The Power of Value
Key Customer CEO Question:
Rock and Roll Hall of Famer David Lee Roth, of Van Halen fame, spoke for a lot of us when he said, “Money can’t buy happiness, but it can buy a huge yacht that sails right next to it.”1 Some of us would settle for a two-person bass boat. Or maybe just a float for the swimming pool. Value, it seems, is relative. Only rock stars have yachts.
When we ponder the idea of what something’s worth, it is hard to put our finger on it. Value is something different for each person, isn’t it? Why does one person not care about the kind of cell phone he talks on, while another will stand in line several days and nights to be among the first to possess the latest iPhone version? Everyone marches to the beat of her own drummer when it comes to the subject of value.
In my firm’s research over the years, we have constantly probed customers about how they determine the value of particular products and services. A man named Eldon, who we interviewed in Los Angeles, actually quoted David Lee Roth to explain his viewpoint. Eldon already seemed happy the evening we met him, but he indicated he would be even happier when he too took delivery of a yacht someday. I’m willing to bet Elroy is still dreaming of blue skies, deep water, and the spray of saltwater on his face.
$8 a Bottle
A well-known and highly viewed segment from comedic team Penn & Teller’s Showtime program looked at the subject of value through the lens of water.2 It seems that many Americans prefer bottled water to plain old tap water. As one woman interviewed for the show said, “You know, it’s not as impure as tap water can be. Some of the tap water I really don’t trust.”3 So the comedic duo put water to the value test. With hidden cameras, they filmed upscale diners making their way to the world’s first boutique vendor of . . . bottled water. Stewards extolled the various virtues of the aqua refreshments, some selling for as much as $8 per bottle. Sadly, the joke was on the unsuspecting aficionados, who were imbibing water that came from a garden hose, not from majestic mountain ranges or lush valley streams. It seems customers are willing to pay more for perceived value. Of course, after they learned of the trickery it was probably a long time before they would be fooled again.
In their business strategy book Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne lay out an excellent tool they call the Buyer Utility Map to evaluate relative value.4 (If you haven’t read the book, let me assure you it has nothing to do with yachts or rock stars.) It follows the customer journey through six stages of the buying experience. The authors theorize that people also use six levers to evaluate how well a product or service fits their particular needs. Kim and Mauborgne believe that many companies do not deliver exceptional value to customers, in part because companies often become enamored of their own innovations without first determining whether they actually deliver the value customers are seeking.
This Helps Us How?
I am reminded of a very successful and extremely egotistical real estate investor I know who made several fortunes buying and selling apartment buildings. He also fancied himself a technology guru. This man sank over $3 million of his personal wealth into the development of a new web-based price comparison technology he believed would be perfect for young families looking to buy their first home. He was convinced that a subscription-based business model was the only way to go to market.
Unfortunately, he didn’t ask any of his future customers what they thought about this idea before spending his money. He had completely relied on his own opinions, that were echoed by a few of his well-paid employees. No one considered it worth the time or energy to talk to potential customers to test the waters before investing the cash. By the time I was asked to look at the problem and interview potential customers, it was too late. Potential customers found the product difficult to understand and the website hard to navigate. At their income level, they weren’t willing to subscribe to the service because they would only use it once every few years. More than one couple said, “And this helps us how?” While the investor evaluated the bad news we had to report, the housing market crashed, and suddenly nobody was a prospect. And our real estate tycoon was several million dollars poorer. Oh well, it happens to the nicest guys.
Over the years, we have observed that customers decide what something is worth to them based upon their unique needs at that moment in time. But, and this is key, their needs are now more affected by external events than we have previously seen. The term “consumer confidence” has a larger halo effect in the current climate because your customers have often gone through some personal economic disruptions of their own over the past few years. A combination of lost jobs, closed malls, and the constant drumbeat of negative news has created a deep sense of uncertainty. The truth is that people are more afraid for their futures than we have seen in our research work since the 1980s.
Two Universal Truths
We have learned that customers have two universal concerns about value; it doesn’t matter whether they are male or female, young or old, poor or rich. The first is the fear of paying too much. Customers will always relate personal anecdotes about “getting ripped off.” The second concern is the apparently terrifying possibility of dealing with a “fly by night” company. These enterprises must be avoided at all costs. As a Customer CEO company, how should you process this information? How do you prove the worth of your products and services to a skeptical, often cynical, potential customer?
