P3M5 Positioning With Customer Value

I was really excited when I learnt the ideas that form the backbone of this module and it made the essential issue of “how you differentiate yourself from your competitors” much more tangible and real.

Positioning – Your Choice

  • The place in your customers and prospects minds – how potential buyers see your offer
  • If they know about you, you have a position
  • Your choice
    • Accidental
    • Deliberate – you carefully influence how you want your customers to think and feel about your product or service offering
  • Advantages, disadvantages, value, price, VFM

Positioning can be defined as the place you’ve captured in your customers and prospects minds and in particular how they see your offer.

If prospects know about your business, they have formed an impression and that impression creates the position.

Think Fedex and you think of guaranteed overnight delivery – that’s positioning.

Going back to the car industry, what comes to mind when you hear these brand names?


Rolls Royce?


I’m sure you came up with versions of safety, expensive luxury and robust, go anywhere.

Each of these brands has created a position throughout the world and you can’t imagine a cheap and cheerful Rolls Royce or a nippy little Jeep sports car. It’s incongruous.

Since positioning happens in your prospects’ minds, you have a positioning but you have a choice:

  • Either you control the positioning you want based on your marketing mix – the product, price, promotion and place; or
  • You let each customer find their own short cut way to categorise you by leaving your positioning to chance.

I believe you need to take control and decide on the positioning you want so you have much more control over how customers think and feel about your products and services.

You do that by deciding what advantages you want to project over the competition and what disadvantages. It may seem strange to think in terms of disadvantages but to strengthen your position for one group of customers, you need to weaken it for others.

There are disadvantages to buying a Rolls Royce. There are disadvantages to buying a Ferrari. Buy an expensive car like this and some people will admire you for your success and good taste because you have what they want.

Others will think you’re a show off with more money than sense.

The Ferrari may say “mid life crisis” to some, the Rolls Royce may be seen as an “old man’s car”.

Clarifying Your Niche

  • Be somebody special somewhere
  • Who are you best suited to serve?
  • Who are your best customers & how can you reach them?
  • What is the problem and pain you solve?
  • How do the value criteria compare with closely related niches?
  • Is the niche distinct and if so, is it large enough to meet your profit objectives?

Read: Finding Your Niche

Read: Your Customer Avatar

Both of these are very important for your marketing going forward.

Your Choice Of Position & Moves On The Value For Money Graph

I find it really useful to look at market position in terms of the value for money graph.

The graph shows that there are a number of different ways you can go to find your own place in the market.

  • Move up the fair value line to a premium position – this means adding more value to your product and increasing your prices – in terms of the car industry, think of adding optional extras like metallic paint, alloy wheels, leather seats, aluminium pedals
  • Move down the fair value line to a discount position – this time you can move down the value line by stripping out extras which many people don’t want. Think how SouthWest Airlines in the United States and Ryan Air in Europe have redefined the basic package for air travel, lowering prices and attracting many more customers to air travel, either as a better way to travel than driving or going by train or making it possible to get away for many more weekend breaks.
  • If price is greater than value move towards the VFM line by adding value – if feedback from customers indicates your products are not competitive – i.e. you are below the value for money line, then you can add extra value to justify your prices.
  • If value is greater than price move towards the VFM line by increasing price – if you offer a great deal and you are full to capacity, you can move back towards the value line by increasing prices and making more profit.
  • Move away from the VFM line by increasing value and providing a better deal – if you’re operating under-capacity and feel you are offering fair value, you can find ways to give more value to your customers. This is less obvious and less threatening to your competitors than reducing your prices in a move which is easily matched and can escalate into a price war.

The Underlying Factors of Customer Value
Up to now I have mentioned customer value for money as some kind of vague concept as if we can all assess value for an offer.

You do it everyday intuitively.

You see one offer and think it looks a great buy and see another and immediately think the price is too high.

Much of this is based on thinking in our sub-conscious where thoughts are processed at lightning speed.

I want you to become more aware of how you make buying decisions and choices between alternative products so you can take the same type of thinking and make it easier for your customers to reach the right decision.

  • What do your customers look for when choosing a supplier and product– what are their buying criteria?
  • What are the three to five factors that impact most on the decision?
  • Examples
    • Car for me (I’m very big, know nothing about mechanics and have had a much-loved car stolen in the past) – fit & comfort, looks, reliability, security, image
    • Romantic restaurant – good food, atmosphere, location, good friendly service

Give it a try yourself.

Look at two or three of your recent purchases and ask yourself what made the difference? Why did you make those decisions?

I think you’ll find it is a surprising small number of factors including the intangible emotional reason – “it just felt right”. Try to dig a bit deeper, why did it feel right?

