Succeed Through Customer Knowledge: A Guide to Practical Customer-Originated Marketing

Table of Contents

Author’s Note

Preface

Introduction

Thinking and Feeling Like a Real Customer

Why Marketing Fails When It Fails to Understand Its Customer

An Idea Can Grow Businesses

How Hada Labo (Skin Lab) Led to a Winning Idea

Constructing an Idea From n1 Analysis

Chapter 1

Effective Ideas in Marketing and the Meaning of n1

1-1 Defining Ideas in Marketing

Defining Ideas in Four Quadrants

Product Ideas and Communication Ideas

Product Ideas are the Most Essential

The Limits of Communication Ideas

The Importance of Building Product Awareness Quickly

All Brands Fail to Reach Their Maximum Potential

1-2 The Advantages of Focusing on n1

Choosing a Present to Make Someone Happy

Customer-originated Marketing Focuses on the Individual

Ideas Become Shallower as n Becomes Larger ─ The Problem With Mass-Market Thinking

Addressing the Fear of Overspecializing and Falling Into a Niche

Column 1

How the iPhone’s Idea Evolved

Chapter 2

Foundational Chapter ─ Developing Basic Marketing Strategies Using the Customer Pyramid (5segs map)

2-1 How to Construct and Interpret the Customer Pyramid (5segs map)

Basic Outline and Composition

Pareto Analysis and the 80-20 Rule

How 80－20 Plays Out Over Time

Sales, Costs, and Profit － Where Do Sales and Profit Come from?

Forming a Customer-originated Strategy

The Pros and Cons of RFM Analysis

2-2 Analyzing Behavioral and Psychological Data

Types of Behavioral Data

Types of Psychological Data

Gap Analysis Between Segments

The Importance of Interpreting Both Behavioral and Psychological Data

The Limits of Psychological Understanding Using Quantitative Surveys

2-3 The Customer Journey Oriented Around n1

What is n1-originated Analysis?

How to Implement n1 Analysis

Outlining the Customer Journey

Imaginary Customers Have No Journeys or Personalities

2-4 Creating and Reproducing Ideas

Creating an Idea From a Trigger

How to Judge if an Idea is Reproducible

Changing Strategy After Confirming the Reproducibility of an Idea

2-5 Forming a 5W1H Marketing Strategy

The Relationship Between Marketing and Other Departments

Goals and Five Basic Strategies

From Segment-based Marketing Strategies to Planning

Points to Note When Making a Plan ─ Planning Around an Idea

Investing Into Marketing ─ Evaluating the Potential of an Idea

Analyzing Competitors and Overlap Analysis

Leveraging the Customer Pyramid (5segs map) to Enter a New Category

Leveraging the Customer Pyramid (5segs map) in B-to-B Businesses

The Importance of Tracking

The Customer Pyramid (5segs map) and the Diffusion of Innovation Theory

Column 2

Using the Customer Pyramid (5segs map) to Develop New Products

Chapter 3

Practical Chapter ─ Combining Sales Promotion and Branding With the 9segs map

3-1 Creating the 9segs map

Real Loyalty is More Complex Than Purchase Frequency

Demonstrating the Fickleness of Loyalty

Active and Passive Loyalty

Constructing the 9segs map ─ Adding the Next Purchase Intention (NPI) Axis

Visualizing and Quantifying Sales Promotion and Branding

The Dynamic Movements of the Nine Segments

Building Strategies With the 9segs map

The Risk of Overlooking Substitutable Goods

Sales Promotion and Pricing Strategies

The Differing Costs of Acquiring Customers for Each Segment

3-2 Framing Branding Discussions Around 9segs map Analysis

How to Discuss Branding ─ Next Purchase Intention (NPI)

Using Image Attributes for Branding

Examples of Effective Uses of Image Attributes for Branding

The Risks of Passive Loyal Customers

Sales Promotion and Branding Through the Lens of the Diffusion of Innovation Theory

