Every time you or your partners touch your customer, there is an opportunity to improve your value proposition and to differentiate yourself from the competition.  Let’s put it another way.  Every time your or your partner touches your customer, you WILL differentiate yourself from the competition, for better or worse.

When customers describe their assessment of value received, we often hear as much about the journey as the use-related features touted by vendors. This mismatch reflects both the commoditization of product features and the critical role that non- product attributes play in technology markets.

This disconnect between vendor intent and customer perception is especially true in engineering-driven companies.

Technology winners used to be determined by old-line smaller-cheaper-faster-better economics. Today’s players are finding that better products are not always sufficient to win, and many are strategically confused by this change. The key to solving the problem is to thoroughly understand the entire customer journey from the customer’s perspective, looking for hidden opportunities to increase total value delivered at every stage, including both the primary use of the offering (the destination) and the surrounding set of experiences to and from the destination (the journey).

Although many products have been largely commoditized with respect to their primary intended use, every company has an opportunity to differentiate its offerings by designing the entire customer journey for superior overall value to customers.  A great example of doing this can be found throughout Apple, as described in this survey by the University of Michigan, in its American Customer Satisfaction Index.

Vendors ignore this at their peril, for the operational and partnership capabilities required to deliver a superior journey can create a far more sustainable advantage than a readily-copied feature, function or price.

• “We gave the customers what they asked for, but it doesn’t seem to be enough.”
• “Our product/service is terrific, but our customers just don’t get it.”
• “Our offerings are just too expensive.”
• “Some customers love our offering. Why can’t we win more broadly?”

These mask the real issues that drive customer behavior.

In separate, paired interviews with Clarity clients and their customers, we find that the vast majority of companies misunderstand why and how their customers make decisions to buy or not to buy.  Opportunities are lost for what initially look like a broad range of causes, but closer examination reveals that lost opportunities are typically caused by a fundamental problem of value misalignment.  Without consistent value alignment, success is unlikely.  These are the four primary causes of misalignment:

• A company’s offer is simply not what customers need most, especially when compared with other priorities (“…it doesn’t seem to be enough”)
• Customers may need what is offered, but do not perceive the full value (“…they just don’t get it” – exactly!).  Causes can include that the company has not adequately communicated the intended customer value, or the company has not successfully delivered intended benefits to others in the market and compromised its reputation.
• The company has misunderstood how customers compare its offer with those of competitors and used price as the convenient answer (“…we’re just too expensive”)
• The company has inadequately targeted specific customer segments (“… some customers love our offering.”)

Like it or not, customer perceptions of your offerings are the only ones that matter. Your carefully crafted value propositions only become true if customers need the value, learn of it, believe that you will deliver greater value than competitors, act on it, receive it and actually perceive that they received it. And the best way to align the customer’s experiences is to align the company around this set of experiences.

Sales shortfalls hurt companies and the executives in charge. Quick action is essential.  An objective value alignment assessment can rapidly uncover the root causes behind sales shortfalls and identify effective remedial actions to align value and accelerate sales. The answers to these questions reside in the market, not around the conference table.

Apple now wants us all to have 3 devices: a smartphone, a computer and now an iPad.

Do we really need 3 screens, two soft keyboards and one real one, 3 microprocessors and so forth to have the three devices that Apple thinks we need?  This is much the same question we all asked ourselves when we looked around our offices to see a printer, fax, scanner and copier sitting side by side.  We had three print engines, three scanners, two different interfaces and one device completely disconnected.  In that market we came up with multi-function peripherals (MFPs), otherwise known as all-in-ones.  They combined the functions of printer, fax, scanner and copier into one device, eliminating the redundant parts and thereby saving money, floor space, wiring, power and headaches.

People don’t need more devices and complexity to get their work (or play) done; they need simplicity that tranforms their world into one where everything is easy.

• MFPs did it for documents.  They gave even home offices capabilities that were previously out of reach financially and in complexity.
• The iPod/iTunes did it for music.  iTunes finally made it easier to buy music than to steal it, simplifying users’ lives and making digital music players mainstream almost overnight.
• The iPhone/App Store did it for smartphones.  Apps are far easier to find and download, the ecosystem game-changing equivalent of iTunes.  And the UI, of course, is to die for.