Value Factors Vary

The factors which make up the value assessment will vary on many different factors but that doesn’t give an excuse to avoid the exercise. It makes it more important to recognise the core values which drive your customer avatars.

  • On the person making the decision – try it amongst your friends – ask them the top 3 reasons why they bought their last car and even if they have the same model as you, their reasons may be very different.
  • On other people involved – different people have different wants, needs and priorities. Think of planning a family holiday with a couple of people being beach lovers and others wanting exciting activities or history and culture.
  • Use situation – the same decision maker can have different criteria based on the situation
    • Restaurant – romantic, business meal, big family gathering
    • Shoes – business, leisure
    • House – main home, holiday, investment

Remember value is whatever the customer perceives it to be but people are similar enough to be able to group into market segments.

Different people may have different criteria when selecting a romantic restaurant but there will be common themes which allows you to build your business around a big enough market provided you’re working with information from customers.

Types of Customer Value

  • Functional value – how well it works
  • Financial value – invest money to get more money (earn or save – main driver in B2B markets)
  • Emotional value – spend money to feel good (appearance, status, relationships, achievement – main driver in B2C markets)
  • Service value – how well the entire buy-use process works (availability, convenience, information support)

There are many different sources of potential value spread across four main categories – functional, financial, emotional and service.

Some products are bought for what they can do and not what they look like or say about the owner. Think of a vacuum cleaner and your purchase criteria are likely to focus on how well it sucks up dirt and dust, how easy it is to manoeuvre around the carpet and how light it is to take it upstairs.

Other products are bought on a financial basis, to make you money or to save you money. In these cases the end result is the most important feature although how you get to the end result – the use criteria – can also be a factor.

For example, consider an information product. Some people will want 100% video instruction but others resent the time that videos take and the inability to scan out the stuff you already know or easily go back to cover one element of lesson several times. Others resent being tied to the PC and want mp3s which can be downloaded to iPods and listened to in the car while driving.

The third opportunity for value comes from the emotions. This is spending money to feel good about yourself, either directly because you enjoy the pleasure or indirectly because you want to be envied by your friends.

The classic emotional benefits are:

  • Appearance – you gain pleasure from looking good or seeing something that looks good. This drives the fashion and weight-loss industries
  • Status – you want to appear successful and take pride in your accomplishments.
  • Relationships – the desire to be liked and loved is a huge driver of behaviour
  • Achievements – you want to do the best you can. In Abraham Maslow’s Hierarchy of Needs which underlies motivation, level 4 is usually self esteem (thinking good or yourself) and level 5 is self actualisation (reaching your potential).

The final source of value comes from service and is an assessment of how easy and pleasurable it is to buy from you. It includes availability and speed of supply, convenience, friendliness, having the right information available to support the buyer both pre and post purchase and fixing any problems which may happen.

Selling Pain Relief or the Expectation of Gain?

  • Emotional motivation – away or towards?
  • The customer’s problem – specific or general?
  • The outcome / goal customers want
  • The consequences of buying / not buying
  • Features, advantages, benefits
  • Translate into underlying attributes customers look for

Two issues mentioned above we will be digging into deeper in the copywriting and lead conversion programs are Selling Pain Relief and Features Advantages & Benefits.

Robert Woodruff in his work on customer value identified three different levels – attributes, consequences and goals – and buyers will move between as they understand more. They remain committed to their goals because it’s why they buy but as they learn more, they will come to recognise the value of particular attributes.

Suppose you have a headache.

Your goal is to be pain free.

Medicine A may work well but have an unwanted consequence – it makes you feel sleepy.

So you try medicine B on the recommendation of a friend. Different drug rather than different brand name.

If it doesn’t get rid of your headache, you go back to medicine A. It’s failed at the goal level.

If it works and you still feel tired, you’re getting similar value so your decision comes down to price.

But if medicine B takes away your headache quickly and leaves you feeling lively, your preference has changed. But where is your preference loyalty now fixed? Is it on the brand name of medicine B or on the attribute that headache pills contain the right active ingredient that suits you best?

Can you see how you will move between goals, consequences and attributes.

The Value Attributes For Luxury Cars

Let’s look at another example.

Imagine you’ve just won the lottery and cash was no longer a problem.

You decide you will treat yourself to a new saloon car and you don’t mess around – you go straight to the Rolls Royce and Mercedes showrooms.

I’d guess – not being a lottery winner – you’d have four main criteria:

  • Prestige – you’re a millionaire – you want to show it
  • Comfort – nothing but the best
  • Appearance – you want to be envied, not just for the cost but also how it looks
  • Handling – you’re not going to have a chauffeur so you’ll do you own driving and you don’t want it to feel like a tank

You’ll have a look at the Rolls and the biggest Mercedes and probably like some things best on each.