Their perceptions tend to fall into two extremes on an imaginary value continuum. On one end, customers think that “greedy” companies simply charge too much to fatten their evil CEOs’ paychecks. On the other end, customers believe there are companies that mystically understand their customers.
These benevolent enterprises are viewed as fair and equitable, regardless of what they charge. In our consulting practice, we have come to refer to this phenomenon as Polarized Price Perception. It is often illogical, but as we have already seen, Customer CEOs don’t have to be logical. They are in charge.
Price Check in Aisle Four
Remember in the pre-bar code days when you had to ask a store clerk to check the price of an item because the tag had fallen off? Now, there’s no need for the clerk or the tag. The Internet has opened an entirely new frontier for discovering value. Consider showrooming.5 That’s what happens when a shopper browses the merchandise in a store with zero intent to buy. The shopper’s sole interest is scanning a bar code using tools like Amazon’s Price Check app to compare online prices. The Wall Street Journal reported that a shopper study by research firm ClickIQ found most people would gladly visit their local big box mass merchandiser to do “product research” with the specific intent of buying the item on Amazon.6 A Pew Research Study reported that an estimated 5 percent of mobile phone customers actually purchased online while in a physical store during the 2011 holiday shopping period.7 Many retailers are hopping mad and pushing state legislatures to adopt “e-fairness” laws that would try to ban this practice or at least force e-tailers like Amazon to pay state sales tax.
Of course, there are two sides to this story. Longtime retail analysts know this is just retail evolution. In the good old days, long before the Internet, local chains could call the shots. They offered a relatively limited brand selection, charged a fair price, provided good service, and did quite well. Then, catalog retailers jumped into the market and badly disrupted the status quo. They offered steep discounts from faraway warehouses. So shoppers would head over to the local store to try out the product only to return home to call the toll-free number and order the item. The customer demonstrated that the price was much more important, and he didn’t want to pay more at the local store for a friendly guy in a blue vest telling him everything he probably didn’t even want to know about a product. Next, the big boxes marched in with their superior, predatory buying power and even steeper discounts. The customers flocked in their doors because price was driving everything.
Now the mass merchandisers are in a huff because the worm has turned on them. They didn’t shed any tears for the local and regional chains they put out of business. Some are being proactive in response. Nordstrom is offering free shipping for in-store shoppers.8 Target has gone another step by working with vendors to create exclusive products available only in its stores.9 The point is, the customer is in the driver’s seat and a business model is only as good as the customers who support it.
Warren Buffet said, “Price is what you pay. Value is what you get.”10 To better understand value, always consider four major areas of inquiry as part of the project to help understand the big picture of what’s driving value.
• What are today’s major societal trends?
• What are the prevailing industry pressures?
• What are the prevailing macroeconomic headwinds?
• What are the prevailing market issues?
If you are already spending quality time listening to your customers, asking the right questions about value will help you explore rich veins of future growth. Let’s take a look at some exceptional Customer CEO companies that understand the Power of Value.
We Are with You
In our family, we always drove GM cars and trucks. It was the buy American thing. But my wife and I decided to switch to a Hyundai Sonata last year for the first time. She did all the research online and at first I didn’t believe it, but the value was amazing. What a great car. We’ve probably sold another ten for the dealer by telling our friends how much we love it.
Dan, Birmingham, Alabama
Participant in a focus group about new cars
We can see the Power of Value nowhere more profoundly than in the car-buying experience. The dealer distribution system is part of the fabric of American life. For more than fifty years the men who built Detroit created an almost perfect mousetrap. Ill-informed customers were lured into brightly lit showrooms to see the newest shiny coupes, sedans, trucks, and sports utility vehicles. Then the Internet came along and seemingly changed everything. New brand names like cars.com, carfax.com, and edmunds.com proliferated, with ads extolling the advantages of this new and improved way to buy a car. This was a way where the customer was finally in control, not a slick sales guy in an ugly plaid jacket.