I’m afraid I don’t understand the real value proposition of the iPad, although it is providing plenty of entertainment value as we find creative ways to mock the name.

• E-book reader, the flagship app - Pages look beautiful to be sure, but the iPad is pretty large to hold a “book” in one hand, as I often do with the cellulose versions.   Although a pound and a half may compare favorably with a MacBook Pro it just isn’t that light when compared with a paperback. Do I want it falling on my face as I fall asleep reading in bed?  And we could read books on the iPhone just fine thank you if the App Store or iBooks provided the appropriate user interface to the content.
• “The best way to experience the web, email, photos and video, hands down” (direct from the Apple site) - Really?  The MacBook Pro does a great job of all four, and it comes with a handy stand to hold it up for me, otherwise known as the keyboard - a real one.  Granted, it’s not great in portrait orientation……
• “It’s hard to believe we could fit so many ideas into something so thin” (off the site again) - Cool, since it’s smaller to carry than a laptop.  Of course, you do have to provide extra protection for the glass screen when on the move.  A laptop screen is already protected by the keyboard when closed.  The touch screen interface is admittedly wildly cool, but it is equally cool on the iPhone and has a reasonable surrogate on the recent MacBooks.
• Finally, “140,000 apps at your fingertips.  From day one.” - Of course, those are all the apps that are available on the iPhone.

Don’t get me wrong.  I’m a real fan of Apple (see my previous post on Selling the Value), and I believe they get the value proposition right more often than just about any other tech company.  Not only that, but they turn that value proposition into compelling communications that truly grab you.  Except here.

If the iPad were powerful enough to replace the MacBook Pro (easily remove the keyboard, which also serves as a screen protector) or small enough to replace the iPhone (on your hip or in your pocket - ah, the visuals…), it would be wildly compelling.  But it’s neither.

Value propositions are only valid when compared with competing alternatives.  In this case, many of us already have the competing alternatives - a smartphone and a laptop.  Our alternative is to sit tight and do nothing, a very tough competitor for the iPad.  And those of you who already spent your money on Kindles and their clones won’t be impressed with the price, weight or battery life I suspect.

So here’s what I see as the value proposition for the iPad:

For those who are looking for the next great gadget.

• Add a third device to your briefcase/suitcase, and add padding to protect the glass screen.  More weight, less space for other things you like to carry.  Not much of a benefit for travel.
• Get a slightly better media experience than you already get on your MacBook.  Tolerate the need to have to prop it up for free-standing viewing.
• Access an online bookstore that’s as easy to use as iTunes.  Hey, why can’t we do that through the iPhone or MacBook?
• Run the same apps you run on the iPhone but with a larger screen.  Why can’t we run those apps on the MacBook?
• Run some terrific new iPad-specific apps.  Which ones?  What can they do that you can’t do with your current devices?  I’m waiting for the killer app that makes this post all a bunch of nonsense.  The Apple people claim they don’t know what it is yet.
• Finally, spend more money with Apple.  I’m happy to do so when the value proposition is compelling.

The compelling device to me would be a MacBook that can morph into the iPad by removing or folding the keyboard, providing me with all of the MacBook functionality that I can’t get with the iPad and of course the bit of iPad functionality that I can’t get with the MacBook.

Meanwhile, I’ll probably just throw another paperback into my briefcase before leaving on the next trip.  What do you think?

Great news for one and all - Oracle “gets it” on many dimensions…..

• Simplicity - Data centers have become far too complex.  Oracle’s goal is to provide a pre-integrated, appliance-like stack for customers - applications, middleware, database, OS, virtual machine, servers and storage.  And all under a single systems management umbrella and a single support infrastructure.   One admin screen to watch.  One throat to choke in the event of trouble.
• Make the tough decisions - Oracle made very clear decisions about which products to save and which to simply support for legacy customers, a refreshing change for Sun folks.  And saying no to some initiatives provides the capital to invest appropriately in others.
• Get more connected with customers - Oracle will now take its top 4,000 customers direct (for orders and fulfillment), as a means of getting more direct customer feedback and accelerating product improvement.  Anybody reading this blog would guess that we would support this initiative.  Understanding customers’ lives is the best path to strategic insight.  Some channel partners will be less than thrilled with this part of the plan, but it’s great for Sun/Oracle customers and great for Oracle.