In my example, the Rolls Royce wins on prestige and comfort but the big Mercedes on appearance and handling. It also costs less.

Which Car Is Best Value?

The assessment for “best value” depends on

  • Value criteria used – in this case I have picked the four main criteria – prestige, comfort, design and handling
  • Ratings on the criteria – I’ve also given each a relative value of 1 to 10 with ten being the best.
  • Weighting of each criteria – the last factor is how important each factor is to each other.

It can be useful to calculate “value” arithmetically but be careful – it creates a precise number of a subjective rating which will differ for each customer and may be different each time the same customer does the exercise.

However since your aim is to build up cost effective customer value, making the judgements of what’s important, the relative assessments and the weightings of your typical customer avatar is usually a fascinating exercise since it brings vague ideas onto paper.

It’s also great if you have a team do the exercise for the same avatar to see the differences in opinion and to delve into why and then to look across other avatars.

Which Car Is Best Value?

The value of each factor is  the rating of the factor and the importance of the factor in the decision.

I gave the Rolls Royce a nine for prestige and the Mercedes a 5.  A bit harsh maybe but I don’t think you’ll hear “He’s only got a Rolls Royce”  and since they don’t make executive cars which double for taxis in some European countries, the Rolls carries much more prestige.   

Rolls Royce Rating
Rolls Royce Value
Mercedes Rating
Mercedes Value

I realise people don’t normally go through the arithmetic but the mind makes these kind of trade-offs.

“I want all these but this is the most important, and then that. This product looks the best on those two factors but I wish it was as good on the third which when I think about it is really important.”

Please get to know yourself and how you weigh up your purchasing decisions. It gives great insight into the process and it will reinforce the fact that you only consider a small number of different things.

How People Decide To Buy

  • Carefully considered choice between alternatives – a rational buy
  • Buy the first item found which meets your purchase criteria – a convenience buy
  • Buy what you like and “feels right” if the price is OK – an emotional/impulse buy
  • Buy what someone else recommends – a referral buy
  • For someone to buy, you have to be the No 1 choice – the one that makes most sense, the one most convenient, the one that feels rights, the one with the strongest recommendation.

You may have heard the saying “people buy emotionally and justify with reason.”

It’s often true. You see something you want and then you look for ways to justify it to yourself, your husband or wife and your friends.

It’s not always true. Sometimes we can go to extremes lengths to try to logically pick the best option when we buy. I may be strange because I’ve actually gone through the calculations above, deciding what I wanted and how I thought the products rated.

It was for our first cruise – a fortieth birthday present from Margaret – and each time I read one of the cruise ships brochures, I thought that was the one with the glitzy marketing photos and poetic text. By the end I was confused and I had the Berlitz Cruise Reviews book to help me too but prices varied, itineraries varied, facilities varied and I wanted to get everything down on paper in summary form.

For me that was a rational buy. I carefully considered each of the options and when I was comparing side by side, I found that some could be quickly eliminated and the choice became clear when I did my value for money rating.

Things to look for in rational buys – high price, big consequences if things go wrong, plenty of information, many options.

The opposite of a rational buy is a convenience buy – you need something and you buy the first thing that matches your criteria. This is how many men approach clothes buying – (is it the colour OK, does it fit OK). There’s no pleasure in the shopping experience and the product is unimportant – the price is low and the consequences of making a good or bad buy are small.

An emotional buy, in contrast can be big or small.

An impulse purchase is an emotional buy. You see something you want, the value is small, the consequences are minor so you buy it. This may sound like a convenience buy but that’s need driven and this is about fulfilling your emotional wants.

A cream cake with a cup of coffee is an emotional buy. Logically – and especially if you’d like to lose a bit of weight – you know you shouldn’t buy but it looks good, you’re sure it’s going to taste good and you buy it.

A sports car is usually an emotional buy. First the need to buy one is driven by the desire to look and feel young and attractive or to show off your success. Then the choice – Ferrari, Lamborghini, Porsche, Aston Martin etc – is also driven by your emotions:

  • What the brand says to you
  • What the brand says about you
  • The look, feel, sound of the car

They’ll all go faster than you can drive on the roads and you’ve probably got to be a great driver to see the difference in handling.

The fourth category of purchase, is what I call a referral buy. This happens when the buyer doesn’t feel able to make an accurate pre-purchase assessment (or doesn’t have time) and relies on someone with more experience to make a positive recommendation which is used to justify the purchase.

Imagine your son gets arrested and you need a criminal lawyer quickly. You have a friend who is a commercial lawyer and you give him a ring. He gives a strong recommendation for someone he knows and you take his advice.

