We have been working with companies that want (or are forced) to change. Lately, as we consult with clients and conduct change workshops, we have observed a recurring frustration. Call it the “Value Challenge.”
All around the country, CEOs who believe they sell "value" are losing bids over pricing issues and are realizing that being a "value-add" solution provider is not as valued as it used to be.
Their well-designed products and services seem to have "great value” but if they can be easily replaced by another company's solutions at a lower price, what have they actually created? Something ephemeral? Of not such great "value"?
These CEOs’ frustration, even anger, led them to engage SAMC to work with them on the concept on value— specifically, what it means in the hearts and minds of the user. Our task was to help them figure out what to do when that wonderful "thing" they spent years creating no longer aligns with the price/value their customers want today.
What is value, anyway? Kind of what you make it.
Webster's Dictionary defines value as "the regard that something is held to deserve; the importance, worth, or usefulness of something." In other words, something’s value is determined by how it is perceived, not an "inherent" value.
Are you a business leader facing a "value challenge"? If so, here are a few things to think about.
The question of value is directly impacting companies facing major changes in their market space. Whether they manufacture craft beer, distribute innovative water bottle filling stations or create automotive products, they are watching their customers’ tastes change, which in turn is redefining the value of their products or services. They and others much like them are facing what we call the "value challenge." Is that you?
Some observations that might help you respond effectively.
1. The source of the problem may be in how you define that “value.”
Why do you think you have the right mix of design and function to warrant the price of a "value" product? Just “because?”
Although we encourage companies to think “value + innovation” and remove unnecessary costs to reach the price the user wants, we find that most of them tend to add cost as they add value. The result, at times, is an over-engineered product that has too much "me-too" components to warrant that higher “value-add” price. If a purchasing agent or a consumer can easily replace one solution with a cheaper alternative without giving up too much, you have over-designed your solution, adding "value" way beyond what is required, or perceived to be needed.
2. Why do you think you are so right and the purchasing agent or consumer is so wrong?
Ask yourself: Why do you think what you are providing is of such "value" that it is worth a premium price? Perhaps egocentrically, many manufacturers tend to think they are the "best of the rest" or even the "only." But when put to the test out in the marketplace, are the attributes that they value so highly—the things propping up that high price—truly appreciated or needed by their customers, so much so that they’ll spend handsomely for them?
3. Market demands are changing. Are you ahead of or behind those changes?
It doesn't seem to matter if you are in the B2B or the B2C world, the business environment is dramatically changing. Supply seems to be outpacing demand, and today’s buyers are often 30-somethings who search the internet to find their solutions at a price they wish to pay. Value to them means ease, speed and simplicity, not complexity.
This is challenging to almost every business out there, threatening the “great value” they worked hard to create. Are you in the same boat? Are you stuck in the same market you have always competed in, even though your customers might have moved on? Or are you out there looking for new market space? Are there nonusers searching for your solution whom you are disregarding because they don't fit your current buyer's profile? Are there unmet needs you could fulfill if only you looked with fresh eyes at what people want today?
To illustrate what I mean: Yellow Tail wine went after non-wine drinkers by focusing on people who typically drank beer or hard liquor. They created a wine that was easy to buy (color coded), easy to drink (sweeter) and affordable but not "cheap" ($6.99, similar to a premium beer). Result? They’ve sold over 1 billion bottles of wine since 2001.
Yellow Tail is a model worth reviewing for those of you who feel left behind by purchasing agents or consumers who are seeking reasonable-quality products, services or solutions at the right price for their needs—and they’re not considering yours. Maybe you need a new business model to go after “non-users.”
Time for a new value-proposition?
To help you navigate your way through the constantly shifting business landscape, we’ve come up with the following 5 points for you to consider: Think of it as a checklist for "real value versus a value challenge."
1. Your sales folks can tell you pretty quickly about the pressures they are facing when they are out with potential clients. Ask them what they are hearing. Then listen carefully. 2. Internet searches can give you amazing information and insights about what keywords people are using to find solutions and answer their questions. Are you set up to capture them? 3. Don't think about the competition. In fact, make it irrelevant. What is your real value from the perspective of the end user? This is not about how you match up with the others? 4. Look at your data. Have sales been climbing or sliding over the past 12 months? What is the underlying story of those leading indicators? Has the sales process changed? Have you? 5. Try and shop your own business and see how easy or difficult it is for you to solve a problem with your product.
It won't take long before you discover a lot of holes in that "value-add" you thought was the essence of your business.
Maybe it is time to take a deep look into the entire business model you have created. What could you eliminate or reduce to create new value in clever, innovative ways? As you do this, keep in mind that those things you hold so sacred may mean little or nothing to your buyer. If so, guess what? It’s time to change.