Employees, customers and shareholders have every right to be excited about the possibilities of this new partnership.  It has the potential of changing the world order in systems.  But that is not to say that success is inevitable.

• Can Oracle become a successful hardware company by acquiring one that has lately been ….. less than successful?  Fortunately, Sun’s long-time focus on raw performance is a good fit with the singular enterprise app that most values this focus.  Oracle will need to add missing business disciplines, and they certainly know how to do so with software.  Supply chains and repair services, however, will be new experiences.
• Can Oracle turn a company that was losing $100M/month into a money-maker next month?  Larry Ellison claims they can and that Sun will contribute around $1.5B (with a B) of operating profit in the first fiscal year.   That may require some draconian actions and would otherwise sound like fantasy, but Oracle has a successful history of doing this, as outlined by Jeff Epstein, the CFO.  In spite of Jeff’s comments, I would expect to see a decrease in operating margins as hardware enters the mix.
• Although these two companies have a lot in common, significant Sun anti-bodies will resist changes that must inevitably be made.  Can Oracle successfully hold it all together and retain the best people through these changes - and Sun does have some great people?
• The fully integrated stack sounds terrific…..until we walk into an existing data center and see non-Sun hardware and software everywhere.  Wintel, Lintel and other Unix variants are still useful to IT; they don’t wish to toss them while taking advantage of the new Oracle stack.  Will Oracle embrace third-party additions to the stack through both the management suite and certifications of other pre-built stacks, in order to protect IT investments in these technologies?  Will Oracle Virtual Machine (OVM) recognize and embrace a multi-hypervisor environment through single-screen management of the entire data center - nirvana?  Or will this in the end be just one more island of functionality for IT to manage?
• Finally, in order to fill out the total Oracle offering and be a legitimate player among the other Big 3 systems providers (HP, IBM and recently Cisco), will Oracle continue on its acquisition run and scoop up a great services player?  Candidates abound.  And will they bring the network infrastructure in-house as well?  Great dance partners will be tougher to find.

Oracle convinced me they have the capability to execute on their plan, in spite of the large questions above.  If they do, the world order in IT has changed significantly.

Since spending has been cut virtually everywhere, companies are competing for fewer customer dollars. And this is exacerbated by many companies’ business model dependence on growth.

As a result, competition has become more intense. When everybody was competing for a piece of a growing market, there was plenty of room for everybody to succeed. But when that same market slows dramatically,  the only path to growth is through increased market share – taking business from others. And many companies have forgotten how to compete in a tough market.

It’s tough to compete without knowing why customers buy. As we look at the competitive landscape, we see some troubling symptoms of the past, where customers were easier to attract. Companies have lost what it means to truly understand their customers and why they buy from one company versus another. This is manifested in their feature-laden marketing materials, and is deeply engrained in their feature-focused competitive assessments. In today’s tightly contested market, meaningful competitive assessments are especially critical.

Although it’s important to know what specific features the competition is offering and developing, features are only fulfillment vehicles to satisfy customer needs. Customers don’t care about products, services or features. They care about how these can change their lives. Companies must make this feature vs. benefit leap if they are to succeed in a tough market. They must fully understand their customers’ needs, and they must understand how the competition is addressing those needs, both today and in the future.

Would you like to understand the features and specifications that your competition will offer against your new product next year, or do you also need to know how each of those issues affects your customers’ purchase behavior? The difference is critical for two important reasons:

1. Although companies may think they know why - or whether - each feature is important to customers, our experience is that this is not necessarily the case. We have found time and again that this connection is not well understood.
2. Different companies may address the same customer problem in wholly different ways.  You are not competing with others based on features, but rather you are competing with them based on how customers perceive you will improve their lives.

It is powerful to fully understand your customers and your competition. We spend a great deal of time talking with customers. These in-depth conversations help us understand customers’ challenges and goals and how our client might better address them. From this insight comes compelling value propositions that address true customer purchase behaviors. We find that further work is required to develop an understanding of how competitors address those same customer issues – not simply feature lists for the next generation of any competitor’s product line, but market-focused insight into how these other companies will solve customer problems. Generating this insight requires as much discipline as the customer insight, and it’s essential to development of a market-focused value proposition. Bottom line, a value proposition is a complete articulation of a business opportunity only if it clearly articulates how an offering compares to competition on each customer issue. Customers buy based on comparisons among their alternatives, not on absolutes.

