And you thought you knew your customers

How 3-Circles Works

The 3-Circle model lets you see how well or poorly your offerings align with customers’ needs and desires, and whether customers see your products/services as unique from those of your competitor.

Plotting reality this way points out multiple opportunities for growth, including:

• Introducing new products or services that customers want and your competitor doesn’t provide (shift your circle further into the Unmet Needs area)
   
• Abandoning your products or services that customers value little or not at all (shrink Your Non-Value area)
   
• Raising customer awareness of your products or services that they would value, but currently don’t know about (grow the Points of Parity or, even better, the Points of Difference area).

In a 3-Circles analysis, executives discover opportunities to grow sales (or some other measurable outcome) by focusing their company’s efforts on what really matters to target customers.

To find that out what really matters, students interview real-life clients. Using a precise method of questioning called “laddering,” students dig down to the root reasons why the client chooses their (the student’s) firm or a competitor for a particular good or service.

But the interviews are only one step—No. 3 of seven, actually—in the 3-Circles project. Step 1 involves writing a Context Statement, which lays out the goal of the research.

It’s a matter of filling in the blanks, as follows:

“My goal is to figure out how in (a specific time frame), we (our business) can grow (whatever metric we’re seeking to grow) by (a specific amount) by creating more value for (the targeted customers) than (our competitor) does.”

Here’s an example of a completed Context Statement:

“My goal is to figure out how in six months McDonald’s can grow morning revenues 10 percent by creating more value for breakfast customers than Starbucks does.”

In this example, the student would now need to find out what customers value by interviewing them. It could be anything from free WiFi to French toast.

From a management perspective, the path forward would then be clear: Provide more of what customers value and less or nothing of the rest. This can be a profitable experience, but also a painful one if a feature or service your organization takes great pride in providing turns out to hold little or no value to targeted customers.

In the past, students have done 3-Circles projects analyzing a wide variety of competitive situations of which they had first-hand knowledge. Here are some examples:

Target Customer              Business                Competitor

Core runners                      Nike                        Asics

Leisure travelers                American Airlines      United Airlines

Golfers                              areagreens.com        twoguswhogolf.com

Internal HR customers        Internal HR dept.      Head-hunting firm

Psoriasis sufferers              Drug 1                     Drug 2

Air Force Recruits              Air Force Academy     College Air Force ROTC

Wife and Family                Tom at work              Tom at home