Price rarely the key factor and
Second, there are more people on the planet. On the one hand, this growth means there are more consumers for companies’ products and services. On the other, there are also more people competing for the same natural resources – water, power and raw materials. Everything manufactured ultimately originates from natural resources, which are finite. Yet many businesses and individuals behave as though resources are infinite. These behaviours are unsustainable. As humankind degrades the planet and extracts more resources, our ecologies become dangerously unbalanced and approach a point of no return. There will be more and more commercial consequences around this issue as time progresses.
As scarcity increases, so does cost. At some point, the resources upon which everyone depends will be more expensive or simply no longer available. Governments are trying to tackle these problems but cannot do so alone. They need the help and the co-operation of businesses and consumers. Companies need to be prepared to protect those resources to ensure they remain plentiful, or find alternative sources. Successful companies will do both and, more and more, consumers will demand it. Various global surveys are showing that millennials (born circa 1980–99) support sustainability actions. Millennials are fast becoming a powerful commercial voice as they move into middle age and can afford to pay to support their ethical stance.
CASE STUDY
National Vehicle Distribution (NVD) is an automotive transportation and logistics company based in Ireland. Its customers include manufacturers and dealers in many countries. In an effort to drive down costs, automotive manufacturers have implemented highly regimented purchasing processes, driving ever downward the amount their supply chain can charge. For example, in order to achieve the ‘best price’ per activity, many manufacturers send out separate tenders for each stage of the delivery process: transporting from factory to port; ship transport; customs clearance; delivery and storage at an intermediate destination plus repair to any damaged goods; and finally, delivery to dealer. But is this the best approach?
Today, in many large corporations, employees have become more commoditized – treated as numbers with a high churn. Companies worry less about the loss of any one individual as long as the overall numbers are met. As long as the company’s buying targets are met and staff numbers are adequate, then executives tend to be satisfied. This attitude has set the scene for a major change in employee attitudes and loyalty. The Edelman 2015 State of Employee Engagement study (Snyder, 2015) showed that:
Employee engagement is still widely perceived as falling under the domain of ‘HR issues’ versus being a driver of business performance. Almost 50 per cent of organizations fail to measure employees’ engagement with the customer or the brand.
Today, more and more employees are cynical and distrusting, and question why they should be loyal to a brand or business that does not care about them. There is a direct correlation between happy employees and happy customers.
Customers feel commoditized too. In the name of cost reduction, many businesses (and governments) have streamlined their organizational process to maximize efficiency, but in doing so have cut off much human-to-human contact. Phones are answered by computerized systems that ask the customer to do all the work once done by a customer service department: ‘Press 1 if you want to buy something, press 2 for service management…’ Not all customer issues are merely ‘transactional’ activities like this, which (eventually) solve a problem. Unhappy customers, frustrated customers and angry customers all need to feel they are being listened to by another human being. Will people be loyal to a machine? Both customers and employees feel disempowered and at the mercy of the system as there is no one to listen to complaints or respond to non-standard issues. There is no human connection.
The best-known examples of these new innovators are Netflix, Airbnb and Uber. The latter two use technology to act as a platform to bring together suppliers and potential customers. In the case of Uber, individual car owners become taxi drivers, providing a reliable and more cost-effective service than many traditional taxi businesses can provide. Airbnb offers homeowners the ability to rent out their rooms or whole residences to individuals seeking accommodation. Airbnb acts like a travel agent for clean, inexpensive hotel rooms at a much lower cost than traditional hotels. Each of these businesses uses technology to facilitate a peer-to-peer (P2P) connection between customer and supplier.
This P2P business model puts people in touch with other people who would otherwise never have found each other, and the business takes a payment for these services. While Airbnb and Uber targeted mainstream customers, Netflix initially targeted customers who were early adopters with niche interests. Its strategy was to grow the business out from this targeted elite. Then, when the infrastructure was ready to support a wider audience, a shift occured when the rise of streaming video enabled Netflix to capture the much larger mainstream market.
Shareholders may or may not be fooled. But customers and employees have become disenfranchised and disillusioned by these business behaviours. People increasingly realize that they cannot count on a company to consider their best interests, but must look after themselves.
Technology has changed the way customers buy
According to the 2016 Cone Communications Employee Engagement Study, two-thirds of US employees feel that their work and personal life are becoming increasingly blended and nearly all (93 per cent) want to work for a company that cares about them as individuals. The study reveals an increased expectation for companies to provide not only basic benefits but also an environment that allows employees to bring their passions for social and environmental issues to the workplace. Mature millennials (27–35) and young generation X (36–44) rose to the top in the survey as highly engaged employees in today’s workforce. These segments are prioritizing involvement in social and environmental issues with much more enthusiasm than the average American. Two-thirds say they will not work for a company that does not have strong corporate social responsibility commitments (versus 51 per cent US average); and once hired, they are more likely to be loyal (83 per cent versus 70 per cent US average) when they feel they can make a positive impact on issues at work. Retention among this highly sought-after employee base is extremely important for businesses (Sustainable Brands, 2016).
