DON SCHULTZ

Rotman Management Magazine - - FROM THE EDITOR -

on flip­ping the value model

has been based HIS­TOR­I­CALLY, MAR­KET­ING on an ‘In­dus­trial Age’ ap­proach. Mar­keters saw what they be­lieved to be a cus­tomer need, de­vel­oped a prod­uct bear­ing what they con­sid­ered to be ‘value’, and then tried to find buy­ers seek­ing that value. This ‘sup­ply-chain’ ap­proach re­quired the man­u­fac­turer to sell what had been pro­duced, be­cause ‘economies of scale’ re­quired more of that same prod­uct to be made to op­ti­mize prof­its.

The in­her­ent as­sump­tion in this ap­proach is that suf­fi­cient value has been built into the prod­uct for the buyer to ex­tract, jus­ti­fy­ing the ask­ing price. In an age of prod­uct de­vel­op­ment and in­creas­ing con­sumer de­mand, this ap­proach worked — in many cases, mag­nif­i­cently. Wit­ness the growth of the au­to­mo­bile in­dus­try, telecom­mu­ni­ca­tions, house­hold prod­ucts, air­lines, tele­vi­sion and broad­cast­ing, hotels, com­put­ers and a host of other prod­ucts and ser­vices that are con­sid­ered es­sen­tial to­day. The mind­set was, ‘Build con­sumer value into your of­fer­ing; make it widely avail­able; com­mu­ni­cate those ben­e­fits; and watch con­sumers rush to buy and use it’.

To­day, with sweep­ing changes in tech­nol­ogy, dis­tri­bu­tion, com­mu­ni­ca­tion and other vari­ables, the ven­er­a­ble mar­keter-cre­ated value-de­vel­op­ment model is be­ing sorely chal­lenged. Tech­nol­ogy de­vel­op­ments such as dig­i­tal com­mu­ni­ca­tion and imag­ing, pho­tog­ra­phy, smart­phones and minia­tur­iza­tion have driven for­mer lead­ing sup­pli­ers such as Ko­dak, Black­berry, Nokia and oth­ers to the wall, and many more are sure to feel that same pres­sure.

Tra­di­tion­ally, mar­keters have fought back us­ing tools such as sim­pli­fied dis­tri­bu­tion sys­tems, cost re­duc­tion through in­gre­di­ent re­place­ment, lower-cost labour and in­creased promotional in­cen­tives in an at­tempt to im­prove cost–ben­e­fit re­la­tion­ships for cus­tomers and en­cour­age them to buy. Most of these ap­proaches as­sume that price is the dom­i­nant con­sumer vari­able: Re­duce the cost and con­sumers will rush to snap up what they per­ceive to be ‘bar­gains’. This ac­counts for the in­cred­i­ble growth in var­i­ous forms of sales-pro­mo­tion spend­ing.

In some cases, this ‘cost-re­duce your way to suc­cess’ ap­proach has suc­ceeded, but some have failed and oth­ers are stuck in the ‘con­sumer de­ci­sion lane’. Even if this re­bal­anc­ing of the value chain suc­ceeds in the short term, the

like­li­hood of long-term suc­cess is ques­tion­able. The mar­ket­place has changed — sig­nif­i­cantly — even though many mar­keters and their sup­port or­ga­ni­za­tions don’t want to ac­cept it.

Sim­ply put, the tra­di­tional mar­ket­ing model has been flipped up­side down: For­mer con­sumers are now ad­ver­tis­ers them­selves, and for­mer ad­ver­tis­ers are now at­tempt­ing to ful­fill cus­tomer re­quests in real time — some­thing they are gen­er­ally ill-equipped to do. In short, the hunter has be­come the hunted, scram­bling to fill the needs that con­sumers are con­tin­u­ally iden­ti­fy­ing. The prob­lem is, the sys­tems that sell­ers have built over time are sim­ply not ca­pa­ble of fill­ing the ‘re­spon­dent’ role. Hence the wor­ried looks on the faces of mar­ket­ing di­rec­tors the world over.

