If we were to define business management as the capacity to create as much value as possible using the means available to you while staying on the good side of the law, we would then need today to talk about some people who are clearly incapacitated.
I am often amazed how strongly businesses believe prices are the only weapons they can use to sell. Working with small as well as with very large corporations, I often hear “we are too expensive” (ok, probably true, can’t harm to think so), “our prices are too high” (I concur for every firm I am a customer of, but I am probably biased). In times of crisis, the first survival reflex I notice is “slash down the prices”.
If I were a teenager, I would probably insert “LOL” here. Please. Seriously. So as many managers seem to have missed the point, let us start with some basics.
A purchase depends on the perception a customer has of the product. If I like a product, I am more likely to buy it than if I hate it (hm… D-uh!). If I love it, I will buy it. Think of all the recent and less recent fads: an Elvis or a Beatles record, an Amