Valuemarketing Strategy

In the 1990s, value has become the marketer's watchword. Today, customers are demanding something different than they did in the past. They want the right combination of product quality, good service, and timely delivery. These are the keys to performing well in the next century. It is for this reason that we examine this new strategic focus.

Value marketing strategy stresses real product performance and delivering on promises. Value marketing doesn't mean high quality if it is only available at ever-higher prices. It doesn't necessarily mean cheap, if cheap means bare bones or low-grade. It doesn't mean high prestige, if the prestige is viewed as snobbish or self-indulgent. At the same time, value is not about positioning and image mongering. It simply means providing a product that works as claimed, is accompanied by decent service, and is delivered on time.

The emphasis on value is part atmospherics, part economics, and part demographics. Consumers are repudiating the wretched excesses of the 1980s and are searching for more traditional rewards of home and family. They are concerned about the seemingly nonending economic ups and down. The growing focus on value also stems from profound changes in the American consumer marketplace.

For example, real income growth for families got a boost when women entered the work force. But now, with many women already working and many baby boomers assuming new family responsibilities, the growth in disposable income is scarily slow. Aging baby boomers whose debt burden is already high realize that they must worry about their children's college tuitions and their own retirement. At the same time, the new generation of consumers is both savvier and more cynical than were its predecessors. Briefly, consumers want products that perform, sold by advertising that informs. They are concerned about intrinsic value, not simply buying to impress others.

Quality Strategy Traditionally, quality has been viewed as a manufacturing concern. Strategically, however, the idea of total quality is perceived in the market; that is, quality must exude from the offering itself and from all the services that come with it. The important point is that quality perspectives should be based on customer preferences, not on internal evaluations. The ultimate objective of quality should be to delight the customer in every way possible, providing levels of service, product quality, product performance, and support that are beyond his/her expectations. Ultimately, quality may mean striving for excellence throughout the entire organization. For assessing perceived quality, the step-by-step procedure used by the Strategic Planning Institute may be followed:

1. A meeting is held, in which a multifunctional team of managers and staff specialists identify the nonprice product and service attributes that affect customer buying decisions. For an office equipment product, these might include durability, maintenance costs, flexibility, credit terms, and appearance.

2. The team is then asked to assign "importance weights" for each attribute representing their relative decisions. These relative importance weights sum to 100. (For markets in which there are important segments with different importance weights, separate weights are assigned to each segment.)

3. The management team creates its business unit's product line, and those of leading competitors, on each of the performance dimensions identified in Step 1. From these attribute-by-attribute ratings, each weighted by its respective importance weight, an overall relative quality score is constructed.

4. The overall relative quality score and other measures of competitive position (relative price and market share) and financial performance (ROI, ROS, and ROE) are validated against benchmarks based on the experience of "look-alike" businesses in similar strategic positions in order to check the internal consistency of strategic and financial data and confirm the business and market definition.

5. Finally, the management team tests its plans and budgets for reality, develops a blueprint for improving market perceived quality, relative to competitors', and calibrates the financial payoff.

In many cases, the judgmental ratings assigned by the management team are tested (and, when appropriate, modified) by collecting ratings from customers via field interviews.46

This approach to assessing relative quality is similar to the multiattribute methods used in marketing research. These research methods are, however, employed primarily for evaluating or comparing individual products (actual or prospective), whereas the scores here apply to a business unit's entire product line.

Attaining adequate levels of excellence and customer satisfaction often requires significant cultural change; that is, change in decision-making processes, interfunctional relationships, and the attitudes of each member of the company. In other words, achieving total quality objectives requires teamwork and cooperation. People are encouraged and rewarded for doing their jobs right the first time rather than for their success in resolving crises. People are empowered to make decisions and instilled with the feeling that quality is everyone's responsibility.

