M A N A G E R ' S T O O L K I T

A simple matrix helps you identify the attributes that will makeyour goods and services most competitive.

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Discover Your Products' Hidden Potentialby Ian C. MacMillan andRita Gunther McGrath

Why did a minor math error thatwould occur only once every 27,000years so enrage customers that itbriefly threatened to derail Intel'sPentium chip? And how could a fea-ture as trivial as an inexpensive cupholder swing millions of customersto purchase a $17,000 automobile-particularly when only three yearslater, the same cup holder had he-come almost invisible to buyers? Isit possible to develop rational prod-uct strategies in the face of apparent-ly irrational customer behavior?

The fact is that every product hasmore attributes than meet the eye.Profitable product strategies are builtaround giving customers the exactmix of attributes they want but nomore. Companies that underinvestin attributes that customers valuewill lose customers; companies thatoverinvest in attributes that cus-tomers don't value will lose money.

Managers must find the hest fit be-tween a product's bundle of attri-butes and their customers' needs -

and doing so is an endlessly iterativeprocess because competitors inno-vate and customers' needs change.To help managers track and evaluatethis dynamic fit between the needsof their customer segments and theattributes of their products, we havedeveloped a simple analytic tool.We begin witb a discovery-drivenprocess for uncovering salient prod-uct attributes-those that, all otherthings being equal, will swing a pur-chase decision. Then, we map sali-ent attributes onto what we callthe ACE Matrix (Attribute Catego-rization and Evaluation), a grid thathighlights the competitive impera-tives for each attribute. The matrixshows what action a company musttake in response to each attribute.

Step One: UncoverSalient Attributes

In any population of customers,there are concentrations of peoplewhose behavior sels-patterns ofwhy and how they use a product,how they purchase it, and how theyperceive the risk of purchasing it -differ distinctly. These segments are

not defined simply by demographicdifferences such as age and gender.Demographic differences are merelycorrelates of real behavioral differ-ences, which are a source of opportu-nities for optimizing the fit betweenproduct attributes and the needs ofcustomer segments.

Observing customers as they huyand use a product is the first stepin discovering its salient attrihutes.Sometimes the attrihute is a part ofthe product itself or its packaging. Atother times, it is less obviously asso-ciated with tbe product; for example,it may have something to do with the

Ian C. MacMillan is the George W.Taylor Professor of EntrepreneurialStudies and professor of manage-ment at the University of Pennsyl-vania's Wharton School in Philadel-phia. Rita Gunther McGrath is anassistant professor in the Manage-ment of Organizations Division ofColumbia University's GraduateSchool of Business in New YorkCity. They are coauthors of "Discov-ery-Driven Planning" (HBR fuly-Augustl995).

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purchase experience. Watchingclosely helps uncover unexpected at-tributes. Consider the example oflohn Sculley's marketing team at thePepsi-Cola Company and how itrethought the cola market in the ear-ly 1970s.

For the first time in years, at theinstigation of the Sculley team, Pep-si took a serious look at how con-sumers hehaved when they boughtand drank Pepsi-Cola. The companyconducted an in-home consumer re-search study, giving 350 families thechance to order Pepsi and any com-petitive product weekly at discount-ed prices. Much to the surprise ofthe marketing team, no matter howmany bottles of Pepsi were pur-chased, consumers emptied them.Furthermore, the total amount ofsoda purchased was limited not byconsumers' taste preferences but bytheir ability to bring the producthome. Customers bought as muchas they could comfortably carry andno more.

That insight led Pepsi to focuson packaging as a way to challengemarket leader Coca-Cola. Plastic re-

placed glass, and multipacks re-placed the six-pack. The distinctivePepsi logo guided consumers to theproduct. More important, the pack-aging strategy converted a majorCoke strength (its small, distinctivehourglass bottle) into a liability: Atthe time, plastic bottles in that sizeand shape were veryexpensive to produce.

