The 2 most important questions that a business must ask itself

24-February-2014 12:38
in Strategy
by Admin

A business must be doing something which is recognised as being in some way unique and superior to its competition, which is important to its target customers, otherwise it would not have any customers and it would not be in business.

Therefore, the 2 most important questions that a business must itself are: “Who are our target customers and why would they buy from us and not from our competitors?”

For example, when Nintendo brought out their Wii Console in 2006, they had a clear picture of their target customers and their target customers’ needs. Traditionally, within the games console industry, PlayStation and Xbox had always focused on the 18 - 30 year old, predominantly male target audience. The factors that were deemed to be important to these target customers were the quality of the graphics, the complexity of the games and how many levels did they have. Nintendo had fallen a long way behind in relation to meeting these particular customer needs and they recognised they would not be able to compete head-on with PlayStation and XBox.

Therefore, when Nintendo re-entered the market they focused on a very different target audience with very different needs. More specifically they focused on the family orientated audience. They recognised that families enjoyed playing games together (board games, solving puzzles, doing crosswords) but that they rarely bought games consoles. This was because families were not all that interested in great quality graphics and they did not want to have to spend hours learning how to play highly complex games. Consequently, the Xbox 360 and PlayStation 3 were not particularly appealing to them.

Therefore when Nintendo developed their Wii console, rather than focus on quality of graphics and complexity games, they invested in simple, fun games with motion controllers that make it easy for any member of the family (at any age) to quickly learn how to play. The console was an immediate hit with more sales in 2007 in the US than PlayStation 3 and Xbox 360 combined. Its success was based on an understanding of who their target customers were and which of those customer needs they were seeking to prioritise.

Therefore, knowing who your target customers are and which of their needs you would like your business to prioritise is fundamental to the success of your business.

The issues dealt with in this article are covered in more depth in Video 2.4 of the MBA Toolkit. In addition Exercise 1 Worksheet 2 will help you to apply these concepts to your business

(It should also be noted that Nintendo’s was unable to prevent Xbox and PlayStation from copying its strategy. This highlights another important issue: Winning customers is not enough on its own. A business that obtains a unique position in its niche market must then prevent competitors from entering into that market and copying it. This can be achieved through Barrier Strategies (see Video 1.4 and 1.5 of the MBA Toolkit). Perhaps for example if Nintendo had managed to develop a wide network of users by encouraging families to compete against one another online, it could have generated Demand Side Economies of Scale (an important type of barrier to entry which is discussed in a separate blog and in Video 1.4 of the MBA Toolkit.))


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