Associate Partner Optima Partners
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How to uncover the hidden customer value that differentiates your brand

How you create value for customers and differentiate your brand from the competition should be reinforced in the customer’s journey. But sometimes it is not clear. Here's how you can identify how your business really creates value so that you can reinforce that differentiation in your journey design.

21st Sep 2020
Associate Partner Optima Partners
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Treasure hidden value
istock

The foundation for any organisation’s customer experience is its value proposition. How you create value for customers and differentiate your brand from the competition should be reinforced in the customer’s journey with you – how you serve their jobs-to-be-done and help them achieve their desired outcomes.

Your value proposition may be articulated in formal terms as a brand or customer promise. When a brand promise is both clearly defined and a genuine source of differentiation, then reflecting it in your customer journey orchestration is relatively simple.

But often that is not the case – the promise is neither explicit nor specific (meaning it is something that every company in your industry could say). In such instances, the framework below can help you deconstruct how your business really creates value for customers in ways that are different to your competitors so that you can reinforce that differentiation in your journey design.

To highlight its applicability, I have applied the framework to the leading UK supermarket businesses using publicly available data. For current and former UK residents, hopefully this will highlight its value. (And for those of you who are not, happy to discuss you how it could be exemplified intuitively with a sector in your country.) 

The two parts to value creation

How you create value for customers can be split into two parts. Firstly there is the outcome you help them achieve – the core value you are creating. Secondly there is the differential value – how you help them complete the outcome’s component jobs-to-be-done differently to your competitors.

If we take the desired outcome of having enough food in the house to feed your household for the next week, this requires a number of jobs to be completed. Supermarkets don’t help with all the jobs (although they could help with more than they do), just the core shopping jobs. In the case of shopping in a supermarket (rather than online) these include: deciding on where to shop; travelling to the supermarket; finding items on the shopping list; identifying alternatives for products that are out of stock; going to checkout and paying; then travelling home.

How supermarkets help customers complete these jobs is how they differentiate their services.

Creating differential value

So how can businesses create differential value? With the objective of creating a generalised framework (rather than an industry-specific one), many years ago I researched and collated a long list of benefits that businesses could offer in conjunction with the core value they delivered. Then by asking one of the most powerful questions that marketers can ask – what is the benefit of the benefit? – I abstracted the benefits into higher level groupings.

While the core categories have remained the same, over time the number has increased. At inception there were seven. In the article I wrote for the Harvard Business Review website in 2011 there were eight. And in the latest version there are nine – Quality, Choice, Convenience and Responsiveness (the functional components); Feel-Good and Trustworthiness (the emotional dimensions); Savings, Risk reduction and Productivity gains (the financial elements).

Differentiating your value proposition is a design challenge. Designers, whatever their field, have a fixed set of elements which they need to combine and trade-off. Product designers need to consider shape, colour, texture, material, pattern, ornament and cost. Similarly, interior designers must work with space, light, colour, pattern, texture, focal point and cost. My aim with creating the categories outlined above and described in more detail below was that they could be the equivalent for value proposition designers.

The value palette

One way of reflecting the creative challenge of combining these elements is depicting them as colours on a painter’s palette, with shades depicting the different ways they can be delivered (see Figure 1 below).

value palette

Figure 1: The value palette [click to enlarge]

The value sources are often interrelated rather than mutually exclusive – particularly across the groupings of functional, emotional and financial. High functional value typically delivers productivity gains, reducing the need to offer savings through low pricing. Functional value in the form of high quality and excellence also impacts emotional value, again with implications for pricing and financial value.

Functional value sources

Quality

Quality has a number of sub-elements to it. Firstly there is the breadth and depth of functionality that the product or service delivers. The broader the functionality, the more jobs the product enables the customer to complete (the Swiss Army knife being a classic example). The deeper the functionality a service provides, the better it enables a specific job to be completed, for example a specialist laser measurement tool providing greater precision than its alternatives.  

In addition to the functionality dimension, there are also the classic dimensions of total quality management – low defect rates, low service downtime and low variability.

Choice

Choice enables customers to get exactly what they want. It is delivered through providing a wide range and variety of options, service flexibility (as with pay-as-you-go car insurance and coverage where customers can swap in and out what is covered) and scalability (enabling customer to scale up and down usage with their needs, as with cloud services), service customisation (such as Nike trainers) and personalisation (bespoke tailoring being the best example).

