There is a lot of talk nowadays about value. The idea of value is clearly not new. In fact, a central component of Adam Smith’s Wealth of Nations (1776) is the idea of value. (His book, if you have not read it, is well worth the effort.) Exchange does not take place unless both parties see value in the exchange. Sounds simple, doesn’t it. But the interesting point is that not all organizations understand and embrace the concept of value. That said I have seldom worked for a client who didn’t think that they were providing superior value. Delusional? You bet but it is this delusion that makes up the dynamics of most market places and offers customers an array of products or services of differing value.
One of the most interesting exercises I do to start a client engagement is to ask members of the value team to first, identify what they think are the key CTQs for product/market and then based on this estimate, identify how their value stacks up relative to that of their competition. No one gets this even remotely right. Clearly it is problematic if an organization thinks that it is providing superior value and they are not. The consequences of this are readily understandable. But think of the consequences of providing superior value and not knowing it. This happened with one of my clients. They were the superior value providers in their targeted product/markets but, because they were unaware of this, they failed to capitalize on it leaving both revenues and market share on the table for their competitors. Once they understood where they really stood, they were able to leverage this value superiority and increase their market share from 11% to 24% and quintuple their bottom line numbers.
While value is not new, our ability to measure it is. And, along with this measurement capability comes the added benefit of being able to manage it. This makes value an even more powerful weapon, especially since too many organizations pay scant attention to it. One thing I have learned from working with companies is that because of the relativity of value, if you aren’t managing your value proposition, your competition is. Your value proposition is one of the most important assets an organization has. It is a strong buying signal and produces the bond that keeps current customers buying, renewing contracts and upgrading to higher margin products or services. It is unthinkable to let your competitors manage your inventory or distribution system or any other assets, but evidently not unthinkable to let them manage your value.
There are a lot of misconceptions floating around about value. Perhaps the mother of all misconceptions is that there is a universal definition of value. That is, regardless of what industry you are in or what product/markets you are serving, there is a single definition of value and, if you know what that is, all you have to do is apply it universally. For example, I came across an article, “Throughput Value proposition” on a website called, accountingweb. The author states, “The factors which drive customer value and influence what they will purchase are price, time (delivery), service, and quality of the product or service.” And while there is some truth to this general statement there is so much more missing.
Value typically does involve price and quality. The question is in what degree? Is price more important than quality or is quality more important than price? Ask most marketers and they will tell you that price is more important. Don’t listen to them. In most cases, quality is the principal driver of value. The reason for this is simple. In typical industries, competitors maintain price differentials that are within a very narrow range of each other. These companies can readily manage price. Customers do not see real differences among the different price offerings. To use a psychological construct, there is no “jnd” – just noticeable difference.
The challenge for organizations that want to use value as a strategic weapon is to understand what things like “service”, “quality” or “time” mean to a product/market. Put your quality team around a table and ask them to define quality, service or time and see what they come up with. More than likely you will have a number of definitions. Are they correct? More importantly, do they conform to what the targeted users mean? Companies that rely on internal definitions of these elements are guessing and their only hope is to guess right.
This brings us back to an earlier statement about our ability to measure value. Six Sigma Marketing relies on the VOM (voice of the market) to define value, the actual tradeoff between price and quality and clear, actionable and prioritized definitions of the critical CTQs. This is why SSM is a fact based process. It is the VOM that drives all subsequent stages of SSM DMAIC process. It takes the guess work and the intuition out of marketing and in its place provides market – based definitions that drive strategic and operational initiatives. It is outward looking and replaces internal definitions of value and quality. I have long argued (and am clearly not alone) that quality has no meaning unless it comes directly from the market. Conformance is an internal concept and has validity, from a quality perspective, if and only if it reflects the actual quality definition of the market. Absent this market connection, it can be highly deceptive and misleading. I have seen companies that have relied upon conformance – based definitions of quality produce products that are over engineered and over priced and can’t understand why their market share is low.
Companies that eschew value do so at their own risk. Value is a harsh shaper of organizations, industries and competition. Failure to listen to and respond to what customers mean by value is to put at risk your company’s future. Does your organization understand how your targeted markets define value? Can you identify the CTQs that drive their choice process? Six Sigma Marketing will ensure that you can.
