Donaltella Versace with (L-R) Carla Bruni; Claudia Schiffer; Naomi Campbell; Cindy Crawford and Helena Christensen Getty Images
Theoretically, organizations providing superior design or superior service should be able to earn a fair profit on top of the fair costs of what they do, while those focusing on production or delivery’s only option is to lower costs to increase their profits at the market price. But doing either requires the entire organization to be aligned around a single core focus.
The basic value equation generally holds.
Value Equation Bradt
This suggests customer-defined value is driven by customers’ perceptions of the relative quality delivered. The implications of this are to focus on everything that impacts the customers’ perception from design to production to delivery to service. What matters is the customers’ experience – which will be different for customers drawn to organizations with different core focuses.
Core Focus Bradt
Design
Design-focused organizations win by inspiring, enabling and empowering their designers. They organize around the designers, giving them as much freeing support, flexibility and independence as they can. Their CEO must be the Chief Enabling Officer driving integrity, respect and innovation as the third value.Innovation creates new benefits for these organizations’ customers – for which those customers should be willing to pay a fair price. Focus all on innovation and the core designers.
Alexander McQueen Getty Images
Consider couture fashion with individual dresses made for individuals. Those individuals care about the design and quality, not the price.
Service
Bridal boutique Getty Images
Superior service is a benefit customers will pay for. Drive customer-centricity through the entire organization considering what’s best for the customer at every step of the journey.
Consider bridal boutiques. The brides and the friends and family they bring with them want to feel like they are queen for the day. Price is a secondary consideration.
Produce
Production-focused organizations are all about producing things with the right quality, at the right price on the right timelines. The best are stable command and control hierarchies in which the CEO is the Chief Enforcement Officer driving integrity, respect and accountability as the third value.Expect market prices. Invest in lowering cost versus producing higher quality or timeliness that your customers don’t really care about. Drive accountability into the very fabric of the organization, measuring everything and holding all accountable for making their piece ever more efficient.
Walmart shoppers Getty Images
Consider Walmart shoppers. They want acceptable quality at the lowest possible price.
Deliver
Expect market prices here. Invest in lowering total, system-wide delivered cost to increase your profitability. Collaboration is key here as, almost by definition, no one can make things work on their own. They have to work with others both internally and externally.
Amazon packages getty
Consider Amazon’s customers. They want acceptable quality delivered to them with the lowest possible investment of their own time, stress or money.
Coal culture
The leadership team of one coal company was split on whether their core focus should be production or service.
Those arguing for service pointed out that they had a relatively few large customers – predominantly power plants. Those customers were sophisticated buyers, who cared a lot about how they were treated personally and how their plants were serviced.
Coal mine Getty
Those arguing for production pointed out that the essence of their business was to move dirt and cut up coal. They argued this was about as basic as it got.
I asked the service people what they thought would happen if someone went to their largest, most loyal customer and undercut their price on coal by ten cents a ton. “They’d switch in a heartbeat.” There’s a massive difference between appreciating service and being willing to pay for it.
Implications for you
Sometimes you do have to think in the box. Know which quadrant you’re operating in: design, production, delivery, or service. Get all aligned around what that means in terms of your third value, your organization, your CEO, your operations, and your approach to pricing.