Millennials want different things from their employers and from brands than the generations that preceded them. Most are very influenced by peer opinion and tend to be far less influenced than their parents by corporate advertising. They will buy from businesses they believe are authentic: in other words, businesses that honestly espouse and live their corporate values (which should match the values embraced by this generation). Corporate transparency, rather than opacity, and belief-driven organizations rank as ‘highly important’ for these buyers. Ethical trading and environmentally friendly processes and products are also a big attraction. With this generation, consumers are taking back their power in the purchasing equation.
Large businesses are losing much of the control and power that they once exerted. Of course, the huge monoliths still have money and power, but they are experiencing an increasing exodus of customers and harder, more cost-driven negotiations with other businesses. Falling sales, declining profits and loss of customer loyalty – however measured – are the leading symptoms of this downward spiral. As this loss of business occurs, senior management looks everywhere for someone to blame – suppliers, government legislation and departments in their own businesses. Typically, business leaders moan about their customers and blame their sales force. What they do not see is that their own structures, processes and behaviours are part of the problem.
In today’s increasingly connected world, how can these companies attempt to improve customer engagement if they do not include the customer in their go-to-market solution? The customer is an integral part of the commercial ecosystem and businesses and organizations are living systems. According to Linda Booth Sweeney, ‘In a spider’s web, what happens on one part of the web affects every other part. The same is true of living systems, whether an ant colony, a forest, an organization, or a city. Like a spider’s web, a living system is so intricately woven that no part exists in isolation’ (Booth Sweeney, 2008).
Companies tend to start by focusing on things they can control, such as operational fixes that reduce cost and/or improve efficiency. Technical, scientific or engineering-run businesses usually take this approach first. Many of the companies that have used the Value Proposition Builder™ framework are technical companies. Most began their improvement process by investing in relevant technical aspects of their business. On the other hand, consumer businesses look to brand and repackage offerings, work that falls within their particular comfort zone. Only after all the technical and operational work was complete, or a new branding/packaging exercise implemented, did the executives take the next step and examine the strategic, go-to-market aspects of the company.
The businesses showcased in this book were doing well when they went down the path to obtain greater understanding of their customers and market. In fact, most of the businesses that embark on value proposition work are in good shape and want to improve their business. They all took the initiative to understand their customers before their companies were in any kind of trouble, trying to obtain a clear picture of what their customers valued as well as what annoyed them. By using a third party specializing in this research, each was able to obtain honest and enlightening insights. In all cases, the feedback shocked them. Up until that point, all the executives would have sworn they understood how they were valuable to their important customers. But their views were proven to be at worst wildly inaccurate or, at best, incomplete.
Both Glanbia Ingredients Ireland and NATS (see the case study boxes), armed with information about what customers valued and did not value, were able to develop a plan to adjust their internal structures, processes and behaviours so as to capitalize on what customers truly valued, what innovations were needed and what things to fix so as not to lose business. Both businesses took a significant first step towards creating a new, holistic approach to their marketplaces and customers and were able to realize benefits very quickly from this joined-up approach.
Andy Head, Business Development Director at NATS, says: ‘The Value Proposition BuilderTM process gave us a new framework to engage with our customers and allowed us to develop the key design that underpinned all the organization changes we needed to become more customer-centric.’
Reduce prices. When margins and/or revenues are threatened, some executives take the simplistic view that the only reason customers are not buying is price. Unless the business strategy is commodity pricing, price is rarely the key factor and, after a short-term flurry of buying, reducing price will ultimately reduce revenues and margins.
Raise prices. Arbitrary price rises without good justification typically anger customers. After a temporary increase in sales revenues due to the price rise alone, customers start looking for other suppliers and revenues fall off.
Introduce a new sales training programme. Frequently, the reasons for falling revenues have more to do with the overall marketing strategy, business approach and aligned sales and company behaviours than a lack of selling skills. The most frequent problems affecting sales are conflicts relating to the sales process, the channels and how the business supports this process. One consumer electronics business spent £1.5 million on global sales training with zero impact before embarking on value proposition work. Focusing on selling skills alone can be an expensive mistake.
Hire a ‘big hitting’ new sales director for his or her contacts book. The days of the hero salesperson who sweeps in and saves the day are over. Of course personal relationships help, but they only get a company through the door and speaking to the right person or people. Ultimate success will be down to a company’s sales proposition. The business processes must support that sales proposition.
Fail to adjust all the internal metrics. In reality, a whole company is involved in the selling process. Everyone in a company needs to be armed with an appropriate understanding of both the organization’s value proposition and its sales proposition. Everyone who interfaces with customers or potential customers – from the receptionist to delivery drivers, from warehouse supervisors to design engineers – needs to understand how and when to promote the company’s offerings and behave accordingly. These people do not need to be salespeople, but they should understand their role in the overall selling process and be rewarded or recognized for appropriate behaviour.
As the list above shows, there are many false steps that can be taken in trying to implement a value proposition within a business. However, successful business change is possible. There are four key insights – based on leading more than 600 businesses through all or part of the Value Proposition Builder™ process – which, if followed, will help a business to move in the right direction:
Applying these lessons can have important positive impacts:
Winning customers: everyone in the market (and sometimes within different parts of the same company) is vying for customer mind-share. Whoever gets there first with the strongest message, wins.