Pepsi-Cola was ableto identify a hiddenproduct at t r ibute -weight - that drovepurchasing behaviorfor a subsegmcnt ofthe market. The Scul-ley team arrived at theinsight by watching customersclosely and by thinking creativelyabout why customers behaved asthey did. Discovering salient attri-butes is more a creative art than ascience, but the search is most likelyto bear fruit if it is conducted sys-tematically. There are four goodways to look for salient attributes:

1. Identify parallel needs. It is sel-dom that only a single need is beingsatisfied when customers use a prod-

uct. Usually, numerous needs aresatisfied in parallel with the mostobvious one. For a person who justwants a cup of coffee, the drink it-self is the product, and its salient at-trihutes are qualities such as taste,aroma, temperature - and, of course,price. But for the person who mainly

Watching customers as theybuy and use a product is thefirst step in discovering itssalient attributes.

wants to watch the world stroll byon the Champs-Elysees, the salientattribute is access to a critical pieceof real estate-and the price paid forthe coffee is rent for sitting time onthe famous boulevard. So a customerwho buys a cup of coffee on theChamps-Elysees may be filling a par-allel need for atmosphere and enter-tainment and therefore can be per-suaded to pay a considerable pricepremium for the coffee. The cus-

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Madame is willing to pay extra for coffee on theChamps-Elysees to fill her parallel need for entertainment.

tomer who is only after a drink,however, may be irritated at its cost.This raises the problem that parallelneeds also have their downsides.

McDonald's Corporation, for ex-ample, ran into a serious parallel-needs problem when it opened up arestaurant in Beijing. The prices itset were low compared to its pricesin other countries, but a meal stillcost a sizable portion of a Chinesefamily's weekly income. As a result,the Chinese spent hours at McDon-ald's, converting what was designedto be a fast-food experience into along dinner affair, McDonald's failed

Addressing v/ays to reduceperceived buying risks canbecome a salient attribute.

to recognize an important parallelneed - to savor and prolong what wasin China an expensive meal. Conse-quently, McDonald's seriously tmder-estimated the seating capacity re-quired for profitable volumes.

2. Identify purchasing patterns.Understanding customer purchasingpatterns can help uncover salientattributes. Texaco's subsidiary insouthern Africa, Caltex Petroleum,for example, identified the familyholiday trip as a time when changesin routine buying habits might cre-ate an opportunity. Coping with thechildren rose in salience, whereas

children normally had little effecton the decision to buy gasoline. Soeach year Caltex developed promo-tions at the peak vacation period.For instance, they offered popularcartoon stickers with each gas pur-chase. Maximum leverage came fromreleasing the stickers in sequence,thus prompting children to collectthe whole set. Giving out only onesticker per purchase, Caltex mobi-lized a vocal, high-impact ally, whoin turn persuaded families to makerepeat visits to its stations.

3. Observe how customers actu-ally use the product. Just as Pepsi

discovered a salient at-tribute by watching cus-tomers struggle withheavy bottles, the WaltDisney Company learneda painful but valuablelesson about salient at-tributes by watching cus-

tomers struggle with its new edu-tainment software products.

For the 1994 Christmas season,Disney developed an interactiveCD-ROM version of its popularmovie The Lion King. On Christmasmorning, excited children rippedopen their gifts. But the holiday spir-it quickly vanished for many. Par-ents, often without much computerexperience themselves, struggledwith little success to install the soft-ware and get it to run. Frustrated andfaced with disappointed children,they flooded Disney's understaffedhot line with angry calls and created

a serious public relations black eyefor the entertainment giant.

By the time the next Christmasseason rolled around, Disney hadeliminated the major technical prob-lems that made the product so hardto install. But the company wenteven further, redesigning the prod-uct with what actually happens onChristmas morning in mind. Their1995 offering, an interactive versionof Pocahontas, came with instruc-tions to parents to open, install, andlearn to use the software in advance.Special wrapping paper was providedso that parents could rewrap theboxed product. That way, they couldrelax and enjoy watching their chil-dren open their presents, confidentthat no surprises would ruin the hol-iday. Disney acted on the lesson thata deep understanding of the usagepatterns of customers is as impor-tant to a new product's success as itsdesign and technical features.

4. Identify customers' perceptionsof risk. Sometimes explicitly ad-dressing ways to reduce the risk cus-tomers perceive in purchasing aproduct or service becomes a salientattribute. Consider the soft-goodsretailer, Nordstrom. The company'sno-questions-asked returns policybecame legendary when a putativecustomer was refunded for a re-turned set of auto tires-a productcategory Nordstrom never carried.