In in­creas­ing num­bers, con­sumers are ei­ther ad­ver­tis­ing their needs, wants, re­quire­ments and de­sires through Face­book, Twit­ter, Youtube, In­sta­gram and a seem­ingly end­less sup­ply of con­sumer-gen­er­ated com­mu­ni­ca­tion tools. Peo­ple are not specif­i­cally say­ing ‘here’s what I want to buy next’; but they are com­ing close. If one sim­ply looks at the Face­book post­ings of par­tic­u­lar in­di­vid­u­als, it doesn’t take a rocket sci­en­tist to rec­og­nize their in­ter­ests in terms of food, cars, va­ca­tions, shoes — or the in­nu­mer­able lists of in­ter­ests, events and ac­tiv­i­ties that they post on the plat­form. These users are ba­si­cally telling mar­keters what they value, want, need and as­pire to.

Take ‘self­ies’ as an ex­am­ple. ‘Here I am at Yel­low­stone Park’; ‘Here I am with my pals in Paris’; ‘Look at this neat snap of me board­ing a plane for Rio’ and so on. Clearly, this in­di­vid­ual is pas­sion­ate about travel. This is hap­pen­ing ev­ery minute of ev­ery day, around the clock and around the world. In mul­ti­ple ways, con­sumers are sig­nalling to their friends, fam­ily, rel­a­tives — and most of all, to mar­keters — what is im­por­tant and in­ter­est­ing to them in real time. All that mar­keters have to do is cap­ture these ‘value needs’ and let cus­tomers know how they can solve their prob­lems for them.

The age-old guess­ing game mar­keters have played — ‘If I make it, will cus­tomers buy it?’ — is quickly draw­ing to a close. Know­ing what is needed/wanted turns ‘sell­ing and per­sua­sion’ into ‘ful­fill­ing cus­tomer needs’ — cre­at­ing a rad­i­cally dif­fer­ent buyer–seller re­la­tion­ship.

To read the sig­nals that to­day’s cus­tomers are send­ing, mar­keters must shift from talk­ing to lis­ten­ing, which is not some­thing at which they have been ter­ri­bly good in the past. Re­mem­ber, well over 98 per cent of all new prod­ucts in­tro­duced in the con­sumer packaged goods field each year fail. But mar­keters con­tinue to ac­cept these es­tab­lished fail­ure rates sim­ply be­cause ‘that’s just the way it is’. The chal­lenge is no longer, ‘How can we cre­ate cus­tomer value?’ It is in­stead: ‘How can we iden­tify the value that cus­tomers are seek­ing to cre­ate for them­selves, and then ful­fill those needs?’

What does this ap­proach look like, in prac­tice? My col­leagues and I have de­vel­oped a frame­work called SIVA (So­lu­tions, In­for­ma­tion, Value and Ac­cess). In truth, what we have done is sim­ply flipped the tra­di­tional ‘mar­keter-seek­ing-cus­tomers’ model to ‘cus­tomers seek­ing so­lu­tions to their prob­lems’. Our premise is sim­ple: If you know your cus­tomers’ in­ter­ests, pas­sions, deep-felt needs and so on, you have a much bet­ter chance of ful­fill­ing those needs than if you sim­ply scat­ter­shoot with me­dia ad­ver­tis­ing, hop­ing that a few of your sup­posed ‘cre­ative, break­through’ mes­sages will fall on will­ing ears. Here’s how SIVA works:

Gather data from what cus­tomers are do­ing 1. SO­LU­TIONS. both on­line and off­line — from their post­ings on var­i­ous so­cial me­dia, their re­search­ing through var­i­ous search en­gines or sim­ply read­ing the ‘cookie’ trail they leave on var­i­ous com­mu­ni­ca­tion forms. The new rule is this: If they tell

To read the sig­nals that to­day’s cus­tomers are send­ing, mar­keters must shift from talk­ing to lis­ten­ing.

you what they want, they will buy. To­day, vir­tu­aly all prospec­tive cus­tomers are sig­nalling their needs. The mar­keter’s job is to lis­ten to what they are say­ing.