Column 3

Using Surveys to Create a 9segs map for the Automotive Industry

Chapter 4

Case Study ─ n1 Analysis and Creating Ideas at SmartNews

4-1 Creating the Customer Pyramid (5segs map) and the 9segs map

Real Marketing Examples From the Ground Floor

Understanding Customer Awareness by Analyzing the Competition

SmartNews Case Study － Basic Analysis of Customers and Competition Before Growth

Analysis of the 5segs map Can Be Conducted Externally

4-2 Analyzing Detailed Customer Behavioral and Psychological Data

Comparing Segments Within Brands

Comparing Each Segment With the Competition

Developing Hypotheses From Comparative Analysis With Competitors

4-3 Constructing Potential Ideas and Concept Tests From n1 Analysis

n1 Interviews and Detailed Overlap Analysis

Changing an Idea Into a Concept and Performing Quantitative Analysis

4-4 PDCA with TV Commercials and Focusing Investment

Measuring the Impact of TV Commercials and Defining a Winner

The Birth of the Coupon Channel

The Effectiveness of Straightforward TV Commercials

Looking Back on a Year of Results

Column 4

Failures Caused by a Poor Understanding of Customers

Chapter 5

The Importance of Customer Analysis in the Digital Era

5-1 Understanding a Customer in a Digital Society

Future Models of Ideal Framework Management

Modern Mechanisms for Digital Change

Living in Parallel Worlds

From Parallel Worlds to a Zero-Friction World

Marketing in the New Reality

Recognizing the Generational Gap

The New Reality Cannot Be Understood Without Data

5-2 Disruptive Innovations From Digital Companies

The Rapid Rise of App Businesses

The AARRR Model: The Business Model for Apps

An Example of the AARRR Model in Action

Integrated Marketing for App Businesses

The Scalability and Threats Posed by Digital Businesses

The Importance of Uniqueness in Product Ideas

Afterword

Further Reading

Author Profile

Author’s Note

To preface the English version of this book, I would like to first explain what it is about. The book was published in Japan in April 2019 as a summary of key business frameworks that I have used for years to consistently build businesses. These frameworks were developed based on real marketing cases of more than 100 brands from Procter & Gamble, Rohto Pharmaceuticals (a Japanese health & beauty company), L'Occitane (a French cosmetics company), SmartNews (an AI-driven news aggregation app company, which has grown in value to over $2 billion*1), and other companies which I worked for as a business consultant.

*1SmartNews App Raises $230 Million, Considers Possible IPO Corrie Driebusch, Wall Street Journal, Sept. 15, 2021)

The book includes information on the following:

a. Ideas ─ What type of an idea will truly build a business?

●The term idea is commonly used in business discussions and many say that ideas are what drive businesses. However, such concepts can be difficult to grasp; no one has clearly defined this business concept in a way that can be effectively utilized in a consistent manner. To address the issue, this book introduces the term idea, which will be clearly defined and italicized throughout.

●Many companies and executives have spent enormous amounts of time and money seeking an idea that will change their business. Countless agencies and experts provide Ideation services globally. Hire their services and you might get a collection of nicely drawn pictures and words on post-it notes and white boards. However, when putting their idea into practice, will it drive business as expected? In my experience, this happens rarely. This is because we chase ideas without clearly defining what they are.

●The idea quadrant is introduced to clarify the type of idea that will promote business growth. The product idea and communication idea concepts are discussed to define what type of ideas are essential for long-term success by separating them from short-term advertising strategies.

b. 9segs map framework ─ How can we manage sales promotion and branding quantitatively and simultaneously?

●We all know business growth requires both sales promotion and branding, but do not know how to effectively visualize their business impact and financial effectiveness. This often results in inefficient investment or only temporary growth.

●Sales promotion involves purchase incentives such as price discounts and value-added products. It is usually effective in the short term but results in decreased profit margins in the long run. Constant sales promotion activities over time train customers to wait for sales promotions before buying.

●Branding is often said to be the most important requirement to build a strong business, and many consider a so-called brand as something that can be built over time. Branding has been defined in a variety of ways, such as through images, identity, logos, designs, taglines, equity, consistent value proposition, and so on. But how many people really understand it? Can you measure and manage branding to effectively manage return of investment (ROI)? Some say that branding is in the mind of the customer, that it is hard to measure, or that it falls within the realm of art or science. Others say that it can be measured through brand image attributes, likability, satisfaction or NPS (Net Promoter Score). My experience has taught me that none of these metrics can clearly explain business results or justify financial investment.

●The need for a way to simultaneously measure sales pro motion and branding is obvious, and the 9segs map frame work is the first-ever framework that visualizes and measures the effectiveness of both. The effectiveness of branding as a key performance indicator (KPI) will be expressed through measuring next purchase intention (NPI).

c. n1 analysis - How can we maximize investment effectiveness between mass-media investment and 1-to-1 investment?

●The rapid development of digital technologies allows us to use targeted sales promotion and branding activities in order to attract potential customers individually. The digital marketing industry is growing much larger than traditional mass media all over the world.

●However, mass media, including traditional network and program TV (movie) media, still has an advantage in reaching large numbers of people in a short period of time. YouTube itself is becoming a type of quick mass-reach media.

●Business executives are pulled in every direction by rapid changes in the digital media environment, and what they care about most is how to best manage their investments in the new reality. The answer to this lies somewhere in between mass-media investment and 1-to-1 investment.

●Mass-media investment, by its nature, involves unnecessary investment into non-potential customers. Meanwhile, 1-to-1 investment requires precise identification of a potential customer who fits your business. Data-based digital marketing may look ideal for 1-to-1 investment strategies, but it has many shortcomings. The data available for digital marketing is the behavioral data of customers based on their past activities. Off-line behavioral data is outside of the reach of digital technology and, more importantly, this kind of behavioral data does not provide insight into customer psychology.