In automobile services, Midas isbuilding a successful brake repairbusiness by eliminating customers'fears of being gouged. For many carowners, brake repairs are an expen-sive and frightening proposition.Owners don't have the technicalknowledge to evaluate what work-if any-needs to he done. Yet at thesame time, they don't want to riskdriving with faulty brakes. So cus-tomers are often, in effect, requiredto sign a blank check-that is, theymust agree in advance to pay forwhatever repairs are done withoutknowing what the final bill will be.

Midas reduces the customer's fearof being exploited. Using a standardwritten checklist that covers eachelement of the brake system, aMidas agent walks each customerthrough a step-by-step review ofwhat is wrong and what the cost of

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repairs will be. Receiving a detailed,written price quote in advance as-sures customers there will be no un-pleasant surprises when it's time topay the bill. A thorough understand-ing of all the reservations the cus-tomer may have ahout purchasing,using, and disposing of a brake sys-tem allowed Midas to identify acompetitive edge with respect to tra-ditional repair shops.

In searching for salient attributes,companies should try to keep inmind two important hut easily over-looked traits. First, as noted earlier.

Customers put up vsfith atolerable until a competitordoes o better job and turns

it into a dissatisfier.

some attributes are intrinsic to thephysical product itself, whereas oth-ers are defined by the way a segmentof customers uses the product. Sec-ond, every product is imperfect-that is, it has at least some attributesthat customers tolerate because, onbalance, the product serves theirneeds better than any existing alter-native. Thus customers might de-

cide to use an inconveniently locat-ed Midas shop because the sense ofsecurity they experience outweighsthe inconvenience.

Step Two: Map the AttributesThe ACE matrix is a simple way

to track and evaluate attributes thatare salient to any given customersegment. (See the exhibit "ProductAttributes Signal How a CompanyMust Perform.") It is based on thepremise that not all attrihutes arecreated equal; each cell of the matrixhas a distinctive impact on the com-

petitiveness of the prod-uct. The columns capturethe level of energy thatthe attrihute generates-whether customers re-gard it as a basic, a dis-criminator, or an energiz-er. The rows reflect thesentiment that the at-tribute provokes in the

target customer-positive, negative,or neutral. Because customer seg-ments, by definition, behave differ-ently and will therefore value attri-butes differently, a company shouldcreate a different matrix for each.

Basic. A basic attribute is one thatthe target segment has come to ex-pect from all competitors. Basics aretaken for granted; they rarely engen-

der much loyalty or provoke muchantipathy. Basics are the attributescustomers expect to find in any com-petitive offering.

If consumers feel positive about abasic attribute, we call it a nonnego-tiable because such an attribute isrequired for a product to participatein the market at all. An automobilemanufacturer today will not sellmany cars that do not start 99.9% ofthe times the ignition key is turned.Witness the demise in the U.S. mar-ket of the Yugo, a car so unreliable itbecame the butt of numerous jokes.

If customers feel negative about abasic, it is a tolerable as long as theproduct performs no worse than itscompetitors - and as long as cus-tomers helieve that the benefits ofthe offering transcend the inconve-niences and that there would be thesame inconveniences if they boughta competitive product.

But if a company's competitorssucceed in eliminating a negativecharacteristic, the company's prod-uct attribute moves into the adjoin-ing cell of the matrix, becoming anegative discriminator, a dissatis-fier. It is here that customers beginto suspect that if they switch, theymight not experience the negativeattribute. An example of this shift

continued on page 66

Product Attributes Signal a Company Must Perform

Discriminator

Non negotiablePerform at least as well ascompedtors but not much better

DifferentiatorPerform better than competitorsif attribute is salient totarget customers

ExciterPerform betterthan competitors

TolerablePerform no worsethan competitorsbut not much better

Dissatisfier :/Perform better tfian competitorsand correct problem soon

EnragerCorrect problem at any costcapitalize oticompetitors' enragers

So What?Retain only those attributesneeded for other target segmentsor other justifiable reasons

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from tolerable to dissatisfier oc-curred in the United States whenJapanese automohile mantifacturersintroduced lower-priced, low-main-tenance, reliahle cars. The frequentvisits for repairs and service thatbuyers of U.S. models had enduredfor years as tolerahles quickly he-came dissatisfiers.

