Social Enterprises: Serving “Extreme” Customers

Harvard Business School Professors Michael Norton and Jill Avery recently explored the importance of studying “extreme” customers, defined as those who fall outside the tails of the normal bell curve. Most large companies do the majority of their market research on the “typical” or “center of the pack” customer. But innovative companies are starting to interview and shadow customers who are more “extreme”—that is, in short, unique. These customers include “rabid fans” (think Porsche lovers) or “those who trash-talk” the company. Companies are also talking to “people who are experts” on their products, or those who have never used it or use it with certain constraints, such as physical impediments. Norton says, “Engineers with Ford wore bodysuits that mimicked the vision and range of motion of the elderly to redesign the Ford Focus. One of their biggest insights was how difficult it was [for elderly people] to reach up across their bodies to reach the seatbelt. Until you are actually in the car in that situation, it would never occur to you." Avery adds that extreme customers “often influence the middle, spilling over into what the average consumer believes."

By definition, social enterprises serve extreme customers—the poor, the marginalized, the underserved. When starting our microfinance fund, for instance, we went to a poor neighborhood in Providence, Rhode Island, to interview people who lacked a bank account and existed at the margins of the financial system. We learned about the financial services they relied on—check cashers, pawn shops, payday lenders—and identified products and services that could meet their needs. We exist because our clientele falls outside the range of what traditional companies seek to serve and within the range of what the predatory businesses are all to eager to exploit.

This reminds us of a similar trend where for-profit companies started to mimic social enterprises and nonprofits. Not long ago, US companies focused on expanding only into wealthy countries and markets. C.K. Prahalad’s bottom of the pyramid (BOP) theory (mentioned in SSIR here) has changed that. Prahalad encouraged companies to expand to developing countries, and offer goods and services to the poor in growing markets. Even though customers in developing countries have less purchasing power per capita than those in developed countries, their collective purchasing power is large and will only increase. Now multinational companies are looking at emerging markets as ideal places to invest to grow their market share—by gaining what they would have formerly considered to be “extreme customers.”

In his working paper, “What Is Frugal, What Is Innovation?,” business academic Yassir Bhatti writes that some Indian-based multinational companies are starting to look at extreme customers for inspiration. Bhatti says, “The reality in India, for instance, is that it is not uncommon to see a family of five riding on a single Vespa scooter. He goes on to quote Ratan Tata, CEO of the Tata conglomerate (which works in the automotive sector, among others), who commented on this unsafe practice:

I observed families riding on two-wheelers—the father driving the scooter, his young kid standing in front of him, his wife seated behind him holding a little baby ... It led me to wonder whether one could conceive of a safe, affordable, all-weather form of transport for such a family. Tata Motors' engineers and designers gave their all for about four years to realise this goal. Today, we indeed have a People's Car, which is affordable and yet built to meet safety requirements and emission norms, to be fuel efficient and low on emissions.

So while these new trends offer new opportunities for corporate profits, we believe they also create the potential to reach segments of the population that tend not to be on the radar of product designers, engineers, marketers, and executives—often exactly the population we build social enterprises to serve.

We encourage social enterprises to continue to do what they’ve done so well, without realizing it was a business theory or trend: paying attention to and serving extreme customers.

Read more stories by Mollie West & Andy Posner.