You didn’t go through your own assessment as you put your trust in your friend.

Some products are much more suited to a rational sell (think business to business) or an emotional sell (think fashion and beauty) but I want you to think about how you can satisfy a rational buyer and an emotional buyer by appealing to both.

If you watch TV, you’ll see it in the cosmetics advertisements when the beautiful model says”and now time for the science bit”. It’s there to help you to form a rational reason to buy (even if you don’t understand it).

Or if you want an example of a B2B product sold on emotions, what about IBM computer hardware and the famous saying “Nobody ever got fired for buying IBM.”

The attributes, consequences and goals used to drive the factors of customer value can come from many sources which is good because it gives you a chance to create a different customer offer from competitors.

Just remember, to get a positive purchase decision, you have to come out as number one. You’re not going to go through an assessment, decide which product is the best for you and then buy the second or third best. The only reason it could happen is because of availability – your first choice isn’t available for 3 weeks and you can have no 2 today. Guess what, it turns out availability was another purchase criteria.

Why People Buy

  • Need to move past price – example YOU
  • Jay Conrad Levinson research
    • No 5 Price
    • No 4 Selection
    • No 3 Service
    • No 2 Quality
    • No 1 Confidence
  • Danger – beware of bland platitudes in your strategy and marketing – meaningless

When I talk to some business owners, they tell me that there entire business is driven by price but it’s often a misconception based on competitive stalemate. Because no one has established different value combinations, the customers can think everyone does offer the same and therefore if convenience isn’t a factor, price is the way to make the decision.

I want you to look at everything you are wearing and ask yourself if you are sure they were all the lowest priced items you could buy. Not the lowest offered price for a particular brand but the lowest priced generic products – shoes, socks, trousers etc.

Then I want you to look around your office or home and look for things that cost the absolute minimum and those where you paid a bit extra for some reason.

Then look at your car. Was this the cheapest car you could buy?

All too personal?

OK what about your office stationery? Are you sure you are buying the lowest priced pens, paper, business cards?

Still too personal?

Now think about where you buy your petrol/gas for your car. Is this the lowest price available locally or have you got into the habit of buying at one place?

In fact look at everything you buy and ask yourself what you buy which is bottom left of the value curve – lowest price, lowest value. List them out and you’ll be surprised how short the list is unless you are under extreme financial distress.

I take people through this exercise to show that price is a factor in the buying decision but it’s much more important to the seller than the buyer although knocking off an extra 10% discount always feels good.

Jay Conrad Levinson quotes research which has been repeated several times. When people are asked why they buy, price is only rated as the fifth most important factor coming behind selection, service, quality and at number one, confidence.

Confidence builds on the know, like and trust factors and is the belief that the marketing promise will be met if you do your bit.

These factors make a great point on price but they also represent a big warning.

Beware of building your business on bland platitudes which fool you but don’t mean anything to your customers.

“We have a great selection of china dinnerware” is trumped by “We offer 347 different china dinnerware sets ranging from $2.50 per dinner plate to $196.50.”

The first rolls off the customer because it sounds like your other competitors who are boasting about their great selections.

It’s the same with service and quality. Don’t make a bland statement that you offer great quality and service because it doesn’t say anything to customers, look to get specific. If you’re not sure about this, start looking at the marketing literature you receive and listen to your inner voice when you read a company bragging about its great service.

Finding Value Attributes

  • Be the customer – see your business through your customer’s eyes
  • Ask customers
    • Pre-sale – what factors will go into your buying decision?
    • Post sale – why did you buy from us?
    • Customer focus groups
    • Conjoint analysis – A or B, B or C, A or C
    • Market testing

There are only three ways to find your key value attributes.

  • To guess – not recommended. Many professional copywriters have discovered that what the company management think is important doesn’t match what customers respond to.
  • Be the customer – try to put yourself into your customer avatar or persona and experience being the customer and see your business through your customers eyes. Do the same with your competitors too. If you can’t do it, then listen/watch your friends be the customer. This can give great insight and because you know what’s possible, can push you into new areas. It’s said that products like the Sony Walkman wouldn’t have been invented on the feedback from traditional market research.
  • Ask the customers – how ever much you genuinely try to put yourself in your customer’s position, you are stuck with your own perceptions, values and beliefs and vast knowledge of the trade so despite what I said about the Walkman, there is nothing like customer feedback.

You’ve got a number of different times and ways to get the information you need.

The first point is when the customer is looking to buy. You can ask what the important features and benefits the customer is looking for and the customer will tell you because you’re helping them buy.

Here’s an example.

“What’s important about the digital camera you want to buy?” asks the shop assistant in the camera shop.

