use these services, the more innovation will take place and the more customers will benefit. I am not talking about industry disruption. I am talking about industry evolution. The time is right, the stars are aligned, the writing is on the wall…yadda yadda yadda. Just go make the switch for goodness sake.