The New Value Matrix

1. The New Value Matrix A Look at Value Creation and Enhancement By Kevin O’Connor, KO-Creative

2. What Is “Value”? • Advantage, merit, appeal, attraction, cost, price, worth • A tangible metric of what an item or service costs • A tangible metric of what an item or service is actually worth • “More bang for your buck… What’s in it for me?” • A core belief or faith in something

3. What Is “Value”? • Actual value • Overall measurable Quality of the product or service vs. the dollar amount that someone will pay for it • Perceived value • The belief that a product or service is superior to a comparable product or service, thus justifying a higher cost • Superior marketing/packaging • Brand recognition and retention • “Buzz words”

4. Perceived Value Actual Value Effective marketing ensures repeat customers and longevity. Customers take comfort and reassurance from the brand, even if it is not “the best”. Best overall products available, for which customers will pay a premium. (i.e., designer clothing, electronics, automobiles, media, recognizable brands) High So/So marketing provides brand identity, but may not reinforce the brand with the consumer, or significantly enhance perceived value. Reasonably well-crafted products or services; clients may “comparison shop”. (i.e., consumer home goods, furniture) Moderate Budget-minded marketing provides fringe or generic brand identity, but relatively little brand loyalty in the consumer. Cheaply-crafted products or services; clients will be looking for least-costly solution. (i.e., packaged foods and consumer goods, raw materials, inexpensive apparel) Low The Value Matrix

5. The Value Matrix Poland Springs/Evian High-end store electr. Saturn Independent “Art House” studios Coke/Pepsi Sharper Image Cadillac Universal Starbucks BOSE Rolls Royce Disney Motts Apple Juice Target/Wal-Mart electr. Mercury Nickelodeon Cott Soda Radio Shack Honda 20th Century Fox Dunkin Donuts Sony Toyota Dreamworks Perceived Value Kool-Aid/Tap water Local electronics retailer Yugo Golan/Globus Store brand soda Sony Smart Car MGM/United Artists Gourmet Coffee Sanyo Ford Columbia Pictures Actual Value

6. Actual Value Determination of Actual Value • Actual value determined by: • Overall cost • Profit potential • Perceived value • Cost of providing a product or service: • Research • Design • Raw Materials • Manufacturing • Transportation • Marketing/Advertising • Overhead • Actual value goes up when: • Costs and thus end price are kept low • Product reviews are favorable • Endorsed or utilized by celebrities or power players • Copycats appear • Profit Potential: • Competitors • Target audience • Repeat customers • Plan for Obsolescence • Selling price initially? After three years? Ten? Twenty? • Actual value goes down when: • Costs are too high for product to be attainable • Costs are so low as to suggest shoddy workmanship • Lack of brand recognition • Product becomes obsolete

7. Perceived Value Determination of Perceived Value • Perceived value determined by: • Effectiveness and type of marketing • Duration of marketing • Co-branding • Non-marketing-based exposure (i.e., Twitter) • Customer experience and word-of-mouth • Perceived value goes up when: • Product or service is repeatedly seen/heard/talked about in the media • Favorable reviews • Utilized by someone famous • Pivotal use during historic events, or in fiction film, television, other media • Positive word-of-mouth exposure • Reasonably priced • Perceived value goes down when: • Lack of brand recognition • Bigger/Better thing comes along • Potential obsolescence • Price is too high (or in some cases, too low)

8. Value Disciplines In his book, The Discipline of Market Leaders, Dr. Michael Treacy explains that companies which excel in one of the three value disciplines, while maintaining competency in the other two, become market leaders. Market leaders enjoy steady growth, customer loyalty, and enhanced image & branding. Market leaders also are more prone to take risks, try new areas of development or marketing, and usually have a better understanding of what customers want. • Product Leadership • Customer Intimacy • Operational Excellence

9. Product Leadership • Product leaders focus on creating the best possible product or service for which their customers will pay a premium.

10. Product Growth and Brand Recognition Product Decline Product introduction Obsolescence Product Leadership Crest and Maturation Most products go through a standard growth cycle. Product is introduced and marketed as “the next big thing,” Achieves a rapid rate of growth. The product becomes more and more visible as it is utilized or referenced on television, print and film. Eventually, the product matures to where it becomes commonplace, resulting in peaked brand recognition. Newer, cheaper knock-offs with more features arrive on the market, reducing market share for the initial product. Eventually, product may become obsolete as it is replaced with newer technologies.

11. Product Leadership Apple Consumer Products F B J D H C E G A I K Product leaders “ride the wave” of product growth, before adopting and jumping into the newer technologies as the older technologies start into decline. • Apple Computer introduces line of home personal computers. • Microsoft licenses MS DOS for IBM PC clones. Begins to encroach on Apple. • Apple introduces graphic user interface (GUI) and begins sales of MacIntosh computers. • Microsoft Windows released. Seriously undercuts Apple MacIntosh sales. • Apple introduces iMac and Mac Books in “designer colors”. • Dell Computer introduces line of PC clones with variety of colors and high level of service. Reduces Apple marketshare • Apple introduces the iPod; a music MP3 storage and playback device that interfaces directly with any computer system. • Copycat MP3 players enter the market. • Apple introduces the iPhone. • iPhone becomes market leader in portable telecommunications. • ???