The following are the keys to success in achieving world-class total quality. First, the program requires unequivocal support of top management. The second key to success is understanding customer need. The third key is to fix the business process, if there are gaps in meeting customer needs. The fourth key is to compress cycle time to avoid bureaucratic hassles and delays. The next is empowering people so that they are able to exert their best talents. Further, measurement and reward systems must be reassessed and revamped to recognize people. Finally, the total quality program should be a continuous concern, a constant focus on identifying and eliminating waste and inefficiency throughout the organization.47

Organizationally, the single most important aspect of implementing a quality strategy is to maintain a close liaison with the customer. Honda's experience in this matter in designing the new Accord is noteworthy:

When Honda's engineers began to design the third-generation (or 1986) Accord in the early 1980s, they did not start with a sketch of a car. The engineers started with a concept—"man maximum, machine minimum" that captured in a short, evocative phrase the way they wanted customers to feel about the car. The concept and the car have been remarkably successful: since 1982, the Accord has been one of the best-selling cars in the United States; in 1989, it was the top-selling car. Yet when it was time to design the 1990 Accord, Honda listened to the market, not to its own success. Market trends were indicating a shift away from sporty sedans toward family models. To satisfy future customers' expectations and to reposition the Accord, moving it up-market just a bit, the 1990 model would have to send a new set of product messages—"an adult sense of reliability." The ideal family car would allow the driver to transport family and friends with confidence, whatever the weather or road conditions; passengers would always feel safe and secure.

This message was still too abstract to guide the engineers who would later be making concrete choices about the new Accord's specifications, parts, and manufacturing processes. So the next step was finding an image that would personify the car's message to consumers. The image that managers emerged with was "a rugby player in a business suit." It evoked rugged, physical contact, sportsmanship, and gentlemanly behavior—disparate qualities the new car would have to convey. The image was also concrete enough to translate clearly into design details. The decision to replace the old Accord's retractable head lamps with headlights made with a pioneering technology developed by Honda's supplier, Stanley, is a good example. To the designers and engineers, the new lights' totally transparent cover glass symbolized the will of a rugby player looking into the future calmly, with clear eyes.

The next and last step in creating the Accord's product concept was to break down the rugby player image into specific attributes the new car would have to possess. Five sets of key words captured what the product leader envisioned: "open minded," "friendly communication," "tough spirit," "stress-free," and "love forever." Individually and as a whole, these key words reinforced the car's message to consumers. "Tough spirit" in the car, for example, meant maneuverability, power, and sure handling in extreme driving conditions, while "love forever" translated into long-term reliability and customer satisfaction. Throughout the course of the project, these phrases provided a kind of shorthand to help people make coherent design and hardware choices in the face of competing demands.48

There are three generic approaches to improving quality performance: catching up, pulling ahead, and leapfrogging.49 Catching up involves restoring those aspects about which the firm has been behind to standard. Catching up is a defensive strategy where the emphasis is either to be as good as the competition or to barely meet market requirements. Pulling ahead, going further than the customer asks or achieving superiority over the competition, provides a firm competitive advantage that may lead to greater profitability. Thus, it makes sense to resist the temptation to focus on just catching up and to find a way to make a sustainable move to pull ahead. Finally, leapfrogging involves negating competitive disadvantage, that is, creating a sustainable competitive advantage through differentiation. In other words, leapfrogging comprises coming from behind and getting ahead of the competition through providing a quality product in keeping with customer demands. For example, by leapfrogging Detroit on several key attributes, Japanese companies rolled further up the "quality-for-price curve"; that is, they shifted into better value positions.

Several benefits accrue to businesses that offer superior perceived quality, including stronger customer loyalty, more repeat purchases, less vulnerability to price wars, ability to command higher relative price without affecting share, lower marketing costs, and share improvements.

