Principle: Business is run on customer value
Example: Let’s say that you are out to buy a laptop. You know the kind of specifications that you want: not very customized, just a solid state hard drive of so many gigs, so much RAM, processors, video cards, screen size, etc. You know a couple of places that sell them, but you could be waiting in line for hours just to get into the store. So how do you go about choosing where to go and from which company to make the purchase?
Introducing the VALUE PROPOSITION! That is, quite simply, the benefits that the company is willing to sell to the customer; product, service, and image alike. It’s what catches the attention of potential customers and fosters loyal patrons. The VP should be clear and differentiated to meet different segments of the market.
Big box retailers generally go with a VP of low purchase costs. They streamline their supply chains so that their customers can find what they want and not miss a sale, and future sales from that customer (known as customer lifetime value). The one thing that happens with this approach is that customer service becomes centralized to minimize costs. This result can be off-putting to those customers who are relational and want to see friendly, accommodating faces. However, the goal of the strategy is low costs and high volumes, and with the commoditization of a great deal of products, price has become the main selling point.
The higher up the scale of differentiation, there is going to be a greater cost but have the added benefits of things like custom brands, personalization for individuals, and more of a personal touch to the interaction. Highly differentiated brands of computers make certain that their customers understanding that they are important to the organization, that their business is appreciated. All of this comes at a monetary trade-off though.
Martin covers three categories of customer service elements: pre-transaction, transaction, and post-transaction. That’s seems pretty simple to understand, but getting great service is something that is missing in the majority of businesses. Even the low-cost chain stores have to keep up some level of service.
Let’s say that you first go to a locally owned electronics store ready to make your purchase. After all, you want to support your local economy. Pulling into the plaza’s parking lot you notice the sign and find the spot nearest the store (unless you are paranoid about someone hitting your car opening their own car door; then you park as far away from the store as possible). As you enter the store, you are overwhelmed by a chaos that only pack rats and statisticians can tolerate. Woah! Nevermind. We’ll take our business elsewhere. This, although unlikely, is an example of a missed sale because of a lack of pre-transaction service.
Anything to do with the customer perceptions of value before the purchase, of either the product or company, defines pre-transaction service. In the brick and mortar retail game, this could be anything from the location’s general atmosphere, the layout of the store, and sales associates knowledge or demeanor. In online transactions or transactions of larger scales, such as Business to Business dealings, these things may be response times to inquiries,
Okay, so we’re at the office supply store. It’s clean, professional, and you know that they carry laptops. But wait! They’re don’t have any in stock. What luck! Well, it is not necessarily based on your luck; it is a failure on the store’s part to anticipate your purchase, to serve you by having the product available. Well, you don’t want to wait, and there are ten other places where you can the same laptop today. Here we see a transactional deficiency.
That’s just as well; we can go to the electronics store in the plaza beside that trendy coffee shop/bookstore. The store is nice, and the sales associates aren’t too pushy. There it is! You’ve found the right laptop with the specifications that you want, the look that says ‘tech savvy, but not pretentious”, and at the right price. You want it; you buy it; you got it! That’s a successful interaction right? Yes. Almost. The way that you perceive the value associated with this purchase is also contingent upon how well it performs for the next couple of months, or even years.
So let’s say that you get home and discover that the power cord is defective. Time to call the store right? Sure, they love to hear about this kind of thing. So you find their number on the receipt and give them a ring. A conversation similar to the following occurs:
Customer Service (CS): “Thank you for calling Mega-Ultra Gizmo Shack. How may I help you?
You: “Hi, I just bought a computer from your store, but it has a faulty power cord.”
CS: “Oh, that’s not our fault. You have to talk with the manufacturer.”
You: “But I just bought it 20 minutes ago and still have the receipt. Isn’t there anything you can do?”
CS: “I’m sorry, (insert gender specific title here). I can’t help you.”
This is an example of a post-transaction service failure. Of course, it is a reasonable thing for returns and warranty issues to go directly to the manufacturer. Most stores themselves are not well equipped to efficiently handle bulk returns to hundreds of separate manufacturers. The point of contention for this aspect of the service spectrum is the lack of empathy skills and customer orientation.
Customer Service, as it is noted in Martin’s book, is an all or nothing affair. A customer is either completely satisfied, or not completely satisfied. Even a small discrepancy in the transaction can lead to dissatisfaction, and a potential loss of customer lifetime value.
These lessons are simple because each of us may have experienced them personally. So how do businesses make sure that the damages that can occur are mitigated?
Having a well-thought out buyer’s experience can be a key aspect of a lasting business relationships, whether it is a consumer–retailer or a transportation carrier–freight forwarder relationship. One of the main aspects of effective supply chain networks is the management of those strategic alliances that need to be cultivated to provide the greatest value to your customers at a reasonable price and streamline cost structures in providing those benefits.
It is the total of these benefits, pre-transaction, transaction, and post-transaction alike, that comprise the Value Proposition. Moreover, it is important to note from these silly examples that not every Value Proposition will be the same. The combination of these different facets will give each company a distinction and competitive advantage. Managers and strategy makers use this fact to set themselves apart to their markets to maximize their company’s potential and shareholder value.
To wrap things up, mastering the art of the value proposition is a skill, and developing it is a story that will unfold as we journey through the world of international logistics and supply chain management.
Just in case you are wondering, these examples are for informational purposes; it is not necessarily the case that I am disgruntled by experiences with any particular organization. I’m not going to point any fingers, but if I were to do that, you wouldn’t see it anyway. I mean, this isn’t a video blog or something.