More on Why Business Plans Fail – part two – the connection to customers

In the preceding post about key causes for business plans to fail, we discussed the lack of a robust process to convert strategy into tactics, to convert the plans into the day-to-day work of the organization. This posting will take up another major failure mode. That is the failure to have a compelling customer perceived value proposition and the corollary failures to understand markets and customers more generally. Continue reading

“Price is only an issue in the absence of value”

At a recent business meeting, Stephen Giulietti (VP Wealth Management at Smith Barney, Boston),  dropped this business aphorism in the midst of a story,

“Price is only an issue in the absence of value.”

This pithy little sentence reminded me of the continuing importance of the concept of “value”. One tough part of understanding and leveraging “value” is to understand where it originates.

Most business people act as though, and believe, that value is something that they develop, design, promote, sell, and produce for customers. Every function in a company believes that they produce value for their customers. Marketing and product development invent, position, and promote customer value. Every other function along the way to the actual delivery of a product or service to the customer declares that they are producing value for customers. But, ask, “How do you know that you are producing value for customers?”  Very few can demonstrate that they systematically ask real customers to evaluate the value provided and actually act on the feedback they receive. So, this value is a self-defined and self-evaluated proposition.

The toughest point about “value” is to actually understand and embrace that customers define value. They define it as they make purchase decisions for products.  In the case of services, customers continuously evaluate value. This occurs through those Moments of Truth((1)) that happen every time a customer engages you for a service.  It is easy to say, “Customers define value”. It is enormously difficult to follow the logic of this statement and implement the processes to assure that value definitions flow from customers. This commonly starts at the very beginning of the product development and marketing processes. Then, other processes pick up and carry it throughout the life cycle of a customer relationship.

Start with some basic ideas and work to the more rigorous. For example, think through the implications of the age-old selling technique, FABing (Features, Advantages, and Benefits). Most of us are reflexive and exhaustive in listing the features of our services. But, discipline yourself to confirm what the benefits are. Here is the parallel with the principle that customers define value, customers only buy benefits. Start with benefit statements and work backwards to the supporting advantages and features. This simple tool, applied to the new product development process, for example, means that you actually ask customers to help you invent the product/service. They get to define the benefits they are seeking. Then, engineers and others can develop the features to supply the benefits. Always ask, “How does this feature deliver a benefit customers said they want?” This will help to prevent feature creep and gratuitous design.

Now back to our aphorism – “Price is only an issue in the absence of value.”

Now that we think that we might have a method for determining what a customer desires in a product or service, how do we attach a monetary value to it? Our aphorism suggests that if we can present some real value to customers, then the price we charge will always be OK. However, if you are involved in a commodity, or near commodity business, for example, pizza, automobiles, refrigerators, aspirin, and so on, you are stuck with the fact that the price is quite driven by direct comparison shopping. So, by and large price really is an issue.

Some of these commodity markets actually offer substantial price ranges based on perceived brand valuations. Think of the price of Bayer aspirin versus generic aspirin, for example.

But, for most small businesses the only brand available that can win the higher price is one supported by real values like proximity, friendliness, promptness, politeness, courtesy, responsiveness, reliability, thoroughness, and others. Note that these values can be produced reliably and repeatedly. Note that these values offer opportunities to build a sustainable advantage over competitors.

These values apply to professional services, retail, home services, medical, wholesale distribution, in fact anywhere where business is conducted between humans. Without much of a stretch these same values apply on the Web.

The key challenges for most small businesses, especially those involved in services, is to correctly understand the total value you are delivering to customers. And, you must present this to customers in a manner that upsets their mental framework, their points of view, that they approach the service with. For example, is a will just the 20 page document that costs $800 placed in your hand? Or, is a will really a series of services that encompass uncovering your real desires for passing things and values along to your heirs and ends after your death with the proper carrying out of your wishes?  An initial difficulty is to overcome the presumption by the customer that a will is just a document. How do you upset that framework and replace it with a new one that encompasses a larger, more valuable, cycle of services?

There is no cookie-cutter solution to this. But, the first necessary step is to envision the value, ask customers about this new vision, revise the vision based on what you learn, and then you will be positioned to answer the questions: (a) how do I reframe the value proposition, and (b), what monetary value do I attach to it?

I believe that if you do a thorough job of answering the first question then, in fact, assuming no craziness in the valuation, the aphorism will hold:

“Price is only an issue in the absence of value.”

  1. you can download a whitepaper on Moments of Truth – “Managing Moments of Truth  – Value Creation for Services Organizations” from our Resources page []

Don’t Bad Mouth The Competition

The other day I met a business person and was chatting about the marketplace for his business – plumbing actually – and found myself listening to a small scale tirade attacking several of his competitors for what he felt to be “sleazy, slipshod practices”. This incident brought me back to thoughts about what I think is a proven business maxim, “Don’t Bad Mouth The Competition”.

The most obvious reason not to denigrate competitors is that it always distracts your potential customer or, worse, a current customer, from thinking about you and your products and services. If your customer brings up a competitor, this is an opportunity to learn more about what the customer wants and needs. Ask questions about what the customer is requesting. Are there service or product gaps between you and the competitor? If the customer mentions a competitor price, do not respond until you have explored in detail what the customer’s requirements are. Apples and oranges do not sell for the same price, and, you do not want the conversation to rush to price before you have a chance to explore the whole value of a possible piece of business with this customer.

Loss of trust is also frequently a consequence of bad mouthing competitors. After all, don’t we all think when we hear a person trashing someone, “I wonder what this guy says about me when I am not around.” This loss of trust can be permanent. There are many people who will simply stop doing business with a company represented by people who speak badly of others. In almost any event, you will be introducing doubt at a personal and business level into the equation.

There are further reasons to eliminate trash-mouthing  from your business behavior. This behavior distracts you from confronting why the competitor has customers at all. They must be doing something right. What are they doing? Maybe you should be learning from them? Further this behavior distracts you from understanding and clearly demonstrating your value to your potential customers and more important reinforcing these values.

If you encourage or allow your employees to engage in bad mouthing, you are also providing them with a psychological crutch to explain why they are not performing well. This same psychology allows them to run the silent movie in their heads of the villainous competitors who are nefariously taking business away from them. They need to spend that time and energy thinking about how they can add value to customers where the only sales and profits come from.

Now we should be clear, and this is not squirming out of the message here, the maxim to avoid bad mouthing does not mean that you should not point out in a very factual manner where the differences are between you and your competitor. There are many situations where a customer will be thankful that you have presented a clear analysis of the trade-offs among a number of companies’ offerings. Be vigorous, fair, and factual. You will win points for this.

So, the next time you feel the urge, or you hear one of your own company’s personnel winding up for a session of trash mouth, stop and think it through.