Discriminator. A discriminator isan attribute that distinguishes aproduct from its competitors. If cus-tomers feel positive about a discrim-inator, the attrihute is a differentia-tor. In autos, for example, a typicaldifferentiator might be a safety fea-ture of the car-all other attributesbeing equal, the customer selectssafety above low gas consumption. Ifcustomers feel negative about adiscriminator, the attrihute fits thedissatisfier cell of the matrix, andthe imperative for the company is toensure that the product performs no

A company's mishandlingof a trigger event may turngood customers into vocal

and unforgiving opponents.

worse than competitors' products.The prohlem with dissatisfiers isthat they can seriously erode loyaltyand push customers into the arms ofthe competition.

Energizer. An energizer attrihuteis so powerful that it not only distin-guishes a product from others hut of-ten hecomes the basis on which apurchase decision is made. If cus-tomers feel positive, the feature isan exciter and leads to purchases. Ina competitive environment whereseveral similar products go head-to-head, an exciter attribute need nothe a large cost component of theproduct. The year that Honda MotorCompany offered simple coffee-cupholders in its U.S. autos it gained sig-nificant market share against otherJapanese competitors. People wouldlook at the almost identical offeringsand come back in search of the "carwith the coffee-cup holder."

If customers feel negative aboutan energizer, the feature is an en-

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rager that causes customers to fleeto competitors. Enrager attrihutesrequire immediate and urgent atten-tion. They must he fixed, whateverthe cost. The General Electric Com-pany, for example, was perceptiveenough to spend $750 million toretrofit freezer compressors thatfailed hecause a design flaw madethe freezer defrost.

Companies can create differentia-tor and exciter product attributesthrough enhanced service and astutepromotions. Opportunities to serveparallel needs are everywhere. Thus,when looking for differentiator andexciter attributes, managers shouldanalyze all services associated withthe offering. Especially for morecommodity-like products, promo-tional offerings in parallel with theproduct can generate excitement.In addition to its cartoon stickersfor children, Caltex has offered sev-

eral other promotions tai-lored to the special he-havior of vacationingfamilies. By advertisingthat its gas stations pro-vided the cleanest restrooms, Caltex simultane-ously created a differ-entiator for itself andturned the competition's

rest rooms into dissatisfiers. In thatway, year after year, Caltex captureda major chunk of gasoline sales tofamilies going on vacation.

On the other hand, companieshave sometimes unwittingly let tol-erable or dissatisfier at t r ibutesbecome enragers. A company's han-dling of a trigger event may trans-form customers into angry, vocal,and deeply unforgiving opponents.They not only will refuse to buyagain but also will actively discour-age others from huying. ConsiderIntel 's fiasco with its Pentiummicroprocessor.

Even the finest computers-andthe microprocessors that make themrun-are not perfect. Microprocessorflaws most often fall into the toler-ahle cell of the ACE matrix. With75% market share, Intel's chips arehighly desired and respected. Thepositive attrihutes of speed, efficien-cy, and reliability more than out-weigh the minor negatives.

The new Pentium chip Intellaunched in 1993 was two to threetimes faster than its predecessor.Shortly after the release, the puhliclearned (primarily through the Inter-net community) that the much her-alded new Pentium microprocessorhad a flaw. The chip's defect was afloating point error that occasionallyproduced an imperfect division thata user could notice. Because somenumbers are infinitely long (num-bers with nonterminating decimals,such as 7i), computers are forced toround off the number at some point,producing imperfect results.

Despite the flaw, the Pentiumchip was still a highly reliahle cal-culating instrument. Nevertheless,the flaw quickly hecame a deep dis-satisfier for consumers. Interesting-ly, Intel knew of the floating pointerror. Yet because it seemed illogi-cal for people to get angry about aflaw that only occurred on averageonce every 27,000 years, the compa-ny initially neglected to do anythingahout i t - e v e n when confrontedwith mounting public dissatisfac-tion. Because Intel persisted in do-ing nothing, a dissatisfier almostturned into an enrager.

