In today’s competitive and crowded marketplace, there remains 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 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 simple activity. You just take something from supplier, pass it on to customer and make profit on the way through. “But wait minute,” you say. “Why would customer pay premium just to get something 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 systematic and disciplined way, just what your customers value? Most of us, if honest, would answer never. couple of years ago I asked 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 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 competitive advantage or run into customer who won’t expect us to compete on price. Business is 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 few years ago when it was about to establish 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 profit. It then set out to understand what its customers were prepared to pay for. Using this knowledge, it developed 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 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.
Dr Ian Brooks is the author of 14 books on customer care, creating customer value and business management. (www.ianbrooks.com)
