There is a critical element missing from this story.

This podcast is 7 minutes 21 seconds long

“Price is only an issue in the absence of value.”

This pithy little sentence reminded me of the continuing importance of the concept of “value”. One tough part of understanding and leveraging “value” is to understand where it originates.

Most business people act as though, and believe, that value is something that they develop, design, promote, sell, and produce for customers. Every function in a company believes that they produce value for their customers. Marketing and product development invent, position, and promote customer value. Every other function along the way to the actual delivery of a product or service to the customer declares that they are producing value for customers. But, ask, “How do you know that you are producing value for customers?”  Very few can demonstrate that they systematically ask real customers to evaluate the value provided and actually act on the feedback they receive. So, this value is a self-defined and self-evaluated proposition.

The toughest point about “value” is to actually understand and embrace that customers define value. They define it as they make purchase decisions for products.  In the case of services, customers continuously evaluate value. This occurs through those Moments of Truth^[[1]] that happen every time a customer engages you for a service.  It is easy to say, “Customers define value”. It is enormously difficult to follow the logic of this statement and implement the processes to assure that value definitions flow from customers. This commonly starts at the very beginning of the product development and marketing processes. Then, other processes pick up and carry it throughout the life cycle of a customer relationship.

Start with some basic ideas and work to the more rigorous. For example, think through the implications of the age-old selling technique, FABing (Features, Advantages, and Benefits). Most of us are reflexive and exhaustive in listing the features of our services. But, discipline yourself to confirm what the benefits are. Here is the parallel with the principle that customers define value, customers only buy benefits. Start with benefit statements and work backwards to the supporting advantages and features. This simple tool, applied to the new product development process, for example, means that you actually ask customers to help you invent the product/service. They get to define the benefits they are seeking. Then, engineers and others can develop the features to supply the benefits. Always ask, “How does this feature deliver a benefit customers said they want?” This will help to prevent feature creep and gratuitous design.

Now back to our aphorism – “Price is only an issue in the absence of value.”

Now that we think that we might have a method for determining what a customer desires in a product or service, how do we attach a monetary value to it? Our aphorism suggests that if we can present some real value to customers, then the price we charge will always be OK. However, if you are involved in a commodity, or near commodity business, for example, pizza, automobiles, refrigerators, aspirin, and so on, you are stuck with the fact that the price is quite driven by direct comparison shopping. So, by and large price really is an issue.

Some of these commodity markets actually offer substantial price ranges based on perceived brand valuations. Think of the price of Bayer aspirin versus generic aspirin, for example.

But, for most small businesses the only brand available that can win the higher price is one supported by real values like proximity, friendliness, promptness, politeness, courtesy, responsiveness, reliability, thoroughness, and others. Note that these values can be produced reliably and repeatedly. Note that these values offer opportunities to build a sustainable advantage over competitors.

These values apply to professional services, retail, home services, medical, wholesale distribution, in fact anywhere where business is conducted between humans. Without much of a stretch these same values apply on the Web.

The key challenges for most small businesses, especially those involved in services, is to correctly understand the total value you are delivering to customers. And, you must present this to customers in a manner that upsets their mental framework, their points of view, that they approach the service with. For example, is a will just the 20 page document that costs $800 placed in your hand? Or, is a will really a series of services that encompass uncovering your real desires for passing things and values along to your heirs and ends after your death with the proper carrying out of your wishes?  An initial difficulty is to overcome the presumption by the customer that a will is just a document. How do you upset that framework and replace it with a new one that encompasses a larger, more valuable, cycle of services?

There is no cookie-cutter solution to this. But, the first necessary step is to envision the value, ask customers about this new vision, revise the vision based on what you learn, and then you will be positioned to answer the questions: (a) how do I reframe the value proposition, and (b), what monetary value do I attach to it?

I believe that if you do a thorough job of answering the first question then, in fact, assuming no craziness in the valuation, the aphorism will hold:

“Price is only an issue in the absence of value.”

1. you can download a whitepaper on Moments of Truth – “Managing Moments of Truth  – Value Creation for Services Organizations” from our Resources page

This podcast is 3 minutes 51 seconds long. The text is available here.

The age-old problem of rolls of aluminum foil, plastic wrap, and other rolled goods jumping out of the box when you are dispensing them was actually solved years ago by a clever packaging engineer.

My sister-in-law, Meredith Morgan, an award winning chemistry teacher at Governor Livingston HS in Berkeley Heights NJ, learned this from her students one day when she was fumbling around in front of a class with a roll of aluminum foil.

“Dr. Morgan, don’t you know about the little tabs your press in on the ends of the box?”

She didn’t. But she learns quickly. Meredith was so impressed by this innovation that she demonstrated it to me on every box of foil, plastic wrap, and wax paper in the kitchen.

Now, you might ask, “What does this have to do with my business?”

This is a good example of a small innovation with very practical, day-to-day utility that has probably never been marketed beyond the end of the box. Yet, it works well, addresses an annoyance that every consumer has experienced, but, somehow the solution has remained unused, probably by most consumers.

Note that once you learn of this little push-in tab, you will probably look for it on the end of every box of roll goods you buy. You may wish to follow this discovery on the Web, search on Google for “press here to lock end”

A further example of hiding innovations comes from a customer advisory board meeting for the Albany NY region of a major telecommunications provider. During this meeting, attended by many major customers from health care, high tech, industry, and government, a number of customers said, in response to the comments of other customers attending, “They provide you with that service? I did not even know that they offered that!” Here were major customers of a large, successful telecom who were not aware of significant service offerings. Needless to say, this telecom learned that their marketing efforts were ineffectual and needed more work. If you current customers do not know of your product or service offerings, how could potential customers discover them?

Have you made innovations in your products or services but never told your customers about them? Do you make innovations without even involving customers? When was the last time you actually asked your customers what they like about your products? Have you examined how customers use your product or service? Do you have a formal process to gather customer feedback? Do you have a Customer Advisory Board to drive innovations?

The first billion cellphones sold in 20 years; the second billion in four years; and the third billion in two. 80% of the worlds population live within range of a cellular network. The uses cell phones are already being put to in the underdeveloped world are quite unlike those in the developed countries. The only way to understand these and to begin to elicit input from new users is to go out and ask them, face-to-face. So, Nokia has full time personnel, on the ground, sending reports back to headquarters and trying out mockups of potential new products with real people.

It would serve everyone who is envisioning a new product or service to ask themselves:

• “Have I actually asked real customers what they want or need?”
• “Have I tested my ideas and received direct feedback that my product actually delivers a value someone wants to pay for?”
• and so on.

Don’t let your engineers, marketers, sales people, or worse, you own enthusiasms, substitute for live human feedback.

The transformation of “customer driven”, “customer-centered”, “customer-defined” from just empty buzzwords in the latest management books to central values, key strategic skills is continuing.

Patricia Seybold’s 2006 book Outside Innovation: How Your Customers Will Co-Design Your Company’s Future (Harper Collins, New York 2006) provides a broad review of many techniques used by a wide range of companies to incorporate customers and customer ideas into product design. The book is sufficiently current to include examples for web-centered customer environments. Ms. Seybold has gathered a large number of examples in varying market segments. This makes the book a worthwhile read just for these through examples. Unfortunately, the formalization of the ideas remains low. This makes this book look and feel like a collection of anecdotes. The book closes with “Five Steps to Outside Innovation”, “Five Core Competencies to Master”, and “Five Pitfalls to Avoid”. Unfortunately Ms. Seybold never really develops her copywrited, “Customer Scenario” to organize the methods and approaches to get beyond the notion that customer inputs to innovation are a series of “I want….” statements.