Downturns present outstanding opportunities to gain market share versus the competition. Of course, they are also the time that many companies enter a doom loop of slower growth, depressed profits, declining reinvestment in the business, and ultimately erosion of their market position. Bain believes Western economies are not likely to grow at a rapid pace for a long time. For planning purposes, it would be wise to play out the scenario of an extended downturn. What should you do?
The question of how great companies take advantage of downturns to gain market share is one that we at Bain have studied in detail. I recently published a short article on the topic as one chapter of a forthcoming book on how to manage through turbulent economic times.
Bain's "customer wheel"
A few tips:
- Start by identifying your Design Target -- the few customers who represent the vast majority of the economic and strategic value in your business
- To find them, you might try rank-ordering your customers on profitability, then looking for the subset who are most emotionally and rationally attached to your business -- not just behaviorally loyal, but emotionally loyal. Typically, in Net Promoter terms, these would be your most profitable Promoters. Find the subsegment who have similar needs, behaviors and purchase patterns.
- Characteristics of a good Design Target: Profitable, distinct, influential over other customers, highly loyal to your company and its products, significant remaining economic and strategic opportunity
- You probably know more about how to serve their needs than do your competitors -- generally you have more opportunity there than in any other segment, even if you already have relatively high penetration in that segment
- When you cut costs, make sure to protect those customers. Most companies think in terms of number of customers, while the economics in most businesses are concentrated in the small group of customers in the target segment
- When you design new products, don't think only in terms of volume, but also in terms of value. Design rigorously around the needs of the customers in that Design Target segment
You can read a summary of the article on Bain's web site. The full text can be found on the Harvard Business Press web site.