Where did Intel go wrong? Intelknows better than anyone that allchips have bugs and that computerusers tolerate them. Intel made apublic relations error in that it failedto gauge what would happen whencustomers learned that the Pen-tium's frequency of error was higherthan that of its previous chips. Thecompany was betting that the en-hanced processing speed would faroutweigh the minute processing er-ror. Just as they expect a car to start99.9% of the time on the first try,customers consider that a micro-processor's ability to make correctcalculations up to the standards sethy earlier models is a basic attrihute.Because the Pentium failed to meetthat standard, its flaw was no longera tolerable.

Step Three: Validate,Validate, Validate

Once a company has mapped outits assumptions ahout how its cus-tomers react to tbe product, it mustvalidate those assumptions. A vari-

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ety of focused market research tech-niques can test the accuracy of theinitial mapping: focus groups, dis-cussions with lead customers anddistributors, and test markets. Thebenefit of the ACE matrix is thatit helps to structure this process,which all too often hecomes boggeddown in nonstrategic inquiries. Re-ality testing is especially critical inevaluating new product attributesbecause both managers and cus-tomers are particularly prone to illu-sions about new attributes. Cus-tomers may be wrong about whatreally motivates their purchasing he-havior just as companies can misin-terpret the messages they hear. Con-sider, for example, the many foodmanufacturers who have floppedwith new products designed aroundtheir belief that a promise of low fatwould be an energizer. What theyfailed to consider was that cus-tomers might say they wanted lowfat but, in fact, wouldn't want it atthe expense of taste and texture.

Using ACE for ContinuousReconfiguration

After using the ACE matrix to testassumptions, a company can use itto anticipate attribute migration. Ascustomers and competitors becomefamiliar with the product attributes,those attributes will migrate fromone cell in the matrix to another.Positive attributes have a tendencyto move from right to left on theACE Matrix. Exciters will inevitahlybe matched or imitated hy competi-tors, becoming differentiators andeventually nonnegotiables. Nega-tive attributes are more likely toflow in the other direction. As com-petitors find ways to improve on tol-erables, companies that don't keepup will find themselves with dissat-isfiers and even enragers. Car driversonce were resigned to crank-start-ing. Today many become furious iftheir cars won't start immediately-even when they know the weatherhas heen unusually cold. Because ofcompetitive dynamics, managersneed to enhance or add positive at-tributes constantly and reduce oreliminate negative ones.

Managing Positive Attributes. An-swering three questions helps en-

Calfex's extra-clean rest rooms created an energizerfor families buying gasoline on vocarion trips.

sure profitable management of aproduct's positive attributes:D Will the net revenues that resultfrom introducing the attribute ex-ceed the operating and investmentcosts incurred in offering itl There isa crucial role for sound financialthinking here-the implicit assump-tion often made is that adding or en-hancing an attrihute will increasecustomer satisfaction, which in turnwill increase repurchase loyalty.That is not necessarily the case. Forsome attributes, relatively large in-creases in satisfaction are accompa-nied by rather small increases in re-purchase loyalty, and the companynever really recovers its costs. It iscrucial to identify and invest in onlythose positive attributes whose en-hancement will yield positive netpresent values. Because this is oftena function of the time it will takecompetitors to match the offer, their

speed of response must be consid-ered. Too often, companies get inad-equate returns for their investmentsin product enhancements.\3As the current generation of at-trihutes is matched, what marketintelligence and product-designprocesses must he used to identifyand incorporate the next generationof exciters and differentiators}Companies need intelligence sys-tems that will reveal, early on,emerging changes in how their cus-tomers use or value their product.Opportunities to huild in excitersand differentiators must he designedinto the product-planning cycle.Honda, for one, has its design engi-neers sell automohiles in tbe show-room before redesigning models, cre-ating many potential exposures tofuture exciters or differentiators.n What is being done by the productand process engineers to bring down

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the cost of the current exciters anddifferentiatorsl These features willinevitably become basic attributesand thus part of the base cost of theproduct. Unless the cost of these at-tributes is brought down continual-ly, they will slowly drive up theoverall cost of the product.