Customer-Service Strategy

Customer service has come to occupy an important place in today's competitive market. Invariably, customers want personal service, the kind of service delivered by live bodies behind a sales counter, a human voice at the other end of a telephone, or people in the teller's cage at the bank. Paying attention to the customer is not a new concept. In the 1950s, General Motors went all the way toward consumer satisfaction by designing cars for every lifestyle and pocketbook, a breakthrough for an industry that had been largely driven by production needs ever since Henry Ford promised to deliver any color car as long as it was black. General Motors rode its insights into customers' needs to a 52 percent share of the U.S. car market in 1962.50 But with a booming economy, a rising population, and virtually no foreign competition, many U.S. companies had it too easy. Through the 1960s and into the 1970s, many U.S. car makers could sell just about anything they could produce. With customers seemingly satisfied, management concentrated on cutting production costs and making splashy acquisitions. To manage these growing behemoths, CEOs turned to strategic planning, which focused on winning market share, not on getting in touch with remote customers. Markets came to be defined as aggregations of competitors, not as customers.

In recent times, Japanese companies were the first to recognize a problem. They started to rescue customers from the limbo of so-so merchandise and take-it-or-leave-it service. They built loyalty among U.S. car buyers by assiduously uncovering and accommodating customer needs. The growing influence of Japanese firms as well as demographics and hard economic times have forced American companies to realize the need to listen to customers.

Creative changes in service can make the difference. For example, companies offering better service can charge 10 percent more for their products than competitors.51 Even smaller companies with fewer management layers are finding that personal relationships between senior executives and customers can help in various ways. Many companies attach so much importance to service that they require their senior managers to put in time at the front lines. For example, Xerox requires that its executives spend one day a month taking complaints from customers about machines, bills, and service. Similarly, at Hyatt Hotels, senior executives put in time as bellhops.52

Briefly, a company must decide who it wants to serve, discover what those customers want, and set a strategy that single-mindedly provides that service to those customers. With such clearly articulated goals, top management can give frontline employees responsibility for responding instantly to customer needs in those crucial moments that determine the company's success or failure. The following episode, which underlines Scandinavian Airlines's emphasis on service, shows how far a company can go to stand by the customer.

Rudy Peterson was an American businessman staying at the Grand Hotel in Stockholm. Arriving at Stockholm's Arlanda airport for an important day trip with a colleague to Copenhagen on a Scandinavian Airlines (SAS) flight, he realized he'd left his ticket in his hotel room.

Everyone knows you can't board an airplane without a ticket, so Rudy Peterson resigned himself to missing the flight and his business meeting in Copenhagen. But when he explained his dilemma to the ticket agent, he got a pleasant surprise. "Don't worry, Mr. Peterson," she said with a smile. "Here's your boarding card. I'll insert a temporary ticket in here. If you just tell me your room number at the Grand Hotel and your destination in Copenhagen, I'll take care of the rest."

While Rudy and his colleague waited in the passenger lounge, the ticket agent dialed the hotel. A bellhop checked the room and found the ticket. The ticket agent then sent an SAS limo to retrieve it from the hotel and bring it directly to her. They moved so quickly that the ticket arrived before the Copenhagen flight departed. No one was more surprised than Rudy Peterson when the flight attendant approached him and said calmly, "Mr. Peterson? Here's your ticket."

What would have happened at a more traditional airline? Most airline manuals are clear: "No ticket, no flight." At best, the ticket agent would have informed her supervisor of the problem, but Rudy Peterson almost certainly would have missed his flight. Instead, because of the way SAS handled his situation, he was both impressed and on time for his meeting.53

The SAS experience shows how far a business must be willing to go to become a truly customer-driven company, a company that recognizes that its only true assets are satisfied customers, all of whom expect to be treated as individuals.

Many firms argue that service by definition is difficult to guarantee. Services are generally delivered by human beings, who are less predictable than machines. Services are also usually produced at the same time that they are consumed. Although there can be exceptions to the rule, service can be guaranteed in any field. Consider the guarantee offered by "Bugs" Burger Bug Killers (BBBK), a Miami-based pest extermination company, a division of S.C. Johnson and Sons:

Most of BBBK's competitors claim that they will reduce pests to "acceptable levels"; BBBK promises to eliminate them entirely. Its service guarantee to hotel and restaurant clients promises:

• You don't owe one penny until all pests on your premises have been eradicated.