But not so fast. Maybe the Customer CEO is still not very well thought of in this system. According to CNBC anchor Becky Quick, she and her husband decided to take the plunge and buy a new minivan with the impending arrival of their third child. She wrote, “But getting someone to take $40,000 from you can be tougher than you might think as I learned at one Chrysler, one Honda and three Toyota dealerships.”11 And exactly what was the problem? Sexism was alive and well at every dealership. It seemed that wherever Quick and her husband went, the male salesperson ignored her and deferred to her husband, although she was the one making the decision. This made no sense, because women are the primary buyers of 44 percent of vehicles and have significant influence over 80 percent of those bought.12
Why would a car dealership allow such ignorance to still exist in their business? It’s because too many companies are still stuck in that trophy case I discussed in chapter 1. Perhaps this is a big clue as to why there’s one auto brand running laps around its competition. That brand is Hyundai.
In the hugely competitive used car market, no sign could be a bigger compliment than the one that read, “$1,000 extra for your Hyundai!”13 The compliment was more significant because it was posted in the front showroom window of a competing dealer across the street from a Las Vegas Hyundai dealership. Hyundai Motor America (HMA) has gained a loyal and steadily growing following, like Dan from our focus group. John Krafcik, president and CEO of HMA said, “Our cars research really well and when you finally get in the car and drive it, it stands up to that research.”14
Of course, in the ultracompetitive global car market, nothing happens by accident. HMA learned a lot about itself by discovering even more about its current and future customers through an ingenious and radical solution: the company decided to talk to them. The purpose was to discover how to design vehicles that better fulfilled new customer needs. The brand needed to develop a new design concept for its second-generation Santa Fe model. The company hoped to use research both to clarify customer needs to its product designers and to help spark creativity. Hyundai was beginning a revolutionary process of transforming the company into a customer-first company. HMA executives Heather Kluter and Doug Mottram explained that this customer-driven approach had never been done before at Hyundai. They created a persona for their target customer. Kluter and Mottram wrote, “We called this target ‘Glamour Mom’ and screened numerous women to find a handful of true glamour moms who fit the demographic and lifestyle description of this target.”15
What research technique did the brand use to drive along with its Glamour Mom? The company decided to employ ethnography, which is the official market research term for observation. The marketing team watched how these women lived in their homes and managed life in general, asked plenty of questions, and let the women explain how their lives really worked. The HMA executives explained, “We got to know what mattered to them, so that we could make the Santa Fe more meaningful to them.”16
In spending time with their target customers, the Hyundai team got a much richer picture of their customers’ needs than they could have gained in a one-hour focus group or a telephone survey. This was not a market research project; this was living, breathing, actionable insight that met customers where they lived.
Not content to just design better cars that helped people, Hyundai used its new customer-centric approach to solve a daunting industry problem. In late 2008, when the car market was in free fall, the usual litany of discounts, rebates, and cheap financing was failing to lift the market. Hyundai had to do something fresh that could address its customer problem when and where it counted. Based on new research, Hyundai introduced its Assurance plan. As the company website explains, “Purchasing a new vehicle is one of life’s big events. You want to know everything you can about the true value of your options. But at the time of purchase, how can you know the future trade-in value of the vehicle you are considering?”17
With Assurance, the brand removed a large barrier to future value by guaranteeing what the car would be worth in three or four years. This set Hyundai apart from every other brand because the company was becoming partners with its customers, not adversaries.
Dave Zuchowski, Hyundai’s head of U.S. sales, explained the appeal of Assurance: “Our intent with Assurance is to provide certainty in uncertain times and give people a safety net. It really struck a cord[sic]. We expected it would set us apart because it was something no one else was doing.”18
Whether designing an entirely new kind of car or figuring out a way to help people buy it, Hyundai set a high standard for the Power of Value because it joined hands with customers to say, “We are with you.” What’s that worth?
Bathing in Beads
Everyone thinks our industry is cutting edge. Actually, the opposite is true when it comes to the tools we use in our labs. Some of this equipment was designed a very long time ago. Sometimes I’m amazed we can get our work done. It can be unsafe, inefficient, and even a biohazard. Someone’s going to get hurt or sick.
Richard, San Antonio, Texas
Participant in a customer interview about life science laboratory equipment
Billions of dollars are spent by private industry, universities, and government agencies running thousands of laboratory experiments every year. It turns out that the majority of these experiments fail, many for reasons unrelated to the science, including clumsiness and biohazards in the lab. A small group of enterprising entrepreneurs had the foresight to carefully listen to the real problems life scientists experienced in the lab. This future customer insight made it clear that the lab needed protection from itself. Dubbing this new effort Lab Armor, the company made its mantra “Must protect the lab!”
