MONEY TALKS - The billion dollar idea to give customers what they need

How well do you know your customer? That is the question.
Norwalk Reflector Staff
Jul 24, 2010

How well do you know your customer?

That is the question.

Let me tell you a little story I read recently in the Harvard Business Review.

Once upon a time there was a little company called Dometic.

In 1922, two Swedish engineering students invented the absorption refrigerator. Absorption technology was already alive and well, but these two were the first to apply it to refrigeration.

A couple years later, Dometic was acquired by Electrolux, but the company languished and their product remained a very small niche.

Fifty years later, in 1973, the company was losing money on revenue of about $17 million. Then Sven Stork came along.

Stork was the executive charged with revitalizing Electrolux's stagnating product line. At Dometic, he moved aggressively into producing hotel minibars.

An absorption refrigerator has no moving parts it works off a source of heat, something as simple as a propane tank. So unlike a conventional 'fridge, it is silent. Perfect for a hotel room.

In addition to being quiet, the absorption refrigerator doesn't need to be plugged in (it just needs a little fuel) so it's also perfect for places that don't have lots of power. Pretty soon, Dometic was putting its refrigerators in boats and RVs.

But that was just the beginning. In the course of selling their refrigerators in the RV market, Dometic built an extensive distribution network, and they got to know their customers.

So next Dometic decided to, as Stork put it, "make the RV into something you could really live in."

Today, Dometic produces RV air-conditioners, automated awnings, generators and systems for cooking, lighting, sanitation and water purification.

And today its revenue is $1.2 billion and it has 75 percent of the RV interior systems market.

Nifty, right? But it doesn't seem particularly remarkable. Everything about it seems perfectly obvious. What could be more obvious than making an RV into something you could really live in?

Okay, why hadn't anyone done it yet? Listen to what Stork said about it: "The idea was obvious to people who knew the customers, yet it took a while to convince the manufacturers and especially the rest of our own organization." It is impossible to believe today that, at the time, RV generators were a hard sell.

But when you think about it, what reasonable person would expect people to shell out a pile of cash for an automated awning for their car? Seriously. These are RVs, not trailer homes. These people have houses with stoves in them, what do they need one in their cars for? And if they own an RV it means they like camping. Right?

Wrong, it turns out. In the '70s, having an RV looked a lot like camping, so air conditioning just didn't make any sense. But Stork realized that in reality, the same was true then as is totally evident now: RV enthusiasts and campers are two entirely different beasts.

That's a billion-dollar realization.

The key was knowing the customer. My father always told me, "Know your business." Too often, for too many businesspeople, that means knowing your supply chain, knowing your production processes and knowing your distribution channels.

Rarely, it seems, does it include knowing your customer. But that is paramount. Without that, how do you determine where you can cut costs in production without decreasing your product's value to customers? Put it the other way: with that knowledge, you know where you can stop spending money on things the customers don't care about.

It's easy in business to get caught up in your own problems, but it isn't your problems that matter it's the customers'. Pay attention to those, and your problems will sort themselves out. It's the Golden Rule.