“While I’m looking for a good all purpose camera, I’ll be using it most on safaris in Africa to photograph wildlife. That means I want a good zoom, a quick turn on to being ready for taking photos and a quiet action because I don’t want to scare the animals away” say I.

“Do you want to be able to take short videos as well?” asks the shop assistant.

“No thanks. I’ve already got a digital video camera and if we find a good scene, I just let it run and run as you never know what the animals are going to do next.”

Not only does this give the salesperson a chance to bond with me, it also highlights what the important purchase criteria are.

If you phrase your buying criteria question right, it’s very difficult not to get some great feedback because the buyer has every incentive to help you to find the best product.

You can also ask your buyer after the sale.

Do it as part of your first customer satisfaction/purchase reassurance survey and I think you’ll be amazed at what you hear. It’s at this stage where things like confidence will come up but you need to dig deeper. What gave the buyer confidence and how can you leverage it for other customers.

Another way to get feedback from customers is through a customer focus group. You bring a group of customers together to talk about your products and services, usually in return for some kind of reward. You can hear some interesting stuff but group dynamics can be a problem – some people may try to dominate the conversation and impose their views while others may be shy and retiring.

Another problem with customer focus groups is that you may hear what people think you want to hear. While these are customers, they are not in a buying situation. Again you can try it for yourself – just think about what matters about buying a product you’ve got no intention of buying at the moment and you’ll find your mind returning to generic benefits.

Conjoint analysis is a more technical way to get people to rate bundles of criteria in pairs.

Computer technology can take away the maths issues and it works by asking a series of questions and then checking the validity.

E.g. would you prefer A + B + C or A +B + D?

What about A + B + D or A + B + E?

What about A + B + E or A + B + C?

I saw a service based on putting cards or criteria in order which was a simplified version of conjoint analysis which I thought was interesting but I haven’t tried it. If you want to get this deep in your market research, my advice is to talk to a professional market research company.

for more information about formal surveys for customers see Customer Surveys & Market Surveys.

The final way to get feedback from customers is to test in the market. This is the old direct marketing technique of carefully tweaking the offer and monitoring the results. It has the huge advantage that it is feedback from real customers who are actually in the buying process spending their real money. The disadvantage is that it is slow.

That’s why I recommend you use a combination of being the customer yourself and asking your customers pre and post purchase and recording  and analysing the results. You’ll get some great insights into what customers want and how it differs between different types of customer. That will guide your strategies and actions before they can be validated with test results.

Understanding Your Market

  • Listen to what people say to you – problem, desired solution, objections
  • Listen to what people say about you
  • Read specialist forums on the Internet
  • Amazon.com best sellers & reviews
  • The aim is to “enter the conversation already going on in your customers minds

As well as formal market research techniques, there are other ways to listen to and understand what your customers are thinking and feeling about your business and the wider market.

First, make sure your sales and marketing processes are based on asking your customers questions. Marketing can do that through surveys with free websites like SurveyMonkey.com. Even more important is when you get into one to one discussions with your customers about their problems and the implications and pain caused, the solutions they are looking for and the objections thay have which cause them to delay or even back out of buying.

The more comprehensive a list of these issues and the more you’re about to pin it down to specific customer avatars, the more you can say the right things in your marketing from the start and be the obvious choice to buy from.

Listen to what customers say about you after buying in your general communications, customer satisfaction surveys, in testimonials and referrals. Run Google Alerts on your name to see what’s coming through the Internet.

You can also pick up some great stuff by reading specialist forums as members share their frustrations and solutions with each other. It sounds strange but the Amazon.com reviews of popular books in your niche can also contain pearls of wisdom as people explain what they like or don’t like.

The more you understand your customers, the more you can enter the conversation going on in their minds. You know their perceived views and you can position yourself to show you are different.

Think of a back street used car sales operation. How high is your trust if you don’t know much about cars?

Probably not high and it’s what causes people to spend 20% to 30% more to buy a similar car from a franchise dealer.

The conversation in the customers head is “I can’t afford a new car, I don’t want to be ripped off by a franchise garage but I don’t trust used car sales people.”

Calling the business “Honest John’s Used Car Sales” is not going to do it. Anyone can claim to be honest and those who shout the loudest, often have the least to say. That’s my experience anyway.

Explaining the 217 point checklist that every car goes through by an independent mechanic (even better if it’s a body as respected as the AA or RAC) will certainly help. The offer to lend the car for a weekend so there can be a proper test drive and experience will help. The wall of testimonials from happy buyers – some of whom you know and you’ve spoken to – will help.

