 Namaskar. I am Professor Devdeep Purkayastha from Indian Institute of Technology Bombay. Welcome to my course, Business Fundamentals for Entrepreneurs, Part 2, External Operations. So, this is the second module in the first week and this module is about customers and customer segments. But before I get into the topics for today, let me recap what the course structure and the discussion flow is going to be like. In the first session, I talk about how do you research markets, competitors, players and products, technologies and trends. Today we'll talk about customers, customer needs, customer segments, etc. And then in the coming weeks, we'll talk about value-based marketing and then marketing communication. We'll then move on to selling and sales channels and distribution. And in the last week, we will talk about supply chain and logistics as well as servicing the customers in a way that builds loyal customers and drives customer advocacy. Coming to today's module, we will talk a little bit about what are customers and what are their needs and then what are the segments, different kinds of customers. And then how to create a winning value proposition with your customers. So, let's start with the definition of who is a customer and then we'll look into what a customer needs. Simply put, a customer is someone who is willing to pay and buy your product or your service because it meets a need that the customers have. And remember, customers like you and I have a wide range of needs and I'll show you some of them with examples. And companies build their businesses by meeting the needs of the customers in a way that retains the loyalty of the customers. But to do so, they also have to advertise and sell and distribute and do the other activities which we'll talk later in the course. Ultimately, you'll see that the customers are the king because if you don't have a customer who's willing to pay for your product or service, ultimately, you'll not have a business left. And if you're a startup and you cannot meet the needs of the customers, your startup will fail. So let's look at a few examples of why are customer needs so important. I had talked this in my last module and I'll again highlight to you the data of customer failures, new product failures in India as was researched by market research company Nielsen and as was reported some years back in one of the newspapers. And if you read what's on the screen, you will see that the success rate of new products is just about 0.14%. 0.14%. Put differently, hardly 20 to 25 products out of 16,000 plus products are actually breakthrough products which led to a lot of revenues and a lot of profits for the companies. So failure rates are extremely high and so are the failure rates for startups. There's a lot of research and this is a research by a Harvard professor that 95% of startups failed to meet their own objectives. So why do companies fail and why do startups fail and what is that you have to watch out if you're an aspiring entrepreneur. So there was a survey which was done about why do startups fail and you can see on the screen that the biggest reason for startup failures, 42% of startups fail because there's no need for the product or the service. There's no market need and then there's a whole bunch of other reason and therefore the biggest risk if you're an aspiring entrepreneur is that you have not studied your customer and the customer needs well and you have gone and done something, launched a product or a service for which there's no market need. So what is a customer need? All of you have needs, you and I. Let's look at the structure of customer needs and we can start with what Steve Jobs said. Apple is probably the most valuable company in the world today. Almost $3 trillion and if you can look at what's on the screen, this is what Steve Jobs said. You have to start with the customer experience and the customer need and then you have to work backwards to create the product or the technology which means you cannot start with the product or the technology and try and look for a customer. It sounds simple, start with the customer and work backwards to create a product or a service. But if you look at the failure rates, most entrepreneurs and most established companies forget that simple principle. So what's a customer problem? A customer problem is an unmet need of a customer. So you have a need and we'll look at a lot of examples later but it's not being fulfilled. For example, you'd like to drink something and there are some drinks out there but you don't like the drinks that you have. It may be too sweet, too salty, too much of carbon on it, carbon dioxide on it, it's too fizzy, it's too small, it's too big. That means you have an unmet need for as simple as a drink. And some company or some startup which can identify that need can actually create a business around it. In 1940s, an American psychologist and professor came up with what is called the human needs hierarchy. And if you look at the screen, you will see that all human beings have what is called basic needs. And basic needs are just the needs that you need to stay alive. That's food, that's security, that's housing, that's safety. So those are the basic needs. But once the basic needs are met, human beings also have what are called psychological needs which are slightly higher order needs. And some of the needs can be a social need, a need to belong somewhere, belong in