The Dynamics of Customer Needs

To understand the dynamics of a business, it is important to understand customer needs.

Customer needs are the basic driving force of market demand for products and services. Any business must therefore understand the needs of its customers. But what are customer needs? How can they be identified? How to identify customers with the same needs? How are needs changing over time? All these questions are important questions for any business to answer. In this blog I would therefore like to explain the dynamics of customer needs.

Any customer has needs, wants and aspirations. These are to a large extent determined by the socio-economic situation of the customer. In a paper from 1943 called “A theory of human motivation”, Abraham Maslow presented the well-known hierarchy of needs. The different levels are: physiological, safety, love and belonging, esteem and self-actualization. According to Maslow, higher needs become manifest when lower order needs are fulfilled. The theory of Maslow is today still used by many marketing practitioners to explain the different levels of customer needs.

Needs are mostly individual, everybody has a different set of needs. However, there are a lot of needs that are common between individuals and in any market it is possible to distinguish groups of customers with the same needs. Customer groups can be socio-demographic, for instance children, who have a need for toys, or working people, who have a need for transportation. But groups can also be based on other criteria, like lifestyle or values. The existence of customer groups with homogeneous needs that can be targeted is the basis of classical market segmentation. The challenge of any business is to link customers with certain needs to a relevant offer of the company.

Identify needs of customers

So how can we identify the needs of customers? There are basically 3 ways to identify needs: through questioning, observation or reasoning. I will discuss them here in some detail.

One way to identify customer needs is questioning. The most common way is to talk to customers. This can be directly, by chat or by telephone. Just ask them what they would like to have, what they want to have improved, what they are missing. Repeat this with a number of customers, in order to get a representative view. A more formal way is to interview people or facilitate group discussions about a certain topic. This way is a good way to get more detailed information on what drives people to display certain behavior. However it is essential that you talk to the people of the target group, otherwise you will get misleading outcomes. Another form of questioning is to conduct surveys, with closed and/or open answers. The advantage of this method is that it can be done with large numbers of (potential) customers to produce statistically significant outcomes.

Another way to identify customer needs is to observe customers when people interact with products and services. This can be existing products, competitor products or prototypes. It can be done in the natural environment of the customer or in a lab. Observation gives frequently surprising insights, which were not anticipated when imagining a product. Observation is a very reliable way to gather information, because the customer is not influenced by any external factors, like the opinion of others or the need to give ‘politically correct’ answers. When I participated in customer test in the past, I have experienced many times that people say something but do something completely opposite of what they are saying. Observation can also be done in stores or on a website, in order to understand how people are selecting and buying products. The challenge of observation is not to influence the natural behavior of the customer; otherwise this could influence the outcome of the observation. Another practical challenge is that you need to do a sufficient number of observations to get a representative picture of reality, so this method is quite time consuming.

The last way to identify customer needs is by reasoning. This is the most common way in a business-to-business environment where a customer is building something and is looking for solutions or components that fit a certain design or specifications. In the consumer business this is done to anticipate needs that are caused by certain market trends. This is a useful method when there is no market yet of existing products or services.

In practice we see that one of these methods is not always enough to get a clear picture of reality and that a mixture of some of these methods is the best way to get a detailed understanding of needs. Also we see that these methods are repeated over time to understand how needs are developing. Because needs are not static. In fact, they are highly dynamic and can change dramatically over time.

Dynamic Needs Model

One of the common pitfalls is that needs are assumed to be static. Companies that were once successful to address certain needs could become slow to adopt when needs are changing. Changing needs are sometimes the reason why companies decline or even go out of business. There are many historical examples of this. When I was running my own consulting firm, I developed a simple model to visualize the dynamics of needs. I called it the “dynamic needs model”. It starts with needs of customers. To meet those needs, companies are developing new product products or services that meet those needs. Because customers are using these products or services, the behavior of customers changes as well. And this leads again to new needs. And so the circle is going on and on.

Case study: the market development of information products

A real-life case of this model is the market development of consumer information products. When the very first personal computers hit the market, people started to do simple tasks which could be done better and faster by computers. They started to write letters, do spreadsheet calculations and play games. Because people were doing more and more tasks on their computers, this gradually changed the behaviour of people. Because people started to use computers for all kind of new tasks, people also got new needs. They wanted for instance to print, to make back-ups and to have better sound.

Because of these new market needs, a variety of new products were launched, like printers, hard-drives and sound speakers. This resulted in a further change of behaviour. This resulted again in new needs, one of them being the need to communicate directly with other users via the computer. As a consequence, computers got connected to each other and the internet was born. Computers got new internet-based applications, like email, webchat and video calls. This resulted in an even further change of behavior and new needs of consumers. As a consequence, new products came to the market, like webcams, wireless modems, digital cameras, etc. And so the circle went on and on.

Summary

Customer needs are the fundamental driving force of any business. Customer needs are continuously changing. In this blog the Dynamic Needs Model is introduced, which describes the interaction between customer needs, innovation and customer behaviour in the form of a circle. In this framework customer needs lead to innovation, innovation leads to changing customer behaviour and changing customer behaviour leads to new needs. And so the circle comes to a close.

For innovative companies, which invest a lot of money in new products and services, it is critical to understand the dynamics of customer needs. Otherwise a lot of effort is spent on new products and services, which are not relevant anymore when they enter the market. There are many examples of failed companies for this specific reason. Without detailed understanding of customer needs and the dynamics of it, companies are doomed to fail.