Another important use for at-trihute analysis is that it identifiesthe strategic roles of the variousfunctions of the company. Marketresearch seeks early signals of ex-citers and differentiators and co-ordinates their introduction withproduct- and process-design engi-neers. Marketing estimates the sizeand potential penetration for eachstrategic segment and develops thevehicles to convey exciters and dif-ferentiators to the target segments.Process and product design focus onsteadily reducing the cost of existingdifferentiators and exciters in antic-ipation of competitive matching. Fi-nance and accounting departmentswork with marketing and produc-tion to assess whether the revenuestream that flows from a new at-tribute will offset the increased op-erating and investment costs.

Managing the Negatives and theNeutrals. The negative attrihutesraise several issues. First, it is near-ly impossible to remove all negativeattributes and still produce a prod-uct at a reasonable cost. It is essen-tial, then, to monitor tolerables andidentify those most likely to becomedissatisfiers, removing potentialsources of trouble before they dam-age customer loyalty.

By eliminating a neutralattribute, Matsushita >vasable to drop its price and

boost its camcorder sales.

Second, the negatives can actuallyhe sources of opportunity. In someinstances, there may be more bangfor the huck in removing negative at-trihutes than there is in enhancingpositive attributes. Consider bowCitibank revolutionized the studentcredit-card husiness. In the past, stu-

dents seeking credit cards had tocomplete complex applications and,more important, they had to get ap-proval from often reluctant parents.For the student segment, then, theapplication process itself was sucha powerful negative attrihute of theproduct that this segment remainedsealed off from the card business.

Studying how customers actuallybehaved, Citihank ohserved that ifcollege students at the more presti-gious schools were unahle to paytheir credit card debt, their parentscould usually be counted on to bailthem out. Therefore, Citibank de-cided to make it as easy as possihlefor students to obtain cards. Thelengthy application was replacedwith the simple requirement thatstudents suhmit a copy of their col-lege identification card. No hassles,no parental signatures. By eliminat-ing a negative attribute, Citihank al-most overnight created a new mar-ket worth hundreds of millions ofdollars. If each of the roughly onemillion students maintains an aver-age credit balance of $200 earning19.8% interest, the segment wouldgenerate $40 million dollars a year invirtually riskless revenue.

Other companies are addressingnegative perceptions of the used carindustry and turning their competi-tors' tolerahles into dissatisfiers.Circuit City Stores' CarMax andViacom's AutoNation USA hirewell-informed salespeople to takecustomers through the selectionprocess, often using computerizedkiosks. They close deals without

haggling and offer qualityguarantees. Removingnegative attributes helpssuch companies thrive.

Third, mapping the at-tr ibutes important toeach segment may high-light opportunit ies tobuild distinctive featuresthat alleviate segment-

specific dissatisfiers ignored by com-petitors. Compaq Computer Corpo-ration did that in introducing itsPresario series of home-orientedcomputers, which emerge from thebox ready to go: no fussing withcahles, no irritating fiddling withdisks, no anxiety-producing and in-

comprehensihle DOS prompts. Withthe Presario's set of attrihutes, Com-paq pulled an entirely new usergroup of novices into the home-com-puter market.

The most often overlooked cate-gory of attributes are the neutrals.Perhaps hecause they generate littleemotion from customers, they tendto become invisible to product man-agers. But, in fact, they are oftenenormously important to profitabil-ity. Customers are more or less indif-ferent to neutrals. These attributesare often legacies from the past, for-mer basics or differentiators that arenow obsolete. Or they may be posi-tive attributes for another segmentthe product serves. Since such at-tributes add cost without enhancingrevenues, managers should approachthis cell of the matrix expecting todesign out neutral features unless astrong case can he made for keepingthem. The focus should be on justi-fying their retention rather than onjustifying elimination. Consider theevolution of the spare tire. In thedays when flat tires were common-place, a full-size spare was a hasic.Today, with better tires and muchimproved roads, a much smaller andcheaper temporary spare is adequateand, in most cases, has replaced theold full-size tire.

By focusing on the hehavior of dis-crete customer segments, compa-nies often can eliminate many of theattributes that must be included inthe generic offering for the unseg-mented market-and thereby reducetotal costs considerably. For exam-ple, as video camcorder technologyhecame increasingly powerful andfeatures were continually added andupgraded, Matsushita Electric In-dustrial Company found itself witha product that was far too sophis-ticated and expensive for the aver-age user. A number of expensivefeatures-for example, the replayfunction and the zoom lens-heldno particular value for the averagebuyer. And the price of the productwas a dissatisfier.

