Uncharted
Territory
In
today's competitive and crowded marketplace, there remains a large unknown
landmass that is ignored by marketers and managers alike. Charting this
unknown terrain is critical to business success because it is the place
where the customer lives. It is, in fact, the Turangawaiwai of all business.
It is in this unexplored land that the key to gaining a competitive advantage
can be found.
The voyage of discovery begins by understanding what business
is really all about. It isn't hard to do because, when all is said and
done, business is a simple activity. You just take something from a supplier,
pass it on to a customer and make a profit on the way through. "But,
wait a minute," you say. "Why would a customer pay a premium
just to get something a company got from somebody else and then flicked
on?" And you're right. They won't, at least, not unless they see
that the company does something with this thing they got from their supplier
so that it is now worth more in their eyes, than it was before the company
laid its grubby little hands on it. Business is the activity of creating
value. That's what we get paid to do.
We use the word 'value' countless times each day. "Where
can we add value? What's the value add? What's our value proposition? " we
ask. But when was the last time you set out to explore in a systematic
and disciplined way, just what your customers value? Most of us, if honest,
would answer never. A couple of years ago I asked a very senior bank manager
whether his bank competed on price or on value. "We compete on value,
of course," he snorted.,
"Good on you," I said. "Now tell me, what
do you have that your customers value?"
He paused to examine the horizon. "I haven't got a
clue," he confessed.
Are any of us any different?
Without knowing what our customers value we are condemned
to wander in the wilderness hoping we will stumble across a competitive
advantage or run into a customer who won't expect us to compete on price.
Business is a game of two halves. In the first half, we take shareholder
money and use it to create superior value for our customers. In the second
half, we convert that value back into cash. The objective, of course,
is to have more money at the end than we had at the beginning. Business
may be tough but it sure ain't complicated.
But doing business is very tough if you don't know what
your customers value and you can't do that unless you're clear on what
value is. Value is not what customers need nor is it what they want. It's
not even what customers desire or expect. Value is what people are prepared
to pay for, and this is the land few visit, let alone explore and chart.
Every now and then I come across companies that have tried
to map this terrain. Marriott Lodgings, the owner of the global network
of five star Marriott Hotels, explored this unknown territory a few years
ago when it was about to establish a chain of budget motels. Initially,
it researched what its customers wanted but it quickly discovered it wasn't
going to be able to give its customers everything they desired, charge
them what they were prepared to pay and make a profit. It then set out
to understand what its customers were prepared to pay for. Using this
knowledge, it developed a value proposition that led it to become the
most profitable motel chain in America within two years of opening. In
fact, it earned profits 27 percent higher than the industry average.
What would change if you knew what your customers valued?
Like Marriott Lodgings, would you be more successful in developing an
attractive value proposition? Would it be easier to price your offering?
Would you be able to resist the pressure to discount if you knew just
how much customers would pay for a particular benefit? Would there be
any advantage in being able to segment your customers according to what
they value instead of demographics, psychographics or their purchasing
history?
Marketers and managers need to make learning what their
customers are prepared to pay for their Holy Grail. Those who understand
value best will prosper, and those who do not will fall by the wayside.
Management Magazine, October 2004
www.management.co.nz
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