When we conduct our Grassroots Strategy workshops, we are sometimes asked why we dive deep into customer value before we do segmentation. Isn’t value segment specific? Shouldn’t we define segments independent of what we offer today? We have come to believe that these questions reflect a common misunderstanding that segmentation should be exclusively market back.… Continue reading Segmentation Is Never Easy, It’s Iterative
Value pricing is an elusive topic but when done properly it can lead to long periods of exceptional profitability. We often hear companies improperly refer to their pricing methods as “value pricing,” when they are far from it. Like anything else, just using the words does not improve results, you actually have to use the framework to make different decisions about pricing. And because the competitive landscape changes over time, your value pricing needs to evolve over time. There are some things that you can do to ensure that your value pricing strategy will deliver the desired results.
If you follow pop culture even a little bit, you recognize the reference in our title to Ben Stein’s portrayal of the boring economics teacher in Ferris Bueller’s Day Off.
Like the high school class staring vacantly as Stein’s character explains the Smoot-Hawley Tariff and the Laffer Curve*, many of our clients fail to thoroughly consider economics, assuming that it is just financial calculations that should be left to the accounting department.
The scene works because economics is generally considered to be boring. Maybe this is because it is taught poorly, or maybe it has something to do with the terrible track record of macro-economic predictions. In any case, while most businesspeople have taken at least some economics, they tend to leave it behind at university like those nearly forgotten courses in psychology and sociology. Worse yet, many senior managers adopt the language of accountants when describing their businesses, sidestepping a real economic understanding of how their market and their business actually work.
We recently completed an adjacent-market strategy project for an automotive supplier looking to diversify beyond the cyclical and price-sensitive auto OEMS into adjacent markets with similar technology needs. For them, like many of us, the phrase “strategic sourcing” conjured up images of scowling purchasing managers at their automotive customers devising ever more diabolic approaches to drive down their prices.
At first glance, other markets seemed more attractive – while they were somewhat lower volume than automotive, they did not have the reputation of cutthroat automotive purchasing departments and might make it easier for our client to get a good return on their application engineering investment. Our job was to help them figure out where to focus, separating the ‘grass is greener’ bias from the reality of how these adjacent market customers make buying decisions.
We had a client many years ago that was struggling with how to bring a new software offering to market, specifically how to price it. Their core product was equipment used in manufacturing processes and the associated parts and accessories. The equipment was a large capital purchase for their customers, but they made most of their money of the ongoing purchase of parts and accessories (think razor blades). Their new software would help their customers design and optimize their manufacturing process and choose the best mix of parts and accessories. The challenge lay in the fact that, although the software would create tremendous value for their customers, it had the unfortunate side effect of frequently reducing the number of parts and accessories that they needed to buy. The leadership team was stuck with some wanting to postpone the software release indefinitely and others wanting to price it very high to make up for the potential lost parts revenue – and no one really thinking about customer value.
Software pricing can be complicated and confusing, but it need not be a reason to panic – even for organizations that are more comfortable pricing hardware. The primary thing to keep in mind is that all the rules of customer value still apply. Below are several of the pitfalls that we see customer fall into when pricing software, and some thoughts on how to avoid them.
In case you missed it, Robert Iger returned to the helm as CEO of the Walt Disney Company in November, less than two years after “retiring” in 2021. This makes him the latest in a series of high profile ‘boomerang CEOs’ who return to their former posts after allegedly leaving it to a successor. Other companies where this has happened include: Dell, Enron, Best Buy, Starbuck’s, Yahoo, Procter & Gamble, JC Penney, Bloomberg, Seagate, Apple and Xerox.
After years of documenting key processes, re-writing job descriptions and automating org charts, many organizations still struggle to have clarity and alignment around roles, responsibilities, and authority. This impacts business processes, project execution and day to day decisions resulting in frustration, inefficiency and sometimes poor decision-making. We have seen this issue in action with our clients across many industries.
Several years ago, we were working with a major candy manufacturer. One of the key triggers for calling us in was the country president’s growing dissatisfaction with his organization’s inability to make decisions without bringing problems to him. One example that happened to be on his desk when we talked was a Halloween candy promotion with their biggest retail customer, Walmart. We eventually talked his team through the situation and discovered the core issues – three different managers each thought they should make the final decision, and they could cite their job descriptions to defend their position: The account manager for Walmart who was responsible for “maximizing revenue at his account,” the VP of Marketing who was responsible for “maintaining and improving our brand equity across the country” and the CFO who was responsible for “implementing our pricing strategy across channels and key customers.”
As one of them lamented to us, “lots of people can say ‘no,’ but no one is sure who can say ‘yes’”. This is one of the classic symptoms of unclear accountability and misaligned objectives. So, how do we solve this problem?
One approach for clarifying responsibilities is the RACI Matrix.
By any measure, 2022 was a year of nearly unprecedented change and for many of us, one that we are not in a hurry to see repeated. While 2022 saw most of the covid-related restrictions lifted, experts are still debating the lessons and the long-term cost to things like education and small businesses as well as impacts on mental health. In addition, many businesses are still struggling with covid-related supply chain issues, including supply chain ‘whiplash’ in industries that saw big spikes in demand.