By observing that a large segmentof customers never actually usedmuch of the sophisticated gadgetry,Matsushita was able to substituteless advanced features, which never-

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Discovering Which Attributes Are Salient: Telecom Users

Order Capturers Customer Seekers

Need foreffectiveness ofmessage reception

Need foreffectiveness ofmessoge transmission

Need forremoteconnectivity

theless were more than adequate tomeet the needs of those customers.And eliminating neutral attributesfor this segment meant Matsushitacould drop its price by $135, thus re-moving a dissatisfier and boostingcamcorder sales.

Using ACE for New-ProductPlanning

We have demonstrated how manag-ers can use the ACE matrix to moni-tor and reconfigure the attrihutesof an existing product to please thesegment it currently serves. Thetool can also be used prospectivelyto plan new products and to help acompany screen for desirable cus-tomer segments.

We used the matrix to develop aproduct strategy for a producer of off-the-shelf telecommunications hard-ware and software packages. Ourclient targeted middle-market com-panies (smaller than Fortune 1,000businesses) that use telecom ser-vices to enhance their sales effec-tiveness. Although middle-marketcompanies must compete withmuch higger businesses, they haveneither the ahility nor the resourcesto develop the sophisticated propri-etary sales-support systems thattheir larger competitors nse. Ourclient thought that middle-market

customers might value an off-the-shelf package tbat could providesales support. But we needed to findout what attrihutes the new productshould have.

We began by analyzing how mid-dle-market companies use telecom-munications in their selling efforts,reconstructing in detail every step ofthe selling process. When and whydid the companies use voice trans-mission, for example-was it tomake a sales pitch or to receive anorder- and who needed to communi-cate what to whom? As we probedthe reasons for eacb step of the sell-ing process, we hegan to see distinctpatterns of behavior. [See the exhibit"Discovering Which Attributes AreSalient: Telecom Users.") The mid-dle-market companies we studiedtended to fall into one of threegroups-each with a different ap-proach to using telecommunica-tions for its selling effort. For ourclient, those three groups (order cap-turers, customer seekers, and salesleveragers) represented the customersegments it needed to understand.

Order Capturers. Companies inthis group-like the Home ShoppingNetwork or L.L. Bean-do most oftheir selling through mass-market-ing media such as print, catalogues,television, or radio. Such hroadcast

marketing first stimulates demand.Then an inside sales force takes or-ders over the phone. Thus for ordercapturers, the most salient attributeof a telecommunications package ismessage reception-the effective-ness with which incoming messagesare handled and then converted todeliveries.

Customer Seekers. These compa-nies use teledata transmissions toreach customers with their salesmessage and to make the sale. Tele-marketing businesses, for example,or companies that do most of theirselling through a catalogue tbat con-nects to a customer's terminal, fallinto the customer-seeker category.The most salient attribute for tbisgroup is message transmission - theeffectiveness with which outgoingmessages are handled and then con-verted to deliveries.

Sales Leveragers. These compa-nies use teledata transmission tosupport the efforts of their field salesforce in order to enhance sales-pro-cessing efficiency and effectivenessby improving the information flowand coordination between the multi-ple links in the distribution chain.For example, Frito-Lay needs to haveits field sales force in constant com-munication with inside order-takersso that it can improve the stocking

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of individual stores, keep adequatesupplies of fast-moving items, andavoid the prohlem of aging, stale in-ventory. Frito-Lay's delivery trucksare equipped with computers so thatstock movements and daily invento-ry changes can be tracked and trans-mitted back into a centralized data-base. Thus for Frito-Lay and othersales leveragers the most salient at-tribute is connectivity: programs,systems, hardware, and software tbatallow mobile field representatives tocommunicate and coordinate witbregional processing centers.

Clearly, each segment requires aunique telecommunication configu-ration. A telecom package designedto serve one segment will fail tomeet the needs of the others, where-as a package designed to satisfy allthree will incorporate many attri-butes that an individual segmentmight consider nice but not worththe resulting higher costs.