As the Lab Armor team discussed various ways to protect laboratories, they quickly focused on the lowly water bath, a device that had seen virtually no innovation for nearly fifty years. Here are three nonscientific definitions related to this subject. A water bath is a device that scientists use to regulate the temperature of various substances they need in their experiments. Think of a rectangular stainless steel tub that holds about two gallons of water. It has a dial on the front to control small heating elements in the tub. The water needs to be heated to the proper working temperature for the various reagents used in experiments. A reagent is simply a substance or compound the bench scientist needs to induce a reaction in her experiment. These reagents are heated in bottles, test tubes, and other vials that are held in the water baths by racks or blocks. A bench scientist is kind of that mad scientist who stays locked up in a lab conducting hands-on research, sometimes called “wet science.”
Through Lab Armor’s interviews and observations, the team learned that bench scientists are fairly intense people, highly focused on the task at hand. Unfortunately, this means that accidents happen frequently because the scientists accidentally knock containers over in the water. Water spills on lab floors, creating potential safety hazards. Typical water baths were also extremely energy inefficient. Worst of all, water baths are inherently not eco-friendly because of mold and bacteria that can rapidly multiply and ruin the experiment and potentially harm the user.
The answer was to replace the water with something better, something that was both moisture and gas impermeable. Lab Armor needed a material that had high thermal conductivity with a wide working temperature range. Through a series of experiments, the Lab Armor team developed what they called the first waterless water bath, the “bead bath.” Instead of using a liquid, the team used an entirely new medium to heat reagents while holding them firmly in place. Imagine thousands of smooth, rounded, metal beads, like tiny M&Ms, poured into an empty bath in the place of water. But these new Lab Armor beads cost money. They weren’t free, like H2O.
The key business question was whether labs would buy something (beads) that had previously been free (water). Landon Wood, Lab Armor cofounder, explained that, “Our value challenge was to illustrate that the status quo of using water was costing every lab a lot of money. Sure, water seems free, but when we ran the numbers for lost experiments and ruined production runs from water bath contamination and the labor costs of warming up and cleaning the baths, it was clear that we had a winner.”19
The market response was overwhelming, because Lab Armor had listened to customers on the front lines. The company translated a series of long-standing pain points into gain. It had solved multiple problems in one simple execution. One scientist at Vanderbilt University commented, “Purchased to decrease water bath contamination. Experience has been wonderful with decreased time taken for cleaning and decreased contamination of tissue culture.”20
This new bead technology saves time, stays clean, helps a lab be more organized, and is eco-friendly. The firm has gone on to create a series of other lab-related products, including the first bead bath that optimizes bead performance. Lab Armor’s products are being used in thousands of life science labs around the world. Most importantly, the Lab Armor story illustrates why ignoring the customer is foolhardy. Let’s be clear about what happened here: the customer did not invent the bead technology. But scientists had a series of problems that no one had ever taken the time to observe or really think about. The Lab Armor team had the fresh eyes and ears to listen and clearly observe the problems in the lab, and they were able to create a more valuable product and user experience for their customers.
Big Box of Bargains
It seems to me that no matter how I try to plan it, my food costs keep going up. They say inflation is flat, but I don’t believe it. How do I find any real value anymore? With our family of five, I may have to put the kids to work to pay for their food!
Elizabeth, Columbia, South Carolina
Participant in a focus group about grocery stores
Elizabeth spoke for many customers we have interviewed over the past few years. I have met hundreds of people like Elizabeth, and I like to refer to these customers as “momconomists.” These moms, whether married or single, have a gnawing feeling that no matter what kind of money-saving strategy they put in place, the deck is stacked against them. Between escalating prices for gas, food, and insurance, the lack of value is a front-burner issue. They know their dollar doesn’t go as far as it did last month or last year.
I wasn’t surprised to hear Elizabeth explain how she had become an active user of manufacturers’ coupons. Our research has shown that conventional wisdom is wrong, as it so often is, with regard to who actually uses coupons. Coupon use typically makes a strong comeback during recessions, particularly with more affluent and educated customers like Elizabeth. She explained to us that in some cases, stores will allow a customer to redeem a $3 coupon for an item that only costs $2. They then allow customers to apply the leftover dollar to noncoupon items like produce or milk. Elizabeth also pointed out that coupons are more plentiful and easier to use these days, thanks to brands’ use of social media. For example, she described how she now gets great coupons by “liking” a specific brand on Facebook.