Having developed strong value propositions from these market-focused insights, you now have a framework around which to build products and services that fulfill customers’ real needs more effectively than the competition. You also have a much stronger basis for powerful customer communications that address their needs rather than simply your products and services.

In today’s tight market, success demands that companies understand their competition as well as they do their customers. You can improve your chances of success if you employ this market-focused approach to competitive intelligence.

Imagine if the auto industry had continued to innovate as the computer industry has…….

I’d like to discuss that evolutionary process here, but first a brief look at segmentation to insure we’re all on the same page.

Segmentation is on the mind of anybody in marketing at some point.  And every market strategy document discusses segmentation as it describes the market landscape.  With all of this attention, segmentation must be easy then, right?

Segments are just different types of customers.  So, what is it about these customers that causes us to plop them into different segments?  Most of us would agree that a market segment is a group of customers with a unique need for value.   In our jargon, that means that each segment needs a different value proposition and/or a different way to deliver that value proposition.

Yet marketers too often segment customers into demographic segments that have little to do with real market needs differences.  This demographics-based segmentation is done for two reasons - it’s easy to find the segment sizing data, and it’s easy to target in marketing and sales campaigns.  And it’s supported by analysts who use this method because they too find it easier than doing the real work of segmentation for each specific client.

Segmenting a market is an inductive process requiring knowledge of individual customers and their needs.

• Customers segment themselves based on their needs for value, not just whether they look different, and it’s up to us to discover these segments rather than imposing them.
• Customers don’t segment themselves to make it convenient for marketers.  They do so based on their own goals and priorities.
• Segments are also dynamic, changing as the customers, competitive environment, technologies, regulatory environment or any number of other factors change over time.

It’s this last point that brings us to the second part of this post.  Let’s use the auto industry as a proxy for yours.  When Henry Ford introduced the Model T in 1908, he had found an under-served segment of the embryonic auto market that would favor a superior value proposition.

1. Provide a car at a price point that is well below others in the market, making it affordable to a broad group of customers who couldn’t previously afford to own a car.
2. Provide unprecedented quality and reliability, thereby reducing the hassle of owning the car.
3. Finally, make it easy to buy these cars through an independent dealer network.

This set of value was so compelling to such a broad segment of the market (those who wanted an easy purchase and ownership experience and were unwilling or unable to spend $2-3,000 for a car) that the Model T grew to half of all cars sold by 1918, in spite of a plethora of manufacturers.  By 1927 when the last Tin Lizzie rolled off the assembly line, Ford had sold 15 million of them.  It remains today one of the most successful automobiles in history, ranking #8.  And no other car has sold so many in so little time.

So, why did the Model A, the successor to the Model T (had Henry read the alphabet before?), sell fewer than 5 million when the market was much larger?  Market maturity and attendant fractured segmentation give us the answer.

Once the basic needs of a market are fulfilled by one or a few offerings, competitors work harder to differentiate from one another.   What usually happens is that there is no realistic value proposition that dominates like the original did for years, unless a major innovation raises the bar substantially.  Maturing, attractive markets increasingly fracture into more segments over time, reflecting the fact that basic needs are fulfilled and increasingly specific needs fulfillment is required to gain customer preference.

This same phenomenon is valid in all markets we’ve studied.  The lesson for all companies is to not get overly-enamored of the wildly successful offering that took the market by storm for years.  Over time, there will be attractive segments that will yield to offerings more tailored to their specific needs.  What differentiated you yesterday - your big bet - is simply the ante to play by tomorrow.  New conditions require new value propositions that are increasingly differentiated from others.

We conduct many paired interviews with our clients and with their customers.  In these, we discuss the same subjects with our client that we expect to discuss with their customer.  This helps to establish a baseline hypothesis for validation and it provides a great assessment of value alignment.  We have found that in the majority of cases, companies have inaccurate impressions of their customers that can be dangerous to their bottom line.