The ACE Matrix can help man-agers design a tailored product foreach segment. Consider, for exam-ple, the order capturers. This seg-ment contains thousands of compa-nies that use media advertising togenerate impulse purchases. Thesegment is critically dependent onmessage reception. Working withour client, we began by mapping the

M A N A G E R ' S T O O L K I T

product attributes that had thegreatest impact on message-recep-tion effectiveness. (See the exhihit"Which Telecom Attrihutes MeanMost to Order Capturers?)

For an order capturer consideringa telecom package, the nonnegotia-hle attribute is caller self-routing, afeature that allows callers to entertouch-tone numbers in response to aseries of prompts and thereby worktheir way down a decision tree tothe correct order-taker. Clearly, anycompany that wishes to offer a tele-com software and hardware packageto the order-capturer segment wouldnot be in business today if it did notoffer this feature.

What attributes differentiate atelecom company in the eyes of anorder capturer? An example wouldbe what we call programmed call pri-oritizers. This software recognizes,analyzes, and categorizes incomingcalls and then gives them a place inthe telephone queue that is based onparameters specified by the ordercapturer-for example, the caller'sarea code. In this way, when the sys-tem is overloaded, customers whoare the most likely to make a pur-chase are given priority. Prioritizingis an important feature because thecustomers of order capturers fre-quently huy on impulse. Caller ID

and self-programming touch-toneinputs can he used to identify callersthat have the most attractive profile.

Even more energizing would be a"smart" software package that ana-lyzes calls on an ongoing basis anduses sales and profit data from thecalls to reprogram incoming calls.Such a package would continuouslyupdate and reset parameters for pri-oritizing callers, rather than obligethe order capturers' employees tospend time setting the parametersthemselves. A system like that, ca-pable of enhancing an order eaptur-er's most profitahle sales, wouldmost likely he an exciter.

After assessing the positive attri-butes of a telecommunications pack-age, our client next turned to therow of negative attrihutes. Most ofour client's customers could acceptas a tolerahle the cost of additionalphone lines to increase incoming-call capacity. But limited line capac-ity will remain a tolerable only aslong as competitors cannot offermore lines for the same price. Ifcompetitors develop hardware thatprovides greater line capacity, thenthe tolerable will become a dissatis-fier. The competitive imperative fora tolerable attribute is parity.

Through focus groups with com-panies that fell into the order-cap-

Which Telecom Attributes Mean Most to Order Capturers?

NonnegoHabieCaller seif-routing

DifferentiatorProgrammedcall prioritjzer

ExciterSelf-reprog ramming

TolerableLimited line capacity

DissatisfierLonger caller-waiting tt

Not applicable '

72 HARVARD BUSINESS REVIEW May-June 1996

turer segment, our client learnedthat longer caller-waiting time wasa serious dissatisfier that neededimmediate correction. Would-be cus-tomers kept on hold too long arelikely to hang up and take their busi-ness elsewhere. The marketing in-telligence gathered by our client sug-gested it might be able to convert itsdissatisfier into a differentiator if itcould develop systems to reducecaller waiting time below the levelof competitors'. |And it wanted toturn its competitors' tolerable into adissatisfier.)

Anotber salient attribute for thissegment is reliability. Whenever thesystem fails, order capturers losebusiness. To prevent system failurefrom becoming an enrager, ourclient company began to design insystems redundancy, despite thecost implications.

Finally, we reviewed tbe neutralattributes. Features such as speeddialing and automatic redialing - im-portant to customer seekers-wereof little value to order capturers andonly added to the cost and complex-ity of the product. Those attributesbecame targets for elimination andcost reduction.

As this hrief exercise demon-strates, the ACE matrix is a simplebut potentially powerful tool. It im-poses a discipline that helps man-agers match their product offeringsto customers' needs. It helps focusattention on opportunities to use thecompany's distinctive skills to cre-ate new exciters and differentiatorsor to turn competitors' tolerablesinto dissatisfiers. Thus the attributematrix helps structure a more strate-gic assessment of a product and itsfuture. It leads from product strategyto customer strategy: Have we tar-geted the right customer segments?Or are there other segments thatvalue attributes we can supply morereadily than our competitors? Mostimportant, it provides a way to geteveryone in the company thinkingabout wby tbe customer will buywhat we are selling. And that, afterall, is what competitive advantage is

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