a community or a club or a family or with friends. Another psychological need is esteemed needs, a prestige need and we'll show you some examples. So these are psychological needs. And then you have higher order needs where everybody, all human beings have a need to improve themselves in many different ways. If you are a cricketer, you want to play better cricket. If you are an artist, you want to perform better. If you're a singer, you want to sing better. If you're a student, you want to learn more. If you are a professional, you want to grow in your career. So these are higher order needs which is about self-fulfillment and self-actualization needs. Let's look at some examples. Let's start with basic needs. So if you walk into a store, a demark or a star bazaar or a reliance bazaar, you have basic needs of food, clothing and you'll probably buy a loaf of bread and you'll probably buy just a pair of jeans. Or some clothing or some drinks or vegetables. These are basic needs. You'll buy a house to live in. You'll buy some safety equipment so that you are safe. So these are basic needs. And companies over centuries have built businesses to meet those needs. Apparel companies which give you that pair of jeans or a shirt or a hoodie or a t-shirt. And food companies which give you that loaf or biscuit or a drink. Let's look at a higher order need which is social needs. Now think about it. All of you are using social media platforms, Facebook, Instagram or WhatsApp etc. And what does it allow you to do? What need does it fulfill for you? It helps you connect with a community or your family or your friends or your college mates or your club mates. And you develop a need of belonging. And many of you are spending a lot of time on Facebook or Instagram or dating app or WhatsApp because you feel connected. And remember businesses which are fulfilling such needs are actually very big, very profitable and very valuable. So these examples which I have on screen by a company called Metta or Facebook used to be called Facebook earlier. And they're very valuable. They make a ton of money and they're very profitable. As team needs. Now there's a pair of jeans here. A basic jeans would probably call 10 to 20 dollars. That's what it will cost. Maybe few hundred rupees. But this is a pair of jeans and you can look it up on the internet yourself. The link is there. It's the most expensive pair of jeans in the world. And a pair cost not a hundred dollars, not thousand dollars, not a hundred thousand dollars. It costs 1.3 million dollars, which in Indian currency is 10 crores. Why does it cost 10 crores? Because it's got diamonds, big diamonds, expensive diamonds stitched on the back pocket. Imagine a jeans with diamonds costing 10 crore rupees or 1.3 million dollars. It's not a basic need. It's an esteem need or a prestige need to show to others that I am important. Similarly, if you wear designer clothes or have a very expensive phone, of course it performs a function. It performs a basic function. This 10 crore jeans also is performing a basic function, but it goes beyond that and meets your prestige needs to show the world that you are important and you are rich and you can afford it. And the higher order needs that you fulfill, you can make more revenues and you can make profits and you can become more valuable. Let's look at even higher order needs, which all of you have, the need to become better. Those of you watching the video today just now are watching this video because you want to become better. You want to learn something and you want to grow in a career. You want to become a better student or you want to go and start a business. That's why you're watching this video now. But if you look at businesses, think about Microsoft Office or Outlook. It meets a productivity need, needs of a professional to communicate, to build documents, write documents and make PowerPoints, presentations or calculate on Excel. And look at Google. With Google, anybody can get as much knowledge as the most knowledgeable person in the most knowledgeable colleges or professions in MIT or Harvard or Stanford or Oxford or ITs or any of the best colleges around the world. With Google, you can improve yourself because you can get access to all the knowledge in the world and remember, Microsoft, Google are very, very valuable, successful, profitable and large businesses. So the higher order needs that you meet, the more profitable you can become, the more valuable you can become, the faster you can grow your business. And then you have the supreme needs where you actually don't expect anything in return. You're just giving away something. For example, you're donating something. You're donating something to an orphanage or to poor people or to NGOs or to a rotary club or any of the clubs that are doing welfare. And why you're donating? You don't expect anything in return. You're donating something because you want to improve the world and as you improve the world, you feel better. So you become a self-actualized person. And think about all the people in the Army who even as you watch this video are guarding our borders and keeping our country safe. They're putting their lives at stake for the sake of the country, our Joans, our Army, our Air Force. Think about Mahatma Gandhi. He devoted his life to get us independence. Think about Nelson Mandela, Nobel Laureate. And he spent 25 years in jail in South Africa protesting against apartheid to free his country, South Africa from apartheid. 