Most customers defect because of how they were treated, notably during the initial business relationship (see “What Starts Right, Stays Right”), but product and service design can also be a major factor in customer churn. In the cloud computing business, there are few barriers to entry, competition is increasingly fierce, and the cost to switch providers is low. Since customers can cancel subscriptions any time they perceive greater value elsewhere, Cloud Service Providers (CSPs) must create compelling solutions, treat customers exceptionally well, and always stay one step ahead of the competition.
But in many ways, CSPs are no different than any other business. Fast-moving, high performing manufacturing companies have long known that better product and process design yields better results. Often CSPs don’t do the basic market research, solution definition, and validation required for developing exceptional, well-differentiated products. As a result, inadequate design approaches hinder a CSP’s own ability to retain customers for the long term.
So what makes a good design? It’s simple: innovating when customer requirements are known, not assumed. Engineers are natural problem-solvers. Presented with challenges, they’re quick to come up with solutions. Add to that time-to-market pressures and their answers come even faster. But knowing exactly what problem developers are trying to solve is essential, and collecting more information in the beginning often feels unproductive.
Left alone, software engineers develop products based on what they presume to be customer needs and desires, which can spell disaster down the road. The top reasons for IT project delay are unclear customer requirements: expansion of functionality or “scope creep,” and “gold plating,” or over-engineering things that don’t matter.1 In start-ups, this can spell certain death. The Startup Genome Project says building a product without a validated product/solution fit is a common failure point stating,“It’s widely believed amongst startup thought leaders that successful startups succeed because they are good (re)searchers and failed startups achieve failure by efficiently executing the irrelevant.” 2 Senior leaders must keep their engineers’ natural impulses in check by instituting a process that places intense focus on understanding market needs well before any coding begins. A little more time doing it right up front means much less time, cost, and risk fixing it later.
Great product designs come from:
1. Market Requirements Analysis. Using secondary research to size market opportunities, select attractive market segments, and evaluate competitive position. Using qualitative, primary research to uncover unmet or under-met needs. Using quantitative surveys to further clarify and prioritize needs.
2. Solution Design. Brainstorming and creating an exciting, realistic, achievable, solution concept at a block diagram level that is distinctly better than the competition, addressing market needs with new technical capabilities.
3. Value Proposition Refinement. Summarizing the design’s compelling benefits, competitive differentiation, and tradeoffs (such as cost or conversion) customers must make when buying the solution. Testing the design concept, feature and pricing options, and Value Propositions with target customers to set the final design details.
4. Requirements Definition. Converting the final solution design into very explicit features, system capabilities, software modules, and specifications for the development project’s scope of work. Establishing performance goals for potential technology partners (e.g. cloud applications, APIs, and managed infrastructure) intrinsic to the solution. Creating process requirements, metrics and goals for internal service delivery capabilities, including onboarding and customer care.
5. Development. Assembling and integrating capabilities, writing and testing code to meet requirements and fulfill the Value Proposition. Creating channel and marketing partnerships to communicate the Value Proposition. Developing internal processes and negotiating Service Level Agreements (SLAs) with technology partners to deliver the Value Proposition.
So how is greater customer loyalty achieved? It begins in Market Requirements Analysis. Leading companies conduct a deep investigation into customer challenges using carefully chosen, open-ended questions to surface underlying needs. Then they use tools like Kano surveys to classify potential solution attributes into “must-have,” “more-is-better,” and “delighters”— unexpected features and benefits that elicit emotional response and attachment, resulting in greater loyalty. Knowing what truly matters to customers helps engineers not only target the right problems but consider breakthroughs. Project teams then test final design features, benefits, and pricing using discrete choice surveys. They summarize with clear, compelling, and competitive Value Propositions, explicitly stating what customer promises the company will make and how it will keep them. Well-crafted Value Propositions articulate why customers will buy, renew their subscriptions, and refer other customers. Only when all of this is done do top-performing companies begin writing code.
CSPs that jump to the obvious miss opportunities to develop anything other than “me too” solutions, creating an offering ripe for high customer churn. Given the significant economic impact defecting customers have on revenue and profit in subscription-based models, using a more market-centric design process is the first step for generating high customer retention and loyalty.
Footnotes:
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Goldratt, Eli (1997). Critical Chain, North River Press, Great Barrington, MA, and McConnell, Steve. (1996). Rapid Product Development, Taming Wild Software Schedules, Microsoft Press, Redmond, WA.
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Marmer, M., Herrmann, B. L., Dogrultan, E., Berman, R. (2012) Startup Genome Report Extra on Premature Scaling: A Deep Dive Into Why Most High Growth Startups Fail, Startup Genome.