Product Innovation :: Lean Sales and Marketing thru Service Design Thinking

Archive for Product Innovation

May

Will someone pay for Intangible Value?

Posted by: business901 | Comments (0)

In a recent blog post, Looking for a Game Changer, Start Underperforming!, I discussed the book Uncommon Service. Next weeks Business901 podcast guest co-author Anne Morriss discusses the four universal truths outlined in the book for delivering uncommon service:

You can’t be good at everything.
Someone has to pay for it.
It’s not your employees’ fault.
You must manage your customers.

This is an excerpt from the podcast:

Joe: The next service truth is that “Someone has to pay for it.” We talk in the Service Dominant Logic^TM Thinking (Vargo and Lusch,2006) world where the value is in the use of the product. That is what attracted me to your book, the service side of everything. One of the things that is happening, we are making a transition from a product to a service focus; we’re switching from a tangible to an intangible world. The things that we are giving away free to sell our product now, are actually the things that have value because our product has been commoditized. I thought your number two service truth, “Someone has to pay for it,” addressed that. Does that really address moving from that tangible to an intangible world?

Anne: It’s such a wrenching process and an important journey for some many companies. So many companies are going through it right now ?? some of the most competitive companies in the world. GE used to sell light bulbs. Now, they’re providing energy solution, if you look at the profit?drivers in that company. The same is true for IBM. Those companies are on a big learning curve, right now, in terms of figuring out, what does it mean? We would argue it changes everything! It changes every part of your model. You have to think about the four pieces of a service model. We’re talking about in our world view, it’s very different depending on services whether you’re selling products or selling services.

The importance of culture, it matters more in services. The funding is harder in services. To your question, Steve Jobs can go into his secret phone lab and come up with the perfect phone. Most of the value of that phone is embedded in the product itself. But, when you’re selling services you have to involve customers. You have to involve employees in a very intimate way in the value creation process. All the rules are new and different.

Now the funding mechanism is a lot harder. It’s easier for us as consumers to pay more for something tangible that we can touch and feel. That’s why Starbucks charges you a lot for that drink that’s sitting on the counter even though a big part of the experience is the beautiful space, and the comfy chairs, and this third space that Howard Schultz envisioned that was just as nice if not nicer than your living room, and filled with beautiful people, and inspiring in terms of your productivity.

It would be absurd to put meters next to those chairs. It’s a lot easier to charge five dollars for a cup of coffee. That’s one of the challenges that service companies have to wrestle with when you’re talking about this kind of intangible value that you can’t drop on your foot. How do you get people to pay for it?

Our basic message is you need pricing that’s simple, transparent, and fair. The other piece of it is that the answer might not be to charge your customers more. You may have to figure out other ways to fund it.

The book’s website is an excellent resource and I encourage you to take the survey and utilize the Service Design Tool located there. This is a very challenging perspective for most of us. However, I think you will find the information to be well researched and presented in a compelling fashion.

Does Lean create Innovative Companies?

Posted by: business901 | Comments (0)

Many people only view Lean as a methodology to reduce waste, improve flow and drive internal processes. Many have even hijacked the term customer and created “internal customers” and lose sight of the true customer and the marketplace. These companies do not recognize Lean as a business process that strengthens and grows a company through collaborative learning. However, it is this model in conjunction with the concept of “Pull” that are the fundamental concepts of Lean that provides the value to innovation .

The ever increasing platforms of co-producing, open-innovation, co-creation is moving innovation from an exclusive internal platform to a more external platform. True innovation is not happening inside the 4 walls of an organization but out in the customers’ playground. As Voice of Customer tools get more sophisticated, we are not reacting and thinking of the next step needed to delight our customers, we are allowing them to show us the way. Organizations may lead in “design” but in use it is the customer and in use is where the value is derived (Service Dominant Logic Thinking Vargo and Lusch,2006).

Many would argue the Lean is about incremental improvement. It does not allow for breakthrough thinking. I agree that SDCA and PDCA and even the continuous mindset may not deliver breakthrough thinking. However, like most things you start one step at a time. The culture of Innovation starts with culture of continuous improvement. To start with breakthrough thinking is very difficult and typically not successful. You cannot just turn it on. So starting with PDCA and a continuous improvement is the only successful way, to create this “i (little i) culture.

Ramping it up and truly doing breakthrough thinking, the big ‘I” is when you must engage and understand your customer/market extremely well. This could be a description of the culture a Lean company from a Scott Anthony FastCompany Post on innovation:

A classic example of this is how a calligraphy class inspired Apple legend Steve Jobs’s emphasis on typography on early computers. The professors then detail what they call the “Innovator’s DNA,” four time-tested approaches successful innovators follow to gather stimuli that spur these connections:

Questioning: Asking probing questions that impose or remove constraints. Example: What if we were legally prohibited from selling to our current customer?

Networking: Interacting with people from different backgrounds who provide access to new ways of thinking.

Observing: Watching the world around them for surprising stimuli.

Experimenting: Consciously complicating their lives by trying new things or going to new places.

I like to use the term EDCA learned from Graham Hill to designate the Explore aspect of Lean. I view it as more of Design Type thinking content that allows for that collaborative learning cycle with a customer. This is a link to my blog post on the tools of SDCA, PDCA, EDCA: http://business901.com/?p=8490.

Why Lean? Design and Innovation takes place outside the four walls and Lean can be the methodology of choice. It drives both the Little i and the Big I. The first and foremost reason is that it allows the 1st step for innovation. Lean is the primary driver for the little i DNA. As a result, it allows for that culture to spread and create the DNA for the BIG I. Without Lean and the little i, you may never start!

My upcoming Podcast with Dan Jones dives into this type of Lean Thinking. Review these past post to provide some additional background, Thinking Back from the Customer –Lean Summit 2011 and The Challenge of Lean with Dan Jones.

The Irrelevancy of List Price

Posted by: business901 | Comments (0)

Rob Doctors, lead author of the book, Contextual Pricing: The Death of List Price and the New Market Reality was my guest on the Business901 Podcast. Rob believes that pricing decisions need to be driven by customer context rather than simple list prices. Pricing is more than just an issue of margin and production costs, but rather a complex set of contextually factors best defined as an outcome. In the podcast, we discussed the outcome of four contextual factors:

Situation
Objectives
Perception
Capabilities

An excerpt from the podcast:

Joe: If I need to change my pricing structure and look at contextual pricing, what would be the compelling reason for me to go that direction, right now?

Rob: Better margins in a nutshell. Because, think about it, once you’ve set a list price, the traditional way of doing it. It’s really tough for anyone in your organization to sell above that list price. I’ve set a list price on, whatever, my plastic clam shells for holding food in a supermarket. The next moment a customer runs in saying "Rush order, rush order, I desperately need clam shells. I’ll pay you a million dollars per clam shell!" You look in your book and you say "I’m sorry. I can only charge you $0.30 for this clamshell because that’s our list price." You immediately cut off the benefits by setting a list price.