25 years in prison. And Mahatma Gandhi and others, freedom fighters. So they're willing to give their lives for the country. That's the highest order need. So it's very important that you have a basic understanding of human needs before you get into business. So whether you're a B.Com student or a B.A. student or a C.A. or an M.B.A. or a B.Tech or B.E. student or you're an aspiring entrepreneur or you're a professional, finance professional or human resource professional, you still have to understand human needs because that's the starting point of building great businesses. So far I have talked about needs of human beings. But you may want to develop a business or a startup which sells to companies and then you have to understand the need of the companies to be able to create a business which companies will pay for. And please understand that just like personal human beings have needs, companies have an hierarchy of needs. So if you look at the picture on the screen, the basic needs is every company needs sales. Because if they don't have sales or revenues, the company dies. Similarly, they need profits. With the profits, companies will die sooner or later. They need capital which is cash to run the business. And they have to basically grow their sales, grow their profits, reduce their capital so that they can grow their share price, the shareholder value. And above all, they have to have a brand and a reputation as a corporate entity. Because if the company gets a bad name or the brand gets a bad name, sooner or later the sales profits, everything will go away. So when you are going to your customer who is a corporation or a company, you have to be very mindful that the company, it may be a CEO, it may be a VP, it may be a general manager, it may be a procurement person in the company. What he has or she has in their minds is for my company, which means your buyer. Your buyer is thinking for my company, how can I increase my sales, increase my profits, reduce my capital, protect my brand and reputation, and increase my share price. So need identification is the starting point of business. So now if that's the need, what is the problem? A problem is an unmet need. And if you can define the problem, again going back to what Steve Jobs said, if you can define the problem well, you can create a business and your product and a service to meet and solve the problem. So it's very important to be able to understand the problem of your customer. So how do you define a problem? It sounds simple, but as you saw, most established companies and startups struggle to do this simple process well enough to succeed. And you saw the failure rates. So here is a simple template which you can then discuss with your customers and let the customer fill it up. And if you talk to enough customers who give you this data that you can see on the screen, you will have a good definition of the problem. And then you can define your product and your service. So if you are a customer, ask the customers to say, I am customer so and so. For example, I am a man, 25 years old or 50 years old, living in North India, South India, US, USSR, wherever, speaking this language so rich, not so rich. So I am defines who your customer is. Then you get into capturing the need of the customer. So you will ask the customer to write down and say, my need, which means the customer's need is a better product in this way, a better service in this way, define it as much as the customer can. And that is very important to capture what the customer is trying to do. So I am so and so, my need is so and so, which will help me do this, help me travel faster, eat better, become more healthy, become more successful, become more rich. And it's very important that you capture that. And then you go and capture if that need is met, what is the benefit to the customer. It's very important because at some point you have to decide on the price of your product or your service. And as you'll see later, your price has to be in proportion to the measure of benefits to the customer. So you have to say, my benefit if I get your product is so much, a thousand rupees, ten thousand rupees, five hundred rupees, etc. And by the way, if I don't get your product or service, my need is not met, my loss is as much. Because that will help you allow later on to decide your pricing. So it's a very simple template. If you start practicing with it, then you will sooner or later understand how to identify customer needs. So I'd like to break now and request you to reflect for three minutes on a product that you use. It could be a shirt or it could be a pant. It could be a food. It could be a drink. It could be an airline that you're using. It could be a bank. It could be a store that you visit, etc. A product or service. And think about what need of yours does it need. Start thinking about who makes that product and who are the competitors in the market and why do you use that particular product but not the competitor's product. So start thinking about yourself so that sooner or later you will try understanding how others think. And as through this course, as you reflect, write down in your journal your reflection points so that at the end of the course, you can look back on your journal and you can refresh yourself not only for the end-term exam but also for your real-life application after the course.