Hierarchy of Customer Needs

Nearly 50 years ago (back in 1960) Theodore Levitt wrote a groundbreaking article in the Harvard Business Review called "Marketing Myopia."

Levitt pleaded with companies to lose their focus on products and move it to customer needs by asking the challenging question "What business are you really in?"

Theodore Levitt used the example of the railroad industry.

Dominant in the late nineteenth and early twentieth century for moving both people and goods, the railroad industry has seen its share of both markets reduce rapidly as it fell victim to the relentless march of the motor industry.

The railroad companies didn't see the Henry Ford and the other vehicle manufacturers as competitors. "We are in the railroad industry. They are totally different."

But they weren't.

What the motor industry offered was a substitute offering a product that had the major benefit of convenience.

Could the railroads have stopped the advancement of private and commercial vehicles if they had seen themselves as fulfilling a wider brief? If they had thought of themselves as in the transportation industry as Theodore Levitt suggests?

Probably not.

The  case for the motor car is compelling but the railroads were immensely wealthy. They controlled how and when people and goods moved and charged premium prices.

The railroad companies could have acquired the fledgling motor vehicle businesses who were probably desperate for cash.

So what industry or market are you in? Do you focus enough on thinking about your customers underlying needs a well as selling a better widget?

And are you flexible enough in the way that you use the definition of your business to help customers move through their buying cycle?

Turn Selling Into Buying

If we look at the situation, not from the seller's perspective but from the buyers it seems to me that our purchasing moves down a funnel from the general to the specific.

I call this funnel the Hierarchy of Customer Needs which moves from the basic need through the generic solution and the preferred solution to the final purchase

The Hierarchy of Customer Needs

Using the example from Theodore Levitt's excellent Marketing Myopia article let us consider my need for transportation.

1. The basic need - I need transportation.
   
   I want to move myself from here to there and I want to take these items with me.
    
2. The generic solution - my basic criteria are convenience, speed, ease of use, flexibility
   
   Trains don't meet my requirements and nor do aeroplanes. I need a car.
    
3. The preferred solution - now my purchase criteria start narrowing down. I am big so I have to fit in comfortably, I want reliability because I want to be pretty sure that I am going to arrive where I want to go at around the expected time and I want the car to say something about me.
   
   I want a roomy, reliable but stylish car.
   
   Notice that the "need" from the first two stages has now moved in my preferred solution to a "want."
    
4. The chosen solution - off to the car dealers now and detailed comparisons between the different products. This car is more comfortable than that but this other car looks nicer. This car has more status.
   
   I desire a Mercedes.
   
   Based on my detailed examination then the Mercedes is the one that I choose to buy.
      
5. The buy - now for the practicalities of the purchase. I want this car in my preferred colour with the particular extras immediately and for as little cost as possible.
   
   But this is where things can start to go wrong.
   
   Where the sheer impracticalities of the deal can cause it to be lost. I don't want to wait nine months for my midnight blue, cream leather upholstery Merc. And what do you mean there is no discount if it is made to order? I don't want the lilac model in the showroom with the smaller engine and go faster stripes. And I don't want the 30,000 miles one year old midnight blue Mercedes on the second hand lot.
   
   I think I'll buy the midnight blue cream leather upholstery Lexus I saw yesterday which I can drive away immediately.

It was all going so well but then they lost me. I was forced to make compromises and these compromises made the buying decision unpredictable.

Can you see how your buying criteria change as you move down the hierarchy of customer needs.

The Twist In The Tail

Theodore Levitt was right.

As a purchaser what I am most interested in is me. Or more accurately to put the emphasis in the right place - me, me, me.

I have a transport need but my wants and desires are constrained by the practical technology available to me.

Before the railroads were developed people were happy with horse drawn carriages and the buggy whip manufacturers thrived. (Sorry that's an in-joke and another reference to the Marketing Myopia article.)

But what I really want is instant, easy, safe transport. The car is the best solution in 2008 but what I really, really want is the Star Trek transporter which shifts me from here to anywhere in the world instantly.

No fuss. No traffic jams.

As Queen sang "Now I'm here, Now I'm there."

Beam me up Scottie.

Comments

[Elizabeth Gordon]

Hi Paul,
Great stuff! It truly is amazing how much of customers decisions get made on an emotional level versus a logical level. However, people do like to justify those irrational emotionally driven purchases with some logical criteria. So in your sales/marketing it is important to give them both sides - the "I've got to have it factor" and the "this is a smart decision factor." Give customers something that makes them totally love what you have to offer and make them feel they can't live with out, they've just got to have it, but also tell them why this decision makes them a smart and logical person so the right brain can reconcile with the left (or their spouse when checking the credit card bill at month end).

[Paul Simister]

Hi Elizabeth.
Thanks for the comment.

I completely agree about the emotional decision, rational justification point. It was a point well made in Michael Gerber's E Myth Mastery book which I reviewed earlier this week.

There will be much more about the psychological issues connected with marketing featuring in this blog and in the Why People Buy Squidoo page which could be massive as I want to try to put down the theory and then apply it to many different types of market.

Your book "The Chic Entrepreneur" is moving up my list to be reviewed.

Paul