During this South Carolina focus group session, something unexpected happened when another woman, named Lucy, asked Elizabeth why she didn’t shop at Costco. Lucy was a self-described Costco addict. She told us, “Every week, I buy almost all my groceries and household supplies there. I have the executive membership so I get 2 percent back. I use a Costco Amex card so that’s worth another 1 percent. And for every $2500 I spend I get $50 back. I also get 3 percent back on gas. Forget those damn coupons, look how much money you will save!”
It turns out that every day, more than three million people like Lucy enter the doors of one of Costco Wholesale’s six hundred stores. The company’s sales are approaching $90 billion annually.21 It’s a bare-bones operation, with a warehouse look and feel. The company saves on fixtures, lighting, and décor. Most people come for the value because Costco marks up nationally known brands a maximum of 14 percent. It limits its “own” brand markup to 15 percent. Supermarkets aim for a 25 percent markup; department stores shoot for 50 percent.22 Costco cofounder and former CEO Jim Sinegal told the New York Times, “We’re very good merchants, and we offer value. . . . The traditional retailer will say: ‘I’m selling this for $10. I wonder whether I can get $10.50 or $11.’ We say: ‘We’re selling it for $9. How do we get it down to $8?’”23
Once Lucy spoke up at the focus group, the Costco fans jumped on the bandwagon. Sixty percent of the women we interviewed were regular Costco shoppers. Although we were not there specifically to discuss Costco, I want to share some of the comments we heard, to underscore how Costco embraces the Power of Value. It’s compelling.
Focus group member Barbara said, “The problem with Costco is that the deals are so good I buy stuff I don’t really need. If you can just look and not buy, shopping there is a ton of fun.”
Marge told us, “The Costco pharmacy is a lifesaver. Walgreen’s was going to charge me $430 for one of my prescriptions. I tried Costco and their generic brand was only $50. Plus I get 2 percent cash back from my Costco card.”
Linda explained that saving money was critical but that she loves “that they know me by name when I go there. Maybe that means I go there too much!”
What Lexie told us should be a threat to traditional grocery chains. “My husband and I quit going to the regular grocery and department stores years ago. I don’t know how they stay in business. Everyone I know goes to Costco. And their Kirkland wine is fantastic! At $6.99, it’s a steal!”
Marge later explained, “To be honest, shopping at Costco is an adventure. I always find something new and it’s always at a fantastic price. My friend is a buyer for a grocery store and he told me Costco never marks anything up more than 14 percent. It shows. They won me over. Fun and cheap is a good combination.”
Lucy whispered to the other women about what to look for, like it was a state secret: “One secret I have learned is that anything they are closing out ends in .88. I read about it on a web forum. It’s true.”
These focus groups showed us again that it is not unusual for Customer CEO companies like Costco to have their own urban legends. Several other comments, which we couldn’t confirm, were about secret signage and mystery merchandise. These are all part of what happens when a company creates a cult following. Pretty good for a major retail brand that doesn’t advertise, charges an annual membership fee to shop in its stores, and only offers about four thousand items. To compare, Walmart stores usually offer a hundred thousand products.
But being a Customer CEO company goes even deeper. Costco cuts costs everywhere in order to maximize value for customers. To reduce electricity costs, the company uses skylights in its stores, which cuts back on lighting on sunny days. And what other Fortune 500 company have you heard of where executives—including the CEO—answer their own phones? Costco loves the Power of Value, but you haven’t seen anything yet. It is possible to offer so much value that you turn your company into another kind of cult. Let’s fly Ryanair.
The Airline Customers Love to Hate
Customer: When I was in Dublin last year for six months, I flew Ryanair almost every week to other cities in Europe. I hate Ryanair with a passion. I hope they never set up shop in America.
Interviewer: Why did you keep flying them if you hated them so much?
Customer: Because they are almost free. If you are willing to put up with their BS for a couple of hours, it’s worth it. Just grin and bear it.
Scott, Dallas, Texas
Participant in customer interview about airlines
I was intrigued when I met Scott because he was so passionate about this airline. It turns out Scott wasn’t alone. Ryanair is so reviled that there are websites and blogs dedicated to how much current and former customers hate them. Here’s a typical entry from one site called ihateryanair.org.