●To make full use of business investment, we need to understand not only behavior but the customer psychologies behind those behaviors.

●n1 analysis with implementation of the 9segs framework will help find the best investment to drive business in the short term and long term.

It is a pleasure to say more than 80 companies, including large legacy companies and emerging start-ups, have contacted my company since this book became public, and that translations have been published in Taiwan and Korea. Growing positive feedback from businesspersons encouraged me to publish an English translation as well. I am honored and very much thrilled to see how these frameworks will contribute to marketing in English-speaking countries. Thank you for taking the time to read it.

Preface

The Importance of Focusing on a Single Real Customer (n1)

In April 2017, I joined the mobile app company SmartNews. Before that, I had worked at Procter & Gamble (P&G) Japan for 16 years; Rohto Pharmaceuticals, a Japanese health and beauty company, for eight years; and L'Occitane, a French cosmetics company, for three years. Considering my work history in businesses that sold physical goods as well as my age (I was approaching my 50s), it was an immense challenge for me to change gears and join a company which only offered digital services. Those around me had their doubts, questioning why I would take such a risk or if I would find success in this new space.

As I began to work in this new industry, I came to a number of realizations. While this may sound obvious to some readers, the change in lifestyles and values that has accompanied the proliferation of smartphones among the younger demographic is nothing short of astounding. They are constantly connected to the internet and spend long periods of time in its world: a world separated from the physical world in which we have always lived. A new reality has been born, and now we exist in two places simultaneously: the physical, old reality and the new reality, which we are connected to through our smartphones. It is almost as if parallel worlds have formed around us.

At the time I joined SmartNews as senior vice president (SVP) of marketing, its growth in Japan had begun to stagnate due to pressure from competing news apps. In June 2018, after a period of around one year and active investment into marketing, we managed to go from outside of the top 100 to the top ranked app in the iPhone (iOS) and Android categories (according to App Annie). In January 2019, the app achieved 40 million downloads globally with over 10 million monthly users, and it continues to grow as the most used news app in Japan. In the USA, SmartNews has grown to overtake yahoo.com and now ranks within the top 10 news apps according to parse.ly. The company achieved 500% year-over-year growth in 2019 and reached a valuation of 1.2 billion USD. In August 2020, I left SmartNews.

At SmartNews, I utilized the customer pyramid (5segs map) and the 9segs map, frameworks for customer analysis that had been tested and refined over the past 27 years of my marketing career, during which I spearheaded marketing investments exceeding 80 trillion JPY (approximately 800 billion USD). At the same time, I developed new product ideas through n1 analysis, a type of market research that focuses on a single customer. I verified the impact of the ideas developed using these frameworks and analyses, and then I expanded our investment into the ideas that tested most successfully. This book will go into detail about the meaning of these frameworks and how they are made, so that readers can make use of them for their own businesses.

Of course, SmartNews’s rapid growth was not only thanks to its marketing. Its superb base functionality as a news app, the daily improvements made by its engineers, and its regular content development each helped bolster the app. The companies I worked with before were also blessed with abundant assets and talented marketers, which allowed me to contribute to their success. The yearly sales of Rohto Pharmaceuticals’ iconic product Hada Labo (Skin Lab) went from two billion JPY (approximately 20 million USD) to 16 billion JPY (approximately 160 million USD), making it the top-selling skin toner in Japan and across Asia. When I was hired to manage the Japanese branch of the French cosmetics brand L'Occitane Japon, it had suffered stagnant sales and shrinking profits for four consecutive years, but in just two years we were able to achieve record sales and profits (L’Occitane’s business results vary by country). However, my past is also littered with brands that failed to launch. The frameworks that will be introduced in this book were built on both my successes and my failures.

These frameworks also enable a style of leadership that does not depend on a specific individual. If a company’s decision-making powers and influence lie solely in the hands of a single executive or department, its focus strays further and further from the importance of the customer. There are many companies out there who claim to put the customer first but fail to make good on that claim in their business or marketing practices.

I experienced this very thing during my time at P&G. In March 2000, the company’s stock prices had plummeted by more than 30% after they announced a reduction of their earnings estimate. In the years before this stock price crash, the company had undergone large-scale organizational restructuring with the aim of strengthening their position in the global market. At the crux of this restructuring was the concept of matrix management, in which each of the departments for brands and regions intersected on vertical and horizontal axes. While the concept itself was fascinating, it was incredibly complex in practice, causing employees to spend too much of their energy and focus on this matrix management system, stifling growth despite increased costs.

Eventually, Alan George A. G. Lafley was promoted to CEO and tasked