Reflecting on all this as we do our own planning for 2023 at Amphora, we are reminded of two key principles that we have stated before, read the blog below for a refresh on these principles!
We recall a rather depressing conversation with the CEO of a medium-sized company several years ago. We were trying to stress the importance of articulating a strategic agenda when he effectively shut down the conversation by asserting, “we have a three-pronged strategy: operational efficiency, organic growth and acquisitions. People need to stop asking questions and… Continue reading Your Organization is Hungry for a Strategy
Inflation is hitting every sector of the economy, and almost every company we talk to is grappling with raising prices to compensate for their rising costs. Invariably someone will say, “Raising prices is value pricing, right?” Our answer is, not really. Although value pricing could lead to an increase in price, it could also lead to holding price or even lowering price.
There are two key questions. How does inflation impact the value you deliver? And, how do you best implement the revised pricing?
Many years ago we worked for a client in the commercial waste management business – they hauled garbage from commercial businesses and construction sites. We were called in because, despite having spent a large sum with a top-tier consulting firm for their strategy, they were stuck on how to implement it. The summary of the previous consultant’s work was a strategy statement that read “in our industry, we will provide the best customer service, be the most innovative, be the most efficient and have the best people.”
Continue reading to see what happened, our definition of strategy and how to bring your strategy to life.
“We could grow faster if those stupid customers just understood the real value of our solution.” If we had a dollar for every time we have heard a client say some version of that, we would be rich. The problem with that line of thinking is that it is a dead end. If customers are stupid, and knowingly buying something other than their best option, then what hope do we have of changing that?
We have come to believe that the ‘stupid customers’ line of thinking is a convenient, but at best superficial, explanation for not making a sale. The truth is that individual customers may seem stupid – they certainly make decisions that we don’t understand. But whole segments of customers are not systematically stupid, or they wouldn’t still be in business. Nearly always, a better explanation is that we have failed to fully understand value from the customer’s perspective.
OK, time for a quick test. If you were looking at this menu board, what would you expect to pay for a bottle of Piper Heidsick champagne? This is a real picture of the menu board that my wife and I were faced with on a recent Friday evening (I have doctored it only to… Continue reading Taking the Customer’s Perspective?
One of the first things we have our clients do in our Grassroots Strategy workshops is define the market or “opportunity” from their customer’s perspective. The primary question we ask is “what is the problem you solve for the customer?” Seems simple, right? Not always. Answering that question is predicated on understanding who is the… Continue reading Value Chain Economics: The Secret to Market Leadership
When we run strategy workshops with clients, we usually start with a discussion of the momentum of the business. Borrowing from the concept of momentum in physics, this is our attempt to capture the trajectory of the business – where it is likely headed in the absence of any change in strategy? This foundation is… Continue reading Do You Know the Momentum of Your Business?
The last two years have been pretty crazy. Whether your business has been doing well or badly in this environment, much of the last two years have probably felt a lot like crisis management. Starting with the new year in 2022, it’s a good idea to refocus your efforts on achieving your long-term strategic goals… Continue reading Make Sure You Don’t End Up With a “Paper Strategy”
The end of the year is always a time to take stock of where you are and think about how you might adjust your plans for the future. Even if you are normally not one to make new year’s resolutions, this past year certainly must have caused you to stop and reflect. Many pundits have… Continue reading What Lessons Can We Take From This Turbulent Year?
Not long ago, we had a client that sold hospital equipment. A recent acquisition had broadened their product line and they asked us for some help with the strategy for the new portfolio. We started with an overview of our process, and when we got to the concept of value proposition, they stopped us. “Oh,… Continue reading A Winning Value Proposition Has to Be More Than Just a Slogan
Grassroots Strategy is a powerful conceptual framework, it changes how many of our clients think and leads to exciting new ways for them to conceptualize their businesses. After having worked with our client teams to crack the code in applying key concepts like differentiation, customer value and market segmentation, it often strikes us that the module on Voice of the Customer (VOC) taught towards the end of the workshop could seem a bit mundane.
In truth, the name VOC is a bit of a misnomer. In the past, we have attempted to change the name of this module to “Voice of the Market” or “Market Insight” but for whatever reason “Voice of The Customer”always seems to come back, despite the fact that we are describing something far larger and more important than an annual survey of existing customers that is sometimes also labelled “VOC.”
One of the benefits of having coached project teams through our needs-based segmentation process hundreds of times across dozens of industries is that we can spot patterns that are difficult to identify for even the seasoned industry practitioner who has typically developed a limited number of segmentation schemes, probably in just one or two industries. One pattern that we often see is a natural clustering of customers based on size and complexity – with large customers demanding a high degree of customization for their unique requirements and small customers buying just one or two standard products serving their far simpler needs (or if they do have greater needs, we cannot afford to serve them because of their purchase volume).
While this type of segmentation works in addressing those two extremes, the problem is ‘the middle’ – the medium-size, medium complexity customers. Leaving them all in one segment is often not a good option, as they can comprise 60 – 70 percent of your revenue.