• If you are ever dissatisfied with BBBK's service, you will receive a refund for up to 12 months of the company's services plus fees for another exterminator of your choice for the next year.

Time-Based Strategy

• If a guest spots a pest on your premises, BBBK will pay for the guest's meal or room, send a letter of apology, and pay for a future meal or stay.

• If your facility is closed down due to the presence of roaches or rodents, BBBK will pay any fines, as well as all lost profits, plus $5,000. In short, BBBK says, "If we don't satisfy you 100%, we don't take your money."54

The company's service program has been extremely successful. It charges up to 10 times more than its competitors and yet has a disproportionately high market share in its operating areas.

In designing a good service program, a company should be conversant with a number of important trends. First, customers don't read (e.g., customers don't read assembly and operation instructions). Second, customers don't understand ownership responsibilities (e.g., some hotels require customers to program their own wake-up calls into a confusing computerized system). Third, high technology and product complexity make product differentiation difficult (i.e., with like products, better service can become an important differentiating factor). Fourth, consumers have lower confidence and expectations for products and services (i.e., customer service can have an enormous impact on consumer confidence). Fifth, high-quality service has become a product attribute (i.e., consumers rate qualitative service factors as more important than product cost and features). Sixth, consumer attention is drawn to negative publicity (i.e., negative word of mouth is extremely detrimental). Seventh, consumers believe they are not getting their money's worth.

Improved customer service can play a major role in changing customer perceptions about a product and its value and can directly affect a company's success and profitability. The quality of service a company provides depends largely on people, not only those with direct customer responsibility but also with managers, supervisors, and support staff. Thus, success in providing adequate service largely depends on preparing employees for it.

When a product market changes quickly, companies must respond quickly if they want to preserve their positions. In today's changing markets, time-based strategy that aims to beat the competition has assumed new dimensions.

GE has cut the time to deliver a custom-made industrial circuit breaker box from three weeks to three days. In the past, AT&T needed two years to design a new phone; now it needs only one year. Motorola used to take three weeks to turn out electronic pagers after the factory received the order; now it takes two hours.55

Time-based strategy brings about important competitive benefits. Market share grows because customers love getting their orders now. Inventories of finished goods shrink because they are not necessary to ensure quick delivery; the fastest manufacturers can make and ship an order the day it is received. For this and other reasons, costs fall. Many employees become satisfied because they are working for a more responsive, more successful company and because speeding operations requires giving them more flexibility and responsibility. Quality also improves. Briefly, doing it fast forces a firm to do it right the first time.

Speed can also pay off in product development even if it means going over budget by as much as 50 percent. For example, a model developed by McKinsey and Co. shows that high-tech products that come to market on budget but six months late earn 33 percent less profit over five years. In contrast, coming out 50 percent over budget but on time cuts profits only by 4 percent.56

To implement a time-based strategy, the entire production process must be redesigned for speed. GE's experience is relevant here. Its circuit breaker business was old and stagnant. Market growth was slow and Siemens and Westinghouse were strong competitors. GE assembled a team of manufacturing, design, and marketing experts to focus on overhauling the entire process. The goal was to cut the time between order and delivery from three weeks to three days. Six plants around the United States were producing circuit breaker boxes. The team consolidated production into one plant and automated its facilities. But the team did not automate operations as they were. In the old system, engineers custom-designed each box, a task that took about a week. Engineers chose from 28,000 unique parts to create a box. To set up an automated system to handle that many parts would have been a nightmare. The design team reduced the number of parts to 1,275, making most parts interchangeable. Even with this drastic reduction in parts, customers were still given 40,000 different sizes, shapes, and configurations from which to choose.

The team also devised a way to phase out the engineers, by replacing them with computers. Now a salesperson enters the specifications for a circuit breaker into a computer at GE's main office and the order flows to a computer at the plant, which automatically programs factory machines to custom-make the order with minimum waste.

