At the foundation of my Sales and Marketing thinking is a program that I helped develop with Dr. Eric Reidenbach; it is the 5Cs of Driving Market Share. Since that time, I have added and subtracted a few things from it, but at its core is an outline focused on customer value. A short overview:
- Customer Identification: Evaluate your value streams (products/markets) using metrics such as current market share, market growth rate and competitive intensity to assess the best targets for the organization.
- Customer Value: Create a value model for each of your value streams (product/markets). This value model is the voice of the market (VOM) that drives all operational and strategic initiatives undertaken by the organization. The VOM replaces agendas, hunches and strategic guessing as the guiding factor in growing market share. Value has been shown to be the best leading indicator of market share and top-line revenue growth.
- Customer Acquisition: An organization’s value is relative to that of its competitors. This is part of the buyers’ comparative calculus in assessing where to buy. The buyer is asking a simple question: “Is this brand worth it?” By understanding your organization’s competitive value proposition, leaders make better decisions regarding market share growth.
- Customer Retention: For value leaders, the focus should be on enhancing value to sustain their leadership position. Extending the gap between the value an organization provides and the value provided by the nearest competitor can lead to best in market status. Value followers will want to improve those elements of the value creation and delivery system that will close the gap. Organizations need to enhance or improve their competitive value proposition in accordance to the directives of the market place.
- Customer Monitoring: Put monitoring systems into place to ensure that their competitive value proposition accomplishes what is intended. This control effort focuses not only on the more strategic value proposition, but also can be set up to monitor specific transactions such as sales, repairs, inquires and other customer experiences. This monitoring process acts as a trip wire, providing information where there are potential people, product of process issues that require intervention.
Please watch this presentation
Lean Sales And Marketing Customer Value (About 18 minutes long)
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Video Discussed in Presentation
However
Only the customer can determine value. Your product or service has zero value in it. You cannot build value or even create it through clever marketing. Value is only created when a customer puts it into use. This is Service Dominant Logic Thinking (Vargo and Lusch (2006).
edited by Robert Lusch and Stephen Vargo they present the case to use SD-Logic as a foundation versus a total integrative marketing method. I believe that Lean viewed through the lens of PDCA as a knowledge creation platform can serve as the vehicle for implementation of this Logic. The principles of SD-Logic cannot be implemented in various silos of an organization, just as the basic principles of Lean cannot. It requires a cultural and fundamental shift within the organization placing the customer and user experience becoming the center.
Let me start by listing the foundational principles of Service Dominant Logic described in the before mentioned book. These principles were later developed into 10 (Vargo and Lusch, 2008a)
- Service is the fundamental basis of exchange.
- Indirect exchange masks the fundamental basis of exchange.
- Goods are a distribution mechanism for service provision.
- Operant resources are the fundamental source of competitive advantage.
- All economies are service economies.
- The customer is always a co-creator of value.
- The enterprise cannot deliver value, but only offer value propositions.
- A service-centered view is inherently customer oriented and relational.
- All social and economic actors are resource integrators.
- Value is always uniquely and phenomenologically determined by the beneficiary.
Essential concepts in the new way of thinking about marketing is that customers are always co-creators of value. It’s the way that the customer sees value, whether it’s in the physical good, or if it’s in a service or a combination of both of those and if they don’t see a benefit to them they’re not going to engage with you.
Is your marketing firm or department having this conversation with you? Are words like SD-Logic, Service Dominant, Co-Creation, Value in Use, Customer Decision Making Process, Experience Economy, etc. part of your normal marketing conversation. If not, you may need to re-consider your marketing communication efforts.
The Video is from University of Queensland Business School. With dual accreditation from the world’s two pre-eminent education accrediting bodies, and a 5 star rating for its MBA program, University of Queensland Business School is among the ranks of elite global leaders. It was the first business school in Australia to meet the high standards of the world’s most influential accrediting bodies – the US-based AACSB International and Europe’s EQUIS accreditation.
Related Information
Service Dominant Logic by Stephen Vargo and Robert Lusch
The Evolving Brand Logic: a Service-Dominant Logic Perspective by Michael A. Merz and Yi He and Stephen Vargo
Rolls Royce paper on transitioning from Goods Dominant logic to Service Dominant Logic by Irene Ng
Service Dominant Logic (marketing) – Wikipedia
Go to the next page LSM/IdentifyValue
Bonus Material
Value can no longer be defined as What a Customer will pay for!
When we use money as the premise for value, “What a customer is willing to pay for” makes sense. We certainly pay for the value of a Ferrari. Using this argument, money can be the determining factor of value. However, something about it rubs me wrong and by the way, I am a capitalist at heart, so it is not the warm and fuzzy stuff that is causing me to think this way. The term is widespread but in present day scenarios, I think fundamentally flawed. We live in a world that has excess supply and as a result we have to start viewing the market from the demand side. So the connotation what a “Customer will pay for” is problematic for me since it seems to be from an internal focus. The term stems from the process improvement mindset of the 90’s and has stayed with us through the Customer Experience decade. Now as the User Experience decade is upon us, it is simply not useful anymore (excuse the pun).
Many organizations justify improvements by using the word value and customer, internal or external. In fact, the process at times becomes more important than what the customer values. If it is not tied to the marketplace and improvement shown there, why should you do it? The other problem is that someone shows how much savings they create (Cycle Time, Space, etc.) when in fact there was none. I equate it to politicians when they slow down the growth of government spending and proclaim it as a cut in spending. What purpose does creating internal value serve without a demand for utilization? Should value not be perceived and created from an outside-in approach versus an inside-out approach? Is that not what pull is all about?
A good dominant marketing logic arguably limits the mind-set for seeing the opportunities for co-creation of value with customers and other stakeholders of the firm. In a similar way, a transactional exchange view ignores customer loyalty and puts constraints on developing the lifetime value of the customer to the firm. The S-D logic proposes broadening the logic of exchange, both social and economic. – Lusch and Vargo Marketing Theory, 2006
I have seen a significant shift in the concept of value. Facebook, Twitter, LinkedIn, Craigslist, software companies and others that allow “use” free of charge. It is not a free trial offer. We derive value from it. If we want to extend that value or increase it we pay; Ads, users, membership, etc. Value is something (product/service) that someone uses. For example, if I download software or buy a book but do not “use” it, it has no value even though I purchased it.
It is in the use of the product/service that value is derived. I think of value in 3 ways: Functional, Emotional, Social. Thinking of a Ferrari (example from my esteem colleague Graham Hill), I use it to drive (functional), makes me feel good (emotional) and what others think – I am successful (social). All provide value but without the latter two, I could buy a bike. Using this as a guideline, value (Functional, Emotional, Social) is embedded in the use of the product rather than the price.
Forrester predicts that by 2012 half of all consumer purchases will either be transacted online or driven by online research and word of mouth. To succeed in the digital marketplace, it’s no longer customers that matter most, but users—anyone who interacts with your company digitally. Keep users happy, and customers follow.
If we only leave price be the governing factor, would value only be a commodity? I think it is more about users and the use of the product that determines value, Facebook being a prime example.
Today’s most successful companies organize their business around users and building user satisfaction,” writes Aaron Shapiro CEO of digital agency HUGE in his book Users, Not Customers: Who Really Determines the Success of Your Bus….
Today’s most critical driver of success is usability excellence. Users will be your growth engine for your customer base and for your entire organization!
Aaron Shapiro’s Podcast: Who Really Determines the Success of Your Business