12. Customer Intimacy • Customer Intimate businesses focus on the best overall experience for the consumer. Solutions will be tailor-made to the needs of the client, and problems are handled quickly, and with a smile.

13. I have been a member for 17 years. I still receive offers in the mail to apply for an American Express card. Calls to customer service involve navigating a maze of “Press 1 for this, Press 2 for that…” On finally getting a live operator I must now give them card number, address, access code, etc. Hopefully, any problems will be resolved. Maybe… Won’t find out for sure till my next statement. I have been using Direct Tire for 6 years. Automatically calls to alert me to upcoming maintenance (oil changes, tires rotated, etc.) Picks up the car for me at my home or office. Has the car cleaned and detailed during maintenance. Returns car to me. Has loaner cars in the event of emergency or prolonged maintenance. Remembers my name. Customer Intimacy Which company is more customer intimate?

14. Customer Intimacy Stew Leonard (third from the left) and his family, in front of one of their Family Dairy Mart stores. Stew Leonard’s is a genuine American Success Story, with a very Customer Intimate business model.

15. A loyal customer with his Stew Leonard’s shopping bag on top of the Great Wall of China Customer Intimacy • Stocks only about 2,000 different items for sale. Traditional grocers average about 30,000 items. • Employees are constantly and repeatedly schooled in good customer service and good customer management. • The customer is not an interruption of their work activity; the customer is the REASON for their work activity. • Fun, fun, FUN! • Petting zoo for the children • Travel photo bulletin board

16. Customer Intimacy • Among the final request in the will of a woman who passed away in 1980: A few cherished possessions to be buried with her, in her Stew Leonard’s shopping bag. “Now THAT’S customer loyalty!” - Tom Peters

17. Operational Excellence • Operationally excellent businesses have maximized the efficiency of their business to provide the customer the fastest service with minimal cost and minimal hassle. Their goal is to keep the customers happy by keeping the prices low and the lines moving.

18. Created the concept of “fast food” and “franchising” by setting up a model for store management and operations. All stores are owned by their managers, but must adhere to strict operational guidelines, such that a Big Mac on the East Coast will look and taste the same as a Big Mac on the West Coast. Placed their Next-Day-Or-It’s-Free guarantee right in their tagline… “When it Absolutely Positively has to be there Overnight.” Uses their own logistics services to handle shipping of product for its stores, thereby reducing costs for customers, and lowering prices. Monitors each register transaction to ensure that the customers spend the absolute minimum amount of time in checkout lines. Has streamlined credit application and purchasing to minimize wait time. Automatically opens new register or calls in additional help from other parts of the store if register lines get too long. Has 19-point inspection process along with each oil/lube job to ensure customer knows what needs maintenance on car, while still guaranteeing fast service. Average wait time: 15 minutes. Operational Excellence

19. Best Product Product Leadership Product Differentiation Operational Competence Customer Responsive Operational Excellence Customer Intimacy Best Total Cost Best Total Solution Value Disciplines Market leaders maintain excellence in one of the three chosen disciplines, while maintaining competency in the other two.

20. GRIP Get a GRIP: New Value Creation • Goal: Thoroughly examine your organization’s value disciplines, and the viability of a product or service, including its current state in the growth/decline cycle. • Research: Examine past creations and see what can be built on, what has worked, what has not, and why. Decide whether it is better to capitalize and build on a current product, vs. something new and different. • Imagination: Conceptualize, design, dream, and imagine product that gives desired results and maximum value. • Plan and Produce: Create and build. Test. Perfect. Bring it to market.

21. The Essence of Value • Providing value is not just giving a quality product or service at the best possible cost. There are also customer experience, after-sales service, word of mouth, and outside influences that affect perceived value. • It is possible to have a higher-priced product and be successful, if you are providing the best total solution, or the best product on the market. • It is possible to have an average product and be successful, if your delivery and customer-focus are above average. • It is vital that a company and its representatives love their product, believe in their product and their level of service, and go the extra mile to demonstrate it. • Companies that thrive are those that plan for product obsolescence and innovate with new products, technologies and services. • Companies that enhance actual value are likely to succeed. But companies that enhance actual and perceived value are assured of success.

22. Parting Thoughts About Value • Keep your thoughts positive, because your thoughts become your words. • Keep your words positive, because your words become your behaviors. • Keep your behaviors positive because your behaviors become your habits. • Keep your habits positive because your habits become your values. • Keep your values positive because your values become your destiny. - Gandhi

23. Sources • Integrity Is a Growth-Based Market • Alan Kolp and Peter Rea • 2005, Atomic Dog Publishing • The Discipline of Market Leaders • By Michael Treacy and Fred Wiersema • 1997, Basic Books • A Passion for Excellence • By Tom Peters and Nancy Peters • 1989, Grand Central Publishing • Disney, Omaha Steaks, Rolls Royce, Bose, Craftsman, Starbucks Coffee, Apple Computer, Dell Computer, Burger King, L.L. Bean, 1-800-MATTRESS.com, American Express, Direct Tire, Stew Leonard’s, McDonalds, FedEx, Amazon.com, Wal-Mart, SpeeDee Oil Change, Target and their associated logos and licenses are registered trademarks of their respective organizations.