Although these advances are indeed impressive, the team still had to conquer another source of delay—solving problems and making decisions on the factory floor. The solution was to eliminate all line supervisors and quality inspectors, reducing the organizational layers between worker and plant manager from three to one. Everything middle managers used to handle—vacation scheduling, quality, work rules—became the responsibility of the 129 workers on the floor, who were divided into teams of 15 to 20. It worked. The more responsibility GE gave the workers, the faster problems were solved and decisions were made.

The results: The plant that used to have a two-month backlog of orders now works with a two-day backlog. Productivity has increased 20 percent over the past year. Manufacturing costs have dropped 30 percent, or $5.5 million a year, and return on investment is running at over 20 percent. The speed of delivery for a higher-quality product with more features has shrunk from three weeks to three days. And GE is gaining share in a flat market.57

Another area ripe for time-based strategy is the administrative/approval area. According to the Thomas Group, a Dallas-based consulting firm specializing in speed, manufacturing typically takes only 5 to 20 percent of the total time that is needed to get an order for a given product to market; the rest is ad-ministrative.58 For example, at Adca Bank, a subsidiary of West Germany's Reebobank (with assets of $90 billion), an application for a loan used to go through numerous layers of bureaucracy. A branch would send a loan application to a loan officer at headquarters, who would look at it and change it. Then the loan officer's manager would look at the application and change it, and so on. The bank eventually got rid of five layers of management and gave officers in all branches more authority to make loans. It used to take 24 managers to approve a loan. Now it takes 12.

Teamwork seems to be the key ingredient among the fastest companies. Nearly all of them form multidepartment teams. AT&T formed teams of six to twelve members, including engineers, manufacturers, and marketers, with complete authority to make every decision about how a product would look, work, be made, and cost. At AT&T the key was setting rigid speed requirements, such as six weeks, and leaving the rest to the team. Teams could meet these strict deadlines because they did not need to send each decision up the line for approval. With this new approach, AT&T cut development time for its new 4200 phone from two years to just a year while lowering costs and increasing quality.

Application of time-based strategy to distribution is equally important. Even the world's fastest factory cannot provide much of a competitive advantage if everything it produces gets snagged in the distribution chain. For example, Benetton takes its distribution very seriously and has created an electronic loop that links sales agent, factory, and warehouse. If a saleswoman in one of Benetton's Los Angeles shops finds that she is starting to run out of a best-selling sweater, she calls one of Benetton's 80 sales agents, who enters the order in a personal computer, which sends it to a mainframe in Italy. The mainframe computer, which has all of the measurements for the sweater, sets the knitting machines in motion. Once the sweaters are finished, workers box them up and label the box with a bar code containing the Los Angeles address. The box then goes into the warehouse. The computer next sends a robot flying. The robot finds the box and any others going to Los Angeles, picks them up, and loads them onto a truck. Including manufacturing time, Benetton can get an order to Los Angeles in four weeks.

Implementation of time-based strategy requires a number of steps. First, start from scratch (i.e., set a time goal and revamp entire operations to meet this goal rather than simply improving efficiency in current operations). Second, wipe out approvals (i.e., cut down bureaucratic layers of control and let people make decisions on the spot). Third, emphasize teamwork (i.e., establish multidepartment teams to handle the work). Fourth, worship the schedule (i.e., nothing short of disaster should be a valid excuse for delay). Fifth, develop time-effective distribution (i.e., snags in distribution must be simultaneously worked out). Sixth, put speed in the culture (i.e., train people in the company at all levels to understand and appreciate the significance of speed).

The advantages of speed are undeniably impressive. Although it is a common precept that time is money, in practice, companies have paid only lip service to it. The time it took to do a job, whatever the amount, was considered a necessity to meet organizational requirements, systems, procedures, and hierarchical relationships. Now, however, there is a new realization that time saved is a strategic factor for gaining competitive advantage. Companies that grasp and appreciate the unprecedented advantages of getting new products to market sooner and orders to customers faster hold the key for achieving competitive preeminence in the 1990s and beyond.

Continue reading here: Pricing Strategy For New Products

Was this article helpful?

0 0