Convenience

Convenience delivers savings in both the time spent by the customer when completing a job and the effort involved, both physical and cognitive. It is delivered by making products and services simple and easy to use with high availability in terms of both where and when they can be used.

Responsiveness

Responsiveness also delivers time savings to customer, but in how much time they have to wait rather how much time they have to spend (savings in elapsed time rather than duration). Responsiveness is enabled by fast turnaround times for quotes, order processing, delivery and issue resolution. The pinnacle of responsiveness is proactive service, where the provider recognises a need or a problem before the customer does and contacts them with a proposal, as opposed to the norm of reactive service where the business waits for the customer to get in contact.

Emotional value sources

Feel-good

Emotional value stems from how the product or service makes the customer feel. It is often a function of one of the functional value sources. For example, the benefit of a bespoke suit isn’t just that it fits well, it also makes the customer feel very good about themself. Feel-good is associated with excellence and prestige (luxury marque cars being a prime example), also uniqueness or scarcity (often due to high price). At a simpler level it may stem from making the service enjoyable and entertaining (e.g. using gamification) or from simply making the service more comfortable, for example wider seats and more leg room in premium economy airline services.

Trustworthiness

Trustworthiness reduces the risk of customers feeling bad about a purchase – easing stress and worry. There are multiple sources of trustworthiness – acting authentically (in line with stated values) consistently meeting promises (doing what the company says it will do), looking after customers by keeping them safe and secure, also being transparent and providing customers with control where possible (for example with regard to use of their data). Finally there is the ethical dimensions of trustworthiness – going above and beyond baseline required by legislation in areas such as environmental impact, data privacy, and health and safety.  

Financial value sources

Savings

Savings are delivered through offering a basic service and selling at a lower price than competitors – easyJet and Ryanair being examples in the airline industry. These savings can either be in up-front or ongoing costs or both.  

Capital cost savings are most prominent in B2B markets. One long standing example from the automotive industry is suppliers providing just-in-time delivery services to the vehicle manufacturers, reducing the amount of money their OEM customers have tied up in working capital. Another example is servitisation, where normally expensive equipment is provided as a service and paid for on a usage basis rather than being sold with a high up-front cost. Rolls Royce’s Power by the Hour is probably the most famous example of this, but it is also increasingly popular in office-bases services such as pay per copy printing.

Risk reduction

Reducing risk to the customer is another way to create value. Risk in this context is the potential for a cost in the future – for example, having to replace a printer because it has gone wrong – or loss of earnings.

One example of reducing risk related to a purchase is offering an extended period during which the customer can return or exchange it. For example if you purchase a dishwasher or washing machine from John Lewis in the UK, you have two years to exchange the item in the event of it going wrong rather than the usual one year.    

Productivity

Productivity gains stem from delivering savings on other costs rather than via the price of the product or service itself. These efficiency improvements are particularly relevant in B2B markets where there is significant scope for services to enhance productivity through reducing staff costs (fewer interventions, lower downtime and less re-work), lowering raw material costs (through waste reduction) and decreasing overheads (smaller space requirements). But they are also applicable in B2C markets, for example reducing automotive maintenance costs through using a higher quality engine oil.

There is also a growth enablement element to productivity. Again this is most applicable in B2B sectors with suppliers help their customers to sell higher volumes or to sell at higher prices and margins. A great example of this is Intel, who for many years contributed funds to PC brands to support their advertising as long as they included Intel Inside in the advertisement. The increased advertising expenditure helped grow the PC market, increasing volumes to the benefit of both parties while also helping Intel and its PC making customers achieve a premium positioning in customers eyes in a mutually beneficial way.

Mapping differential value

While the palette representation encourages the creative use of this framework – for example in the case of a start-up seeking to create a new category of service – it is less helpful for deconstructing differential value in an existing market. This limitation can be overcome by using a more linear representation, particularly if it incorporates the concept of value mapping, as described by W. Chan Kim and Renee Mauborgne in their 2004 article on Value Innovation. This involves measuring performance on each of the dimensions (see Figure 2 below for an illustrative example) so that the value profile can be compared with competitors to identify areas of superiority, parity and inferiority (either by design or unintentional). 

value map

Figure 2: Illustrative value map of the nine differential value sources [click to enlarge]

Applying approach to UK supermarkets

When applying this to your industry, not all nine value sources will be relevant. The sub-levels will also be more industry-specific than the general ones outlined in Figure 2. Figure 3 illustrates this with a more customised set of value sources (seven as opposed to nine) with specific sub-levels that are relevant for supermarkets. (Note this is for in-store shopping. If we were looking at online, then Convenience would incorporate ease of finding products in app or on web site rather than the items listed. Responsive would include delivery availability rather than staff availability. And Feel-Good would incorporate web site or app appearance rather than store appearance. But the other dimensions would remain the same.)  