A stewardess from Ryanair, the World’s most hated airline, was injured on Tuesday after falling from the rear door of the aircraft onto the floor some 3 meters below. It is yet unknown whether she fell accidently, jumped or was pushed by a disgruntled passenger.24
According to the Swedish news site The Local, this incident actually happened on May 8, 2012, at the Gothenburg City Airport in Sweden. The site reported that, “An air hostess fell out of an aircraft exit at the Gothenburg City Airport on Tuesday and was brought to hospital, bleeding from the head.”25 The airport CEO, Annika Nyberg, told the press that she had never seen anything like it in her career. Of course, the blogger added his editorial spin. What has Ryanair done to deserve this much hate?
Ryanair was a tiny, money-losing Irish airline until Michael O’Leary showed up. After traveling to Dallas in the early 1990s to look at the Southwest Airlines model, the new CEO decided that a low-fare strategy was the ticket for Ryanair. Initially, he followed much of the Southwest formula: flying to small, out-of-the-way airports (routes often called “nowhere to nowhere”), operating a single type of plane, short hauls, no reserved seating, and incredibly cheap fares.
Now the airline is the largest in Europe, with more than 1,300 daily departures from twenty-six countries. They can get you to more than 150 different cities on their fleet of 250 Boeing 737s. Nearly seventy-five million passengers fly Ryanair each year. If Ryanair could be described with one word it would be “cheap.” You’d be hard pressed to name another major brand in the world that would want to associate itself with the word cheap. Particularly when the service involves a life or death matter. Conventional wisdom says that the flying public wouldn’t want to get on a plane described as cheap. Somewhere in their minds, passengers might wonder, “Will it fly or crash?” But, Ryanair defies the odds on this, as it does on so many other things.
If you want comfort and coddling, Ryanair isn’t your airline. Your seat won’t recline. There are no pull-down window shades. Or seat pockets. The optional onboard food is expensive. There is an online, per-passenger booking fee. You must print your boarding pass yourself or you will be charged for one at the airport. There are myriad other fees for administration, priority boarding, reserved seating, infants, infant equipment, sports equipment, musical instruments, flight changes, and baggage. On its website, the airline spells out its philosophy: “Here at Ryanair, all of our optional fees are designed to encourage passengers to travel in a low-cost way, which enables Ryanair to save costs and pass on these savings through the lowest possible fares to you and your family.”26 O’Leary told the New York Times that he only promises his passengers low fares, a good on-time record, few cancellations, and few lost bags. He said, “But if you want anything more—go away! Will we put you in a hotel room if your flight was canceled?” Mr. O’Leary asked rhetorically. “No! Go away.”27
Having never personally flown the airline, I decided to line up a few interviews with Ryanair customers via Skype. Richard in Belfast told me that he couldn’t understand the European media obsession with the airline. “Look, you don’t have to fly them. There are plenty of other carriers to get you there. But, you will pay more. Usually a lot more.”
Anna, a fashion designer who resides in London, explained that O’Leary is “a lightning rod. He is a modern P.T. Barnum and wants to draw the attention he gets. I view him as the anti-Richard Branson, the CEO of Virgin Air. You rarely read any negative press about Branson because he plays to the media. O’Leary wants to wear the black hat to get a huge amount of free press. You’re writing about him in your book, right?”
I asked each of my interviewees how much they have personally saved on Ryanair. The consensus was a discount in the range of 75 percent over traditional, full-fare carriers. In some cases, the savings can be even greater.
John, a business consultant based in Dublin, explained, “We like to call it ‘the sit down and shut up airline.’ As long as you are willing to be one of the cows in the cattle car, it’s cool. I probably used them about ten times last year. There’s only so much you can take. But to be honest, I really admire O’Leary. You always know where you stand. Literally.”
John was referring to Ryanair’s most infamous stunt. In 2011, O’Leary announced a plan to sell standing space for about $6 per flight. He planned to remove ten rows of seats and replace them with fifteen rows of what he called “vertical seating.” Standing passengers would be held in place by a shoulder belt. Of course, the media went crazy with dozens of stories about the profit-obsessed O’Leary. The European Aviation Safety Agency announced that the idea was “unprecedented and highly unlikely to be certified in the near future.”28 Plane manufacturer Boeing said in a statement, “We are not considering standing-only accommodations. Stringent regulatory requirements—including seats capable of withstanding a force of 16 times gravity—pretty much preclude such an arrangement.”29
We asked Thomas, a director of sales in the automotive industry who frequently flies throughout Europe, what he thought of standing-room seating: “This is akin to selling a car without a windshield. You might get there, but in what kind of shape?”