Types of Purchase Criteria

  • Qualifiers – must haves
  • Satisfiers – nice to haves
  • Order winners – critical preferences
  • Airline Example
    • Q – safety record, right airport destination
    • S – food, terminal, check-in procedure
    • OW – flight times, departure airport, seat pitch & width, price
  • Try it for yourself – car, pet, holiday

Not all purchase criteria are equal or work the same way.

A few are must haves.

If a product or service doesn’t have these, it’s out of the game – these are known as Qualifiers.

The thing with qualifiers is that they often work as Yes/No filters. Once the minimum level is met, then it becomes a non-issue.

For example, think of cleanliness in a hotel. You want a clean room –  clean bedsheets, clean towels and surfaces – but you judge it on your initial impressions. It passes unless you find something else later. You don’t start measuring the whiteness of the sheets or the glean on the taps.

The next category are Satisfiers – these are nice to haves and more is good but less doesn’t rule out the purchase.

Going back to the hotel example, you may work out occasionally and see it as nice if the hotel has a modern equipped gym. But you know you’re probably not going to use it so it doesn’t become a qualifier and it won’t on its own tip the balance between competing hotels.

Next time you fill in a customer satisfaction survey, you’ll probably see a long list of satisfiers. Things you can assess and grade but you know are irrelevant to whether you would buy the first time or be a repeat customer.

The final category are Order Winners. These are the few criteria which really matter when you are buying. These are the criteria which make your product or service stand out and give it a competitive edge.

Staying with the hotel example, the number of Michelin stars awarded to the restaurant could be the primary reason why you choose one hotel over another if you are a gourmet. To others, it doesn’t matter and may even put them off as they will see the menus as expensive and with no proper food.

Let’s look at another example because this is important – aeroplane travel for a short break

For me, the Qualifiers (must have’s) are a good safety record and the right airport destination. I obviously want to be safe and I might refuse to travel on some exotic and underfunded airlines but the Civil Aviation Authority means that in most countries, I don’t worry about safety. The right airport is important because I don’t have much time on the break and want to keep my travel time down to a minimum. RyanAir used to have a reputation for landing at distant airports which is why I’ve only flown with them once.

The Satisfiers are food on the plane, the departure terminal and the check-in procedure. I have my preferences and those preferences may show up as areas of dissatisfaction in a customer satisfaction survey but they have little impact on my decision to select a particular flight.

The Order Winners are flight times, the departure airport, the seat pitch & width because I’m big and the price. My aim is to maximise time in the resort on the day we go out so I like an early flight and a leisurely departure after breakfast suits me best going home. I don’t like returning late because having lost the room, I don’t find the time very relaxing and I have concerns about flight delays making our arrival home even later.

It’s your turn now.

Take a few choices you’ve made or are thinking of making and identify your qualifiers, satisfiers and order winners.

Cars and holidays are always good examples to use since you narrow down a big choice to a single purchase. What about trying something different. Why did you choose your pet?

When You Know Your Customer Values

  • You can emphasise in your marketing
  • Deliver proof through testimonials, case studies, demonstrations and videos
  • Improve your internal processes to deliver these value attributes to a consistent high standard
  • Help your prospect set their buying criteria through education – people often don’t know what to look for and uncertainty can hold back the purchase decision.

When you’ve found out which factors matter most to customers when making the buying decision and you’ve identified which give you the best chance to create a unique (or better) combination at reasonable costs, you know the essential points to emphasise in your marketing.

In particular, since what others say is more believable than any marketer, you can deliver proof through testimonials and case studies. You can also give proof through demonstrations and videos, showing the product delivering the benefits which matter most.

You also have a few customer criteria to emphasise in your own operations so these key values shine through in everything experienced by customers. Nothing undermines trust more than saying one thing and the customer seeing your staff doing something else.

One final way to use these buying criteria based on your customer research is to create educational marketing which helps inexperienced customers set their own buying criteria in a way that makes sense to them. Many potential customers don’t know what criteria they should be using (it’s why referral buys are common) and will welcome buyers guides pointing out what to look for.

e.g “9 Factors To Look Out For When Selecting Your Accountant” or “How To Finance The Purchase Of Your New Car And Avoid 6 Common Financial Rip-offs.”

These guides will help new customers to understand more about what they are buying and you can position yourself as the trusted advisor. Don’t abuse the position and mislead with bad information which paints a false picture.

Industrial Commodity Products Example

Some business owners who sell commodity type products which have said they understand how the ideas work for consumer products but don’t see how it can apply to them.

Let’s take a look at a steel stockholder.

The same basic product can be bought from any supplier so no difference in functional or emotional values. This puts the focus on financial and service values.

Buying factors identified are

  • Price
  • Reliability of quality – to specification
  • Reliability of delivery
  • Speed of delivery
  • Payment terms

Value comes from helping customers to generate profit and cash flow.