Here’s a rather extreme but impactful real-life example:  A client of ours had a 20-year, $50M/year relationship with a large customer, and we were asked to talk with that customer on their behalf, as part of a broader engagement.  In order to prepare ourselves, we discussed the customer at length with our client, interviewing them as if they were the customer.  This was a tough customer, we were told, that valued price and price alone.  Although our client had plenty of other value to bring to this customer, we were told that this wouldn’t matter.  We then spent most of a full day with the customer, discussing a broad range of subjects regarding their business - we were not there to sell.  There is one quote from this customer that I will never forget:  “If the only thing you present to me is your price, how can I judge you on anything else?”  Our client’s pre-conceived notions about this customer had colored their thinking so heavily that they created a self-fulfilling prophesy.  Once they got past this, an unexpected and incremental $50M revenue opportunity quickly materialized.

“Becoming the customer” is how we describe learning so much about your customer that you feel you could accurately represent their interests in any discussion.  What are the customer’s goals?  What keeps them from reaching those goals?  What support systems do they have?  Describe the various relevant processes in the customer’s business.  What works and doesn’t work in each of them?  What are the customer’s perceptions of your company and of other alternatives they have available?

These questions and others provide far more insight than a dim-the-lights experience where a company presents its wares and asks then asks them what they want.  We already know what they want.  Your customers want better products for free. Unfortunately, that’s not very helpful or actionable, so you need to learn far more.

Rather than asking your customers what they want, ask them what they do and how they’re impacted in their own lives. By spending a day in their lives and “becoming” these customers, you will become much better informed about how to gain their preferences over time.  This type of conversation will develop true innovative insight that can lead to disruptive change.

Some of the best companies in the world listen to their customers in this way.  When Bob McDonald, the COO of P&G travels, the first thing he does when he gets off the plane is to go to the home of a P&G consumer to watch how they use his products.  Additionally, P&G sends new recruits to live with families in new market areas for months in order to understand them better.  This “day in the life” experience is terrific and far better than just asking customers what they want.  There are lots of ways to achieve it.

Another example:  Xerox has made improving customer experience the number 1 goal of the company.  That’s a really big deal, and it flows from the CEO down.  Ann Mulcahy describes herself as the listener in chief.  They’ve backed this up with a Focus Executive program to assign major accounts to specific execs.  And they’ve created a piece of software called Sentinel that stays in constant contact with thousands of customers to resolve issues and assess their state of mind.  Mike MacDonald spoke last year as the CMO, describing this incredible initiative.  It’s powerful, and it has been a major factor in Xerox’s revival.

If these great companies believe in listening as a strategy, could you?

In response to the previous post, I heard from two clients who have colleagues with substantially different views from those in my post.  They believe that features are the “what” that should be described to customers.  They suggest that knowing about features is plenty of information for any customer. But….but…..

Our belief is that selling is about communication that results in the customer understanding your value proposition (VP) and believing that you can deliver it.  If the VP is compelling, you win.  The VP is not about features.  It’s about the experiences that a customer can expect to get and how those experiences will impact him/her.  

Features are important, but they should be proof points to support benefits; they supply the belief portion of the selling equation.  It’s the benefits that people care about.  I care about whether I can listen to my iPod continuously during an entire cross-country flight and the return without having to lug my charger with me (a benefit experience), and I’d like to not repeat any songs during the trip.  I don’t care in the least how many GB of storage or what type of batteries it has (features).  Those features can support the listening time by helping me believe the benefit claims, but Apple would force me to make a conceptual leap if they didn’t provide that benefit information.  They do.  In fact, they weave benefits and features to create an intriguing story.  

Some markets are indeed sufficiently mature that customers know what a given feature will do for them.  For instance, knowing that my old BMW would go from 0-60mph in 6.5 seconds was a rush.  Not that I had a clue what 6.5 seconds was like, but I did know it was a lot faster than my previous cars.   And knowing that my current Prius requires roughly 3 days for a similar 0-60 run wasn’t a rush at all.  Those hamsters can only spin that cage so quickly.  But that wasn’t an experience I valued in the Prius.   

The message here is simple:  In order to gain the preference of your customers, they must be motivated by a sense of value.  You can either help them understand the value by communicating the value proposition to them or you can hope that they make the leap themselves by only discussing features.  Too many companies take the latter course and are not served well by it.   

