Chapter Two: Improve Understanding of Customers
Summary from book page 46-47

There are three fundamental reasons the Colombian leather industry leaders had worked themselves into such a difficult position:

1. They had not taken an explicit position about choosing customer segments.

2. They did not try to understand customers' different needs.

3. They did not seek the most attractive customers that they could serve.

In the days when the local markets were protected and export markets were easier to penetrate because of favorable exchange rates and government incentives, the issues listed above were not so critical. They are now.

Firms that fail to choose specific segments are essentially enabling the competition to choose for them. Whether we are discussing state-owned tourism in the Colca Valley of Peru, or the leather sector in Colombia, very predictable and consistent patterns will result. In failing to choose the most attractive segments that they can serve, those firms will be forced into segments where average margins are lower, where competition on cost will be fierce, and where dependence on exogenous variables such as exchange rates will be high. These are the patterns associated with competing in basic-factor-dependent industries, and they are inconsistent with creating a high and rising standard of living for the average citizen.

Moreover, there will continue to be little incentive for innovation or cooperation among industry participants because they will perceive that the number of customers is limited and that one firm can succeed only if another is not. The ability to create wealth, in other words, tends to be viewed as finite. Furthermore, firms will redouble their efforts to ensure that the government is providing them every source of advantage to continue competing in these unattractive segments. The eyes of the productive sector will be on the government--not on the market--and that will further reinforce the pattern of not proactively choosing the best segments in which to compete.

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