Price is an essential factor and if everything else looks the same, then price will be the basis for the purchase.

End users of the steel have rigour quality standards so adherence to technical and size specifications is key. People normally buy steel per tonne but for products like steel strip, small variations in thickness can make a significance difference to cost. If steel is 70% of the selling price a 2% difference in thickness from 1.00 mm to 1.02mm will reduce profit by 1.4% of sales value (2% of 70%).

Reliability of delivery backs straight into the promises made to the customer’s customers.

Ideally it might be:

  • Receive the steel day 1
  • Produce day 3
  • Ship day 4

If the steel is a week late, the customer has caused its customer problems.

Lead time between order and delivery is also important since it will affect customer promises and the level of stock carried for some items.

The final financial value which drives this market is payment terms. The longer the better. Margins are low and stock levels need to be financed.

Each of these factors can be linked back to what the business needs. If is is desperately short of cash, then a supplier offering long payment will be attractive, even if the price is higher.

Internal Implications of Value Proposition

Whatever promise is put together for customers, it can be translated back into internal operational requirement so there is a strategy based on fit between what’s said to customers and what the business can do.

When the stock holder buys supplies, the same factors will come through in its buying criteria – cost, quality, delivery and credit. The more the supplier backs up the customer values, the less you have to be the buffer.

If you’re trying to be “lowest cost” then your purchasing has to be on the basis of lowest cost for the strategy to stand a chance. If you’re selling on quality and delivery, then you can’t afford to import problems from your suppliers.

The stock control & buying process needs to be slick if you’re competing on delivery and service. Any delays you introduce in failing to recognise shortages of raw materials and finished stocks/inventories, the more problems are introduced which will break customer promises.

External – Internal Value

  • The external customer value and internal capability value must be linked
  • Don’t mistake internal values for external values
  • Customers don’t care about a good production planning system, they care about quick lead times and reliability of supply
  • But you can only manage the internal process
  • Better capability at lower cost

The key element about being explicit about the few value factors you choose to emphasise in your business is that you bring your sales and marketing into line with your operational improvements. If speed of service for example is important in your customer promise, then speed of service ripples through in all your internal processes.

Just don’t make the mistake of confusing external values and internal values. The external values are what your customers consider important in their buying decisions. The internal values are how you achieve the external values.

Customers don’t get excited about state of the art production planning systems. This is a how which doesn’t interest them but they do want short lead times and reliable delivery promises. However you can’t manage lead times directly since it is a function of your production planning, stock control and purchasing processes. The better they are designed to create short lead times and fit together neatly, the more control you have over lead times and achieving it at a low cost.

Time, Competitors & Customers

As competitors learn to compete more effectively and as big customers exert their buying power, the pressure on price increases and more value has to be given to support a particular price point.

This graph is consistent with the others with the Customer Value on the Y axis to help you think about being above the value for money line. However this graph which forces down price may have been clearer the other way around.

Going back to what we learnt from the Product Life Cycle, during the growth stage, new value offerings appear which give customers choice but a dominant preference is established which forces products together through a  commoditisation process. Customers know more about the product and know what they want. Firms that don’t continually innovate step changes in current values or offering new values will be forced to lower prices to stay competitive.

Relative Value Against Competitors

The offers from competitors affect the perception of the value you offer based on their value and price, your extra positive value and any negative value (benefits their product gives which yours doesn’t.)   

Example Of How The Relative Value Works

Let’s work through a numbers example for an investment in a new machine.

Investment A costs £10,000 and gives you a total return of £30,000 in value. It looks a great buy and one which definitely makes sense to buy.

You check for competitive offers and find Investment B gives you an extra £5,000 of one type of value but costs you £2,000 of another value- a net £3,000 extra

So what is a reasonable price for Investment B?

If it is less than the £10,000 Investment A will cost, then it becomes the obvious buy – you get more value for less money.

If it costs more than £13,000, then the extra cost is not covered by the extra value and Investment A is much the better buy.

It’s worth more than £10k but not more than £13k and on a rate of return basis, a fair price is £11k since both A and B give the same 300% return.

If Investment A cuts price to £9,500, then that move puts pressure on B’s value/price combination.

Improving Value

  • Different options – many areas of potential
  • Where is your capability competitive advantage?
  • What you can do better or at lower cost
  • Where CV calculation is useful to show effect of internal improvements
    • 5 days shorter lead time is worth 1 point in Customer Value (move from a 6 to 9 at 33% weighting)
    • Improving delivery reliability from 70% to 98% is worth 1 point in CV

There are many different ways you can improve value created for customers but it only makes sense to do so where you have a capability competitive advantage. This is where you can do something better than your competitors or you can do it at a lower cost.