As a mar­keter, if I know your in­ter­ests and 2. IN­FOR­MA­TION. what you want to buy, it should be a sim­ple mat­ter for me to pro­vide what you need — not just prod­uct de­tails, but ac­tual so­lu­tions to real or per­ceived prob­lems. Mar­keters no longer need at­ten­tion-get­ting de­vices such as danc­ing bears or clever slo­gans. There is sim­ply no time or de­mand for that any­more. Just pro­vide the in­for­ma­tion that clearly shows that you un­der­stand the cus­tomers’ needs and make it easy and sim­ple for them to pro­ceed.

The so­lu­tion and in­for­ma­tion you pro­vide must lead 3. VALUE. to a sim­ple con­clu­sion: Here is the value you will ob­tain with our so­lu­tion and here is the cost for you to ob­tain that value. As long as the value re­ceived upon ac­qui­si­tion is equal to or greater than the cost to ac­quire it, rec­i­proc­ity or shared value will be cre­ated. Sim­ply put, cost must equal value to the con­sumer. Op­ti­miz­ing re­turns from the seller’s view goes out the win­dow when you rec­og­nize you are cre­at­ing ‘shared value’ or equal ben­e­fits for both par­ties.

Fi­nally, your so­lu­tion must be avail­able in a form, 4. AC­CESS. lo­ca­tion, retail sys­tem or what­ever that fits the needs of the cus­tomer or buyer, that is, how the cus­tomer can ac­cess the value. It’s not about how the mar­keter wants to sell, it’s about how the cus­tomer wants to buy. So, if cus­tomers want to ac­quire on­line, the mar­keter must be able to pro­vide on­line Ac­cess. If they want a sales per­son to call, then that per­son must be avail­able for an ac­cess dis­cus­sion. To­day, there are so many con­sumer al­ter­na­tives avail­able, and it has to be what cus­tomers want to do, not what mar­keters want to do.

The SIVA con­cept is quite sim­ple: Just lis­ten to what cus­tomers are telling you and the mar­ket­place through their on­line com­mu­ni­ca­tion, and then set out to ful­fill their needs, pro­vide the so­lu­tion they are seek­ing or soothe their pain points. It re­ally is as sim­ple as that.

In clos­ing

To­day, value is in the eyes of the beholder, not in the eyes of the sup­plier. It is the cus­tomer who de­fines value, and it is the job of the mar­keter to un­der­stand what value the cus­tomer is seek­ing, and sup­ply it.

Can ev­ery or­ga­ni­za­tion em­ploy the SIVA ap­proach? Yes, but it will likely cause some in­ter­nal fric­tion, be­cause en­trenched or­ga­ni­za­tional and mar­ket­ing will have to be over­come. Em­ploy­ees will have to de­velop new skills and top man­age­ment will need to reshuf­fle the ‘re­wards deck’ to al­lo­cate re­turns to em­ploy­ees and cus­tomers, not just share­hold­ers. Re­sponse, not just plan­ning, must move to the head of the man­age­ment class, and sales­peo­ple must ac­cept that solv­ing cus­tomer prob­lems is now more im­por­tant than mak­ing this quar­ter’s sales quota.

Can your or­ga­ni­za­tion wait to em­ploy the SIVA prin­ci­ples in the mar­ket­place? Only at its peril. The world has changed, and it is high time for the mar­ket­ing func­tion to catch up with cus­tomers. Don Schultz is Pro­fes­sor Emer­i­tus of In­te­grated Mar­ket­ing Com­mu­ni­ca­tions at North­west­ern Uni­ver­sity and Di­rec­tor of the Retail An­a­lyt­ics Coun­cil, an ini­tia­tive be­tween North­west­ern and the Pratt Retail In­sti­tute. A longer ver­sion of this es­say ap­peared in the Jour­nal of Value Cre­ation, pub­lished by SAGE.

It’s not about how an or­ga­ni­za­tion wants to sell, it’s about how the cus­tomer wants to buy.

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