## Strategic Drivers: Customers

### Why Customer Understanding Matters

Different customers have different needs → requiring different sales models or distribution channels
Customers generate profits → collecting and displaying customer trend data is essential for strategy

### Customer vs. Consumer — Strategic Perspective

Dimension	Primary Focus
Pricing strategy	Customer (the buyer who pays)
Design/usability decisions	Consumer (the end user who uses the product)

> Strategy teams — especially marketing — must analyze customer and consumer separately, even when they are the same person.

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## Strategic Drivers: Product/Service

### What Product Strategy Involves

Managing existing products over time
Adding new products to the portfolio
Dropping failed products decisively
Strategic decisions on: branding, packaging, warranties, after-sales service

### Product Classification Bases

Industrial vs. Consumer products
Essentials vs. Luxury products
Durables vs. Perishables
Differentiated by: size, shape, colour, packaging, brand names, after-sales service

### Key Principle of Differentiation

> Organizations seek to hammer into customers' minds that their products are different from others. The differentiation may be real or imaginary — what matters is customer perception.

Differentiation is formalized through assigning brand names to products.

### Pricing a New Product: Three Objectives

1. Customer-centric approach — design around the customer's needs

2. Sufficient returns — earn a reasonable margin over cost

3. Increasing market share — price to attract and grow the customer base

### The Central Strategic Question for Products

> "What business are we in, and what should be done to win over competition in each product/service we serve?"

Worked example

### Example 1

Customer vs. Consumer — B2B School Supplies:

A stationery company sells notebooks to a school (B2B). The customer is the school procurement officer (who cares about price, bulk discount, delivery reliability). The consumer is the student (who cares about paper quality, notebook design, durability).

Pricing negotiations target the procurement officer; product design improvements (ruling, paper quality) target the student. A company that neglects one of these loses either the contract or repeat orders.

### Example 2

Perceptual Differentiation — Beverages:

Blind taste tests consistently show consumers cannot reliably distinguish Coca-Cola from Pepsi. Yet brand perception and loyalty remain strong for Coca-Cola. This is an example of imaginary differentiation — the product difference is in the mind, not in the chemistry. The brand name and marketing create the perception of superiority.

⚠️ Common exam mistakes

Assuming product differentiation must be purely functional — emotional and perceptual differentiation (brand, story, heritage) can be equally or more powerful.
Focusing only on the customer (buyer) in product design while ignoring the consumer's (user's) experience — leads to products that sell once but don't get repeat purchases.
Neglecting the 'dropping failed products' aspect of product strategy — firms often hold onto declining products too long, consuming resources that could be redeployed.
Treating pricing as purely a finance decision — pricing for a new product must simultaneously serve customer-centricity, return objectives, and market share goals.

Reference:

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Strategic Drivers — Customer Understanding and Product/Service Strategy

Worked example

⚠️ Common exam mistakes