In a probably slightly twisted sort of way I often think of the Rolling Stones song “You Can’t Always Get What You Want” when I think about Voice of the Customer or VOC. It is almost a universal truth that if you ask customers what they want, they will respond with some form of “a better version of what we are buying from you (or your competitor) today at a lower price.” If you just ask directly, this is almost certainly what customers will say they want, and many probably believe it. But the goal of good VOC is to get beyond this superficial response.
We often talk with companies who are waiting to work on their strategy because they are reworking their mission and vision statements. There are key differences between mission, vision and strategy and it is essential they all fit together to drive impact. Successful companies connect these three pieces together to ensure their business focus is clear, communicated and market driven. But strategy is too important to be put on hold while you search for the perfect mission and vision.
Our advice: Make sure you don’t put your strategy on hold while updating your vision and mission statements.
Read the full blog for insights on the core components of your strategy that drive results to set you and your company up for success.
When we were kids (yes, we had cars and televisions back then), there was no doubt that the DC universe of superheroes was cooler than the Marvel Universe. DC had Batman and Superman, the two coolest crimefighters, plus we had the Justice League cartoons on Saturday mornings and Lynda Carter’s Wonder Women on TV. DC… Continue reading Do you Prefer Superhero Strategy Lessons from DC Comics or Marvel?
The Pygmalion Trap The Greek myth of Pygmalion, the sculptor who falls in love with the statue he creates, is one of the most enduring stories of all time. The tale shows up in the works of Ovid, the Roman poet who lived in the time of Caesar Augustus. In the 18th and 19th century,… Continue reading Don’t Fall in Love With Last Decade’s Business Model
A man in a well-tailored suit will always shine brighter than a guy in an off-the-rack suit.
– Michael Kors
Mr. Kors may be right, there is nothing quite like a real custom-tailored suit. But it has also been one of life’s luxuries reserved for the fortunate few – a bespoke suit from one of London’s Saville Row tailors will set the owner back at least $2,000 and it could be several times that amount. So, most of us usually settled for an off-the-rack suit, it didn’t fit perfectly, but it was a fraction of the cost.
Is your strategy precise or robust? Precise: “Exactly or sharply defined or stated” (Merriam Webster Dictionary) or “Marked by exactness and accuracy of expression or detail” (Oxford English Dictionary) Robust: “Capable of performing without failure under a wide range of conditions” (Merriam Webster Dictionary) or “Sturdy in Construction” (Oxford English Dictionary) It is with some… Continue reading Strategies to Stand the Test of Time
It’s that time of year again – no, we are not referring to the holiday displays starting to appear in stores which seems to happen earlier each year as the holiday season gets longer. We are referring to the equally long season of budgeting that is ongoing for many of you reading this. CFO Magazine… Continue reading Can you make the headache of budgeting a thing of the past?
We continue to believe that done well, market segmentation is not just a critical marketing tool, but can be the defining element of your overall strategy. In our previous blog post, we shared of the most common difficulties in getting to a workable needs-based segmentation. So what can you do to avoid those mistakes above and unleash the power of an effective segmentation?
In our Grassroots Strategy workshops with clients, the highlight of the week is often market segmentation. Done well, it is one of the most important changes in the way you think about your business and customers – the customers you choose to serve and how you serve them impacts both the revenue and the expense sides of your income statement. But too often, teams struggle to do it well.
Decision making in times of unusual uncertainty is one of the greatest, perhaps the single greatest, challenges of leadership. Navigating the current COVID-19 crisis and crafting appropriate responses has been a challenge for leaders around the world. And whatever happens, we are likely to have years of second-guessing as to what we could have done differently. To some extent this is inevitable – with so many unknowns, it is a certainty that we either over-reacted or under-reacted, deploying certain measures either too early or too late; and we may never know which, as we cannot go back in time and try something different.
With all the major sports leagues shut down, perhaps it is more important than ever that we keep alive that grand American business tradition – the sports analogy. So here it goes: boxer Mike Tyson once said “Everyone has a plan ’til they get punched in the mouth.” At this point in the Covid-19 crisis, that sums up where most companies are with regards to their 2020 plans – we are reeling from being punched in the mouth.
Our hearts go out to all those who have lost loved ones, and our thanks to those who have been risking their lives on the front line fighting this invisible enemy. As we write this, there appears to be a light at the end of the tunnel, people are talking about plans to re-open the economy. But to Mr. Tyson’s point, those can’t be the same plans that we had coming into the crisis. You’ve been punched in the mouth, what do you need to change before the bell rings to start the next round?
What do Rock ‘n’ Roll, innovation and defense technology have in common? If you’ve heard this story, you probably have a guess. If not, it might surprise you to find the answer is one person: Skunk Baxter.
Pricing is one of the most important levers your organization has, therefore pricing decisions are some of the most important it will make. Set the price too high, and you won’t sell anything. Worse yet, set the price too low and you are leaving money on the table.
That leads to the question, what department or function within your organization is in the best position to set the price in order to maximize earnings?