We begin with the premise that sustainable growth is achieved by understanding the value needs, perceptions and possibilities of selected markets and then keeping them at the center of all that you do, in every portion of the business.  Value propositions (VPs) are at the heart of our work, examining and creating customer experiences over the full range of customer interaction, so it’s only appropriate that value propositions should be the focus of this first entry.

Ah, the value proposition thing…..  Each of you has already conjured up a concept that you’ve attached to “value proposition” and it’s likely different from the next person’s idea.  A sales pitch?  A tagline?   If the first time you think about VPs is when it’s time to market and sell, then the following ideas will be refreshing (or threatening) to you.  If you’re already obsessed about customer value from the day you begin to think about new opportunities, then what’s here will hopefully be more familiar.

The primary goal for any business is to profitably attract and retain customers.  To do so, you must gain their preference.  Potential customers make their decisions based on the perception that they will somehow be “better off” by doing business with your company.  Whether they weigh the range of evidence explicitly, consciously or not, the collective perception of “better off” is the Value Proposition (VP) that attracts them.  It may or may not reflect what you know as reality - it’s their perception after all.  But it IS the basis on which they make decisions and their perception is their reality, so live with it. And it is always judged against whatever they would do if they chose not to do business with you - their best alternative.

The Value Proposition

What is going through the customer’s mind is:

When I do business with (your company)
Instead of (my best alternative),
I get (an associated set of experiences, both superior and inferior, that in net make me better off),
Because (reasons to believe this is true).

Philip Kotler defines this value proposition as “the total set of experiences I offer customers.”

The most successful companies place this concept at the heart of their business, using it to drive every portion of their company’s activities, from offering development, through operations, services, marketing and selling.  It’s their roadmap to customer-oriented decisions.

An effective VP aligns an organization around a single purpose.  It empowers people to make better decisions more quickly and thereby increases business velocity - critical in a constantly-changing world.

Although there’s nothing wrong with simply mirroring the customer thinking above, we find that it’s too easy to oversimplify and try to squeeze everything into one sentence.  A complete value proposition that drives your business must be a story that describes how a customer’s life will change when they do business with you.  It can be pretty complex for many situations.

And there’s no need to avoid the dirty laundry - those areas where you know by either intent or ability that you will be inferior to the best alternative.  In fact, it’s critical to include it so that known issues can be mitigated from offering development and operations through the sales process.  This dirty laundry of course makes it obvious that this isn’t something to be shouted from the rooftops.  That said, carefully selected portions of it provide content for the shouting.

A VP is a clear, internal statement, describing your offer to a segment of customers.  It is not a product description or a feature list, but rather a statement of why people should care about those things.  It represents why a given set of customers will be better off by doing business with you.  That is, it is attached to customers rather than products or services.  Those products and services are the methods by which you will deliver the value proposition.

Elements of the Value Proposition

1. Target Customers - complete description of those customers within a given market segment
2. Timeframe - when customers can begin realizing this value
3. Best Alternative - what customers will do if they don’t do business with you
4. What we would like them to do - what customers must do to get the experiences below
5. Customer Experiences - the heart of the value proposition, describing how customers’ lives will change as a result of doing business with you, both positively and negatively, all as compared with the best alternative
6. Price - what they will pay

This is much more than a tagline and describes how customers’ lives will change when they accept your offer.  It’s a story.

We often compare the VPs our clients believe they are offering customers with what customers perceive they are being offered.   Although the ideal scenario would show complete congruity between these, reality is otherwise.  All too often, companies sell their products by listing all of the wonderful features they have.  On the other hand, customers don’t care about features, products or services. They care about what these can do for them. When these customers describe why they do business with a particular company, they talk about how their lives have changed and how they perceive they are better (or worse) off as a result.

To be realistic, a VP must be informed by facts.   Facts about your customers and non-customers - their goals, anxieties, activities and perceptions.  Facts about your own capabilities - and those you might acquire.  Facts about your competition - where they’re headed.  And facts about trends in the market space.  Not just any facts of course.  There’s data, and then there’s actionable information.  We prefer the latter.  More about this in later posts.

One final thought:  Any time you are trying to influence behavior - customers, partners, co-workers or friends - a value proposition is involved whether conscious or not.  Wouldn’t you be more successful if it were consciously chosen?