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Cutting costs and reducing price is most often a habitual reaction not a well-thought response. As such, these tactics often lead to the destruction of once great brands and the loss of tremendous shareholder value. Unfortunately, these habits are so deeply rooted, most management teams don’t take the time to think their way through the layers of behavior that put them in this moment, nor do they consider well the likely outcomes of their actions.
This may sound overly critical, but consider this: management is trained through education and experience to cut costs and prices as seen on financial statements in the downswing of an economic cycle. In December 2008, the Wall Street Journal reported, “Managing labor costs has become a top priority for employers, which have eliminated about 1.9 million jobs since December 2007.” This is just one source of evidence that management’s primary reaction is to cut people, not rethink the value proposition they are offering the customer.
Philosophically, at this stage of business evolution the purpose of a company is to convert multiple forms of energy into a single form of energy—the customer’s emotional experience. Human thought and work, raw materials and electricity, and warehouses and tractor trailers are all forms of energy that are directed for the sole purpose of being transformed into creating an experience that the customer prefers at a particular moment of time over the limitless alternative experiences the customer could have in that moment.
Understanding the purpose of the company from this perspective takes the spotlight off of profits, labor and all of the other traditional metrics for a moment to allow management to cut through the cloud of uncertainty and ignorance with a laser-focused light. All of these metrics simply measure various aspects of the historical efficiency or effectiveness of the transformation of energy into the customer experience. Forecasts of the future based on these historical averages are poor at best in the current economy.
The way to survive in the new economy is not by blindly cutting costs. In addition, the validity and success of segmenting customers by boldly identifying a person as a member of a group through some algorithm of assumed past behavior based on the average statistics of a population, are rapidly deteriorating. Instead, each company must change their perspective about what is relevant to the customer.
Consider that the iPhone is popular because it allows practically limitless versions of the customer experience. Apple cannot segment for production or marketing purposes all of the possible permutations. Apple’s management team let go of that old belief and simplified the process by making a product that the consumer would customize. Then the marketing followed suit by attracting early adopters who were savvy enough to learn how to customize the user interface, and then could grow to become advocates who teach those who were not as savvy how they too could customize the iPhone.
There are three ways your company can alter your customer experience to create extreme customer value with little or no additional costs. This means you will immediately make your product more attractive than the alternatives. As you are thinking about these three ways, I encourage you to apply all three in your customers’ experiences. You should also use the rule of thumb that tangible experience products (e.g. food, electronics, etc.) should have a value to price ratio between 5/1 and 10/1 and intangible experience products (e.g. books, classes, etc.) should have a value to price ratio between10/1 and 100/1. If you have specific questions about this you can email me for more information.
The first way to increase value is to provide relevant information. Information is inexpensive or free if you know where to look. This information can be delivered through your staff or via email or a website. Find information that may be used by a variety of your customers as part of the solution your product or service addresses. Starbucks does this by offering classes and coffee tasting sessions where customers can engage the brand and learn more about their favorite beverages.
Another way to create extreme value with minimal cost is to reframe your product or service as an emotional solution to a problem or a solution to an emotional problem. Marketers typically use emotion to trigger attraction. I am suggesting that you build that same mentality into the operations of the business. Starbuck accomplishes this by hiring and training baristas to have a positive attitude and outlook. The stores are also clean and inviting so people have a sense of calm and relaxation away from their hectic lives.
The third way to extend the value you offer you customers is by building relationships through a community. You can offer a physical or virtual community for customers to gather for a variety of purposes. Facebook, Twitter, forums, blogs and a host of other online resources are available for little or no cost and can provide a sense of community for some customers. Starbucks builds a community by creating a “third place” away from home and work. The baristas also ask for your name to identify “your” cup of coffee. The baristas remember the regulars and build deeper connections. There should be customer-to-customer and employee-to-customer communities.
You may think this is a large investment of time and not wise to do now. However, you need to accept the fact that what was “normal” no longer exists and that there will be no return to that “normal.” The changes around us are causing the creation of a new norm. Instead of bemoaning the past you need to look into your operations and see what things are currently available for you to leverage.
Southwest recently did this with the “No Hidden Fees Zone” campaign where they looked at their operations to see how they could leverage the existing operations structure to create a new marketing campaign. This is attempt was well-received and is an emotional solution to the rising prices in the airline industry.
Every business has value traps that need to be identified and released so managers and employees can take full advantage of the company’s offerings to secure additional business in this economy. There are processes that can be used to evaluate the opportunities in existing organizations in a matter of a few days without the need for months of follow-up work. You must impress your customer with the value you have been providing for years. This is an easy first step to improving your value to price ratio. Beware of the paradigm that would suggest you should raise prices because you have “suddenly” realized all of the value you are providing the customer. It has been known to happen.
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About Tony Bodoh
You can contact Tony Bodoh through tony.bodoh(at)gmail.com or 877-826-2521.
Tony Bodoh is the President of Tony Bodoh International. His firm coaches executives to create organizational alignment. With a focus on aligning the thinking, relationships, and processes of an organization, Bodoh has a track record of creating extreme value for customers. See www.profitornado.com for more information about Bodoh’s coaching.
Bodoh also uses his expertise to help professionals build successful and significant relationships with their families. As President of Daddy Daughter Days, Bodoh produces live or recorded teleseminars and workshops.
If you are interested in improving your family’s relationships, please visit http://www.podclass.com/tonybodoh to learn more about Bodoh’s workshops.
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