If we return to our detailed customer value calculation based on attributes, ratings and weightings, we can discover from customers, the different ways they could get a boost. Perhaps lead times and delivery reliability are important but to get the same extra value, one option would cost you three times as much as the other.

Pricing Value Improvements

  • There isn’t a straight line relationship between value and price
    • Magic paint brush that can do twice as much is not worth twice the cost but much more
    • Cosmetic surgery procedure with 99% success is not just worth 10% more than one with a 90% success rate

While I have drawn value for money on the graphs as a straight line, it’s important to appreciate that this is a simplification. The two examples above show the difference in looking at it from the customers’ viewpoint.

When painting, the big sacrifice made isn’t the cost of the paint and brushes but of the time and effort required to do the painting. Genuinely cutting down on this effort is worth a lot.

The cosmetic surgery example also shows how statistics can mislead. A 90% success rate carries with it a 10% risk of things going wrong. This risk plummets for a procedure with a 99% success rate. Instead of seeing success rates increase by 9%, failure rates fall by 90%.

“Finding Blue Oceans”

  • Break away from standard market criteria and the battle to be better
  • Provide unique value that will attract non-buyers
  • Is the business idea a winner?
    • Focus (to avoid high costs)
    • Divergence (uniquely different)
    • Compelling tagline

W. Chan Kim and Renee Mauborgne developed the customer value approach in their book “Blue Ocean Strategy” as they encouraged businesses to find innovative new ways to add value.

Most new products are launched in what they call the Red Ocean. These are me-too and minor improvements over what already exists. Since they offer little for customers to get excited about, they perform badly.

In contrast, the Blue Ocean is a move away from the competition, the standard market criteria and the battle to be a bit better to take market share from existing competitors. Instead in a Blue Ocean product, there is a new value added which attracts non-buyers. It does this by tackling frustrations and obstacles which stop people from buying.

They have a simple three step test for identifying winning new ideas:

  • Is there true customer focus to create value and to avoid the waste and high costs of offering things that are not wanted?
  • Is the product genuinely different from everything else out there?
  • Is there a compelling tagline which communicates the special value in a way that can be quickly understood (this is covered in P3M6 on USPs and Irresistible Offers)?

Four Key Questions

You can challenge your existing products and services by asking four key questions.

  • Which factors the market takes for granted can be eliminated – no value only cost
  • Which factors should be reduced to well below market standards – qualifiers not winners
  • Which factors should be raised well above market standards – customer compromises
  • Which new factors should be added – what are the latent needs that cause customer frustrations and compromises.

Stop Start More Less Grid

Yes we have returned to one of my favourite improvement techniques – the stop, start, more, less grid.  It forces you to make choices and trade-offs rather than continually adding to existing products. This way, it keeps prices down and margins up. 

Stop Start More Less Grid

Six Pathways To The Blue Ocean

The authors identified six ways to look for blue ocean attributes to build into your new product or service.

  • Across alternative industries (wide substitutes)
  • Across strategic groups in industry (these are different ways of competing in the same broad industry – think of the motor industry and economy cars vs sports cars to create the hot hatches).
  • Across the chain of buyers (e.g. users – think of the difference in children’s toys between the desires of the children and the desires of the parents for a toy.)
  • Across complimentary products and services
  • Across the functional and emotional appeal
    • Body Shop took the glossy packaging out of cosmetics and added in environment concern, Swatch made watches a fashion statement, Cemex (a cement product for building houses) became a popular wedding gift in developing countries.
  • Across time
    • iTunes popularity of music downloads

What To Do – Find Your Value

This has been a long and important module since it’s getting to grips with what you offer customers and how it compares and contrasts with your competitors.

It’s roots lie in what customers want and in particular, the key factors in their buying decisions.

  • Identify customer groups with common interests
  • Identify why they buy
    • Goal
    • Buying criteria
    • Importance
    • Rating v main competitors
    • “Be them”
    • “Ask them”
    • Contrast – your ideas vs customer feedback
  • Identify consistencies & inconsistencies across customer groups – beware compromise
  • Where are the capability/cost advantages?
  • Where are the big opportunities?
    • Decide where you will focus
    • Types of customer – market size & fit
    • What key benefits/value attributes will you compete on – marketing plus internal improvement
    • What price/value for money
  • Decide if and when you are going to break out into the Blue Ocean
  • Your choice
    • Beat competitors on established criteria
    • Be bold, create new value, set new market criteria
  • Improve/build internal capabilities
  • Strategy under uncertainty moves – no regrets, options, big bets

No comments yet... Be the first to leave a reply!

Leave a Reply