supermarket value sources

Figure 3: Supermarket value sources and sub-levels [click to enlarge]

Based on these value sources and their component elements, Figure 4 shows the performance of the leading UK supermarkets. As per the key, data is not publicly available for all sub-levels that ideally would be included. And where there are multiple sub-levels, a simple average has been used.

supermarket comparison

Figure 4: Leading UK supermarket comparison [click to enlarge]

The insights from this are striking. Tesco (the market leader with approximately double the market share of Sainsbury’s and Asda) is joint leader in Choice and the outright leader in Convenience. The latter is due to its much larger number of stores – it has approximately 10% more supermarkets than Sainsbury’s but four times as many Convenience stores. (While the difference in store footprint may not be the cause of Tesco’s markedly stronger competitive position, it certainly helps sustain it.)

Figure 4 also highlights the contrasting approaches of Asda and Sainsbury’s. Asda is the leader in Savings but weakest on Quality, Feel-Good and Trustworthiness. Sainsbury’s is the reverse – it is the joint leader in Choice and Quality, outright leader in Feel-Good and Trustworthiness but the weakest of the four leaders in Savings. Morrisons (the smallest of the major supermarket groups in market share) is rather stuck in the middle - parity in a couple of value sources but with no points of distinction.  

niche supermarket

Figure 5: Niche UK supermarket comparison [click to enlarge]

The framework also serves to highlight the parallels and contrasts in the approaches of the niche players – Aldi, Lidl and Waitrose (each with market share in 5-8% region). These businesses characterise the high and low ends of the market. Aldi and Lidl are comparable on most dimensions and the contrast in their offerings with Waitrose is stark. Waitrose is at least 50% better on all dimensions with the exception of Savings, where it scores 1 compared to 5 for the other two.  

Applying the differential value framework to your business

When applying this framework to analysing your business, it is worth keeping the following three points in mind.

Capture objective and perceptual data

The above analysis has been based on publicly available data and it is a mix of objective (e.g. number of stores) and subjective data (customer perceptions derived from research). When doing this for your business, ideally you would capture both objective and subjective for the same areas – for example number of stockouts and customer’s perception of how often the products they are looking for are out of stock – and keep them separate rather than average them together. In this way you can understand both how well you are delivering value on a relative basis and how accurately the differences are perceived.

This is particularly critical for your primary sources of differentiation. If customers perceive that you are only level with competitors on these dimensions, this separation helps you understand whether your proposition is objectively better (or not) than the alternatives and how effectively its relative superiority is being communicated (i.e. if customers do not perceive your offering to be stronger, whether you have a product or service issue or an advertising and communications one).  

Be prepared to dive deeper

All frameworks have benefits and drawbacks. A top down framework like this one helps you shape and analyse your value proposition comprehensively, ensuring it is looked at from all angles. But aggregating and averaging to obtain a value source score (e.g. for Choice or Convenience) risks blurring distinctions. The analysis above highlights differences between the supermarket groups, but it is only once you look at the number of stores (a sub-level of Convenience) that the differences in market share between Tesco and the other majors become readily explicable.  

As the above suggests, differentiation often arises at a sub-level. In The 22 Immutable Laws of Marketing by Al Ries and Jack Trout, Law 5 is the Law of Focus. This argues that the most powerful concept in marketing is owning a word in the customer’s mind. Ries and Trout give a number of examples, one being Volvo owning the word ‘safety’ in the automotive industry. Some businesses may be able to own a word such as Savings or Choice or Trustworthiness. But many will have to own a more granular element. (Taking the Volvo example, safety is sub-element of Trustworthiness.)

Make the word you want to own the focus for your customer experience design

If you are in the fortunate position of owning a powerful word in your customers minds – or you are seeking to achieve that – then you need to make sure that it is reflected in everything you do. In the context of CX, it needs to be reinforced by the experience you provide and how you orchestrate the customers journey to their desired outcome.

This will be the focus of the next article.

 

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By Nick Leong
23rd Sep 2020 10:40

A great article! I believe that the key to uncovering customer value is what tools/software organisations use to house customer data. CRM systems in particular are great for this. https://www.reallysimplesystems.com/blog/what-is-crm/

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