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The Unknown Unknowns


May 1, 2004
By Pulp & Paper Canada

Donald Rumsfeld has enlightened us with much colourful verbiage, but one of his most memorable lines tells us that: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things [that] w…

Donald Rumsfeld has enlightened us with much colourful verbiage, but one of his most memorable lines tells us that: “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things [that] we [now] know we don’t know. But, there are also unknown unknowns. These are things we do not know we don’t know.”

This wisdom has much to do with the management of current markets and customers. Furthermore, the discovery of new customers with needs profiles that can be matched to current or potential product or service offerings represents a key to business growth opportunity. The key question is how to find the “known unknowns” and the “unknown unknowns” in the marketplace.

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Customer Needs Segmentation is a technique that puts some structure to the challenge of finding new customers and new markets. The problem has two dimensions: customers and needs. The customers can be categorized as individuals or groups, and as direct customers or indirect consumers. The needs can be categorized as articulated and known, unarticulated but known, and unarticulated and unknown. With these categories a matrix can be constructed, as shown in the figure. The creative part lies in the identification of the potential customers and the potential needs. Customers can be individuals or groups, current or future. Needs are expressed in abstract or fundamental terms such as “to organize information” or “to feel secure.” In this way, new insights are created to connect needs with potential customer or consumer groups. These connections are scaled from 0 to 3 in terms of relevance, to build a matrix as shown in the first figure.

By segmenting the customer and needs axes into current, anticipated/potential, and future, a forward dimension may be inserted into the analysis. In this case, the matrix may look like the second figure. Current customers with current needs are today’s market survey or the known knowns. However, potential customers with anticipated needs fall into the known unknown zones. At the highest level of uncertainty are future customers with future unarticulated needs — this is the area of greatest opportunity — or the unknown unknowns. As the chart shows, opportunity comes in S M L and XL sizes. The XL space is the birthplace for disruptive innovations. Starbucks, Glad Ware, SouthWest Airlines, Dell, Gillette, Kodak, Newspaper Direct, Knight Ridder, New York Times are among many companies that have discovered this space for pre-emptive product and service design [see Clarke Gilbert MIT Sloan Management Review Summer 2003, and Mohanbir Sawhney et al MIT Sloan Management Review Winter 2004].

A variant of this analysis is the discovery of different customers with similar needs profiles. By bundling such customers, product and service offerings can be focused and managed with respect to the different needs of each customer bundle. Unexpected customers or customer groups often appear within the same bundle. They would thus have unexpected similarities in their fundamental needs profile. This information-base helps in product design and positioning, often revealing hidden potentials in existing markets.

Why is this important?

This is one example (there are others) of a systematic approach to market strategy. Questions to ponder:

How can we improve positioning and cross-selling of our current product / service portfolio?

How do we tackle uncertainty in the current market environment?

How do we look for business opportunities in a saturated market?

How may we recognize opportunity in emerging business conditions?

How can we find and engage new customers, not yet on the radar?

The Forest Products Sector certainly has an issue with respect to uncertainty in future markets. Perhaps the unknown unknowns are alternate customers for current goods and services; perhaps there are new customers for current offerings or capabilities; perhaps there is the opportunity to bundle products or services in different, more effective ways.

Alan R. Procter is an international consultant helping organizations exploit the future in their business strategies. He can be reached through contact@alanprocter.com and through his website www.alanprocter.com


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