Is Ryanair a Customer CEO company? It all depends on your point of view. Michael O’Leary clearly wants to be loved by his shareholders, and if he upsets the flying public and the media in the process, he isn’t concerned. It is undeniable that he provides extreme value to his customers. Even his worst critics agree that the cheap seats are a significant value. In this case, Customer CEOs may grumble and complain, but they are still in charge of the final decision about how much money they wish to save. Can seventy-five million of them be wrong?
How to Profit from the Power of Value
The clear profit from creating Customer CEO value is growth. Any company can dig in to learn what its products and services are worth to its customers. This chapter has reviewed some extremes, from Lab Armor, which created something out of nothing by replacing free water with beads, to Ryanair, which charges almost nothing but still delivers a traveler’s most important desire, a safe trip.
At the heart of the Power of Value is customer satisfaction. Customers will evaluate your product or service brands by asking themselves four major questions. First, what is the overall quality of your offering? Second, are your “points of contact,” whether in store, online, or contact centers, fully integrated for ease of use, information gathering, and follow up after the sale?Third, does your offering match the price point you are asking? Fourth, is the overall experience you provide worth it?
Economic uncertainty says all bets are off when it comes to our past perceptions about and experiences with customers. Short-term recessions usually don’t require structural changes. However, current global conditions do not reflect a short-term problem. Because the downturn has lingered for as many years as it has, customer perceptions about value (“What’s this worth to me?”) have changed. Your knowledge is outdated. What can you do about it? Seize the opportunity to love the Power of Value.
Think of Yourself As Chief Growth Officer
Begin to introduce the idea of behavioral segmentation, much like Hyundai did. Simply put, design ways for customers to do business with you. Every shift in the market is a new opportunity to grow your base by winning over new customers. You must forget what you learned last year, or worse, five years ago. That information is no longer valid, regardless of how good your sales currently are.
Listen to Customers’ Ideas About Value
When you talk to customers or conduct research involving them, focus on open-ended questions so you will be in a position to capture the nuggets. That’s where the insight really is. Learn how the current economy is affecting your customers. It is critical you understand how their purchasing decisions have changed. What are their barriers to buying? Learn how your products stack up. Ask what it would take for them to see your offerings in a better light. Remember that every day your firm is not actively engaged in listening is an opportunity for your competitors. That’s just a fact.
Here’s the secret of the Power of Value: you don’t have to guess what people are willing to pay for your products or services. There are four critical questions you need to ask. Know that when you ask people directly about price, they will almost always say it is too high. You have to approach the subject as if you are conducting a customer satisfaction survey. I have found that people are rarely asked about their attitudes toward pricing, and they are usually glad to engage.
• Ask customers how many other products or services they considered before selecting yours. If they picked yours without looking at other options, you probably left money on the table. If they selected you over several competitors, you are well priced.
• Find out if they believe the value they received equals the price they paid.
• If they feel that there should be greater value, probe deeper to uncover what additional features they would like.
• On the other hand, it is just as important to learn which features are unimportant to them. This is valuable insight because it can lead to eliminating what I like to call “dinosaur costs,” features that were once important but are no longer needed.
After You’ve Listened, Look for the Gaps
Every product or service needs periodic overhaul because customer needs almost invariably change over time. For example, Hyundai gained fresh insight from its customer study about designing car interiors, a study that was inspired by model homes in the neighborhoods of their “Glamour Moms.” These customers clearly preferred the warm wood and color palettes used throughout the model homes. Hyundai designers were inspired to add more aesthetically pleasing wood in the new Santa Fe model interiors than they had previously used. Without stepping directly into customers’ lives, Hyundai never would have observed this gap, much less been able to fill it. Ultimately, your job as a company is to fill the open gaps. Dive into the gaps to figure out how to close them.
The Power of Value Never Sleeps
Customers never stop seeking value in every transaction and relationship. Be vigilant by proactively engaging your customers and discovering new ways to satisfy them.
(How well does your organization engage the Power of Value? Visit customerceopowercheck.com to download our free diagnostic tool.)