Value your customers

Volume 9 Letter 5

After decades of duking it out over who could make the lowest cost computer HP finally threw in the towel and conceded victory to Dell. Instead of retreating to the background however, HP returned to their roots and started working with customers on some innovative projects. Working with a design firm, HP set up a web site that enlisted customers to help design their next generation computers. Customers must have really liked this idea because thousands took part. Even better, thousands more really liked the new computer designs that came out of that exercise and now HP has gone past Dell to become the largest computer seller in the world.

Half a world away in a totally different market, Rolls Royce aircraft service technicians monitor the performance of their engines in flight. A bird strike on a plane bound for Singapore caused damage to a fan blade causing the plane to pull right. Before the plane lands engineers in the UK service centre have determined the extent of the damage and alerted maintenance in Singapore to install a new fan blade. The blade will be waiting to be installed as the plane pulls up to the gate – an operation that can be performed without pulling the plane out of service.

In another market – this time China – it’s a different story again. The cell phone manufacturer Nokia normally uses a strategy called “trading down” where they occupy the upper niches of the mobile handset market and eventually sell down into the lower tier markets as their market share expands. The strategy in China was failing and local handset manufacturers who were selling low cost handsets were eating Nokia’s lunch (and market share). To turn this situation around Nokia targeted the low and middle low segments and now offers two to three new inexpensive handsets a month to the ever expanding Chinese market. They now are market share leaders in the low end segment and still hold a dominate position in the premium market.

Each story above is very different yet the same in that each company has found what determines “value” for each segment they serve. Value for commercial aircraft engines is keeping the plane operational for a higher percentage of the time. For computers there is a segment that values “cool” over low price and in China there is a segment where value is determined as low price.

Offering more value for customers has always been the winning formula but it’s important to remember that offering more value isn’t always offering a lower price. In each story value is defined very differently by each market and each market segment. So how do you determine “value” in your market?

  • Segment your markets! Value will be defined very differently for different market segments.
  • Evaluate each segment and choose the most attractive segments for your company to compete in (your target segments). To do this, rank each segment on an attractiveness scale of size, growth, profitability, competition and fit.
  • Map out all the stakeholders in your target segment(s) and determine the needs for each stakeholder. In one purchase there can be several stakeholders (Mom who buys the phone and the teenager who uses the phone, for example).
  • Define for each stakeholder in your target segment what constitutes “value” and build your strategy accordingly.

Value is a customer’s belief of things that are of ultimate importance to their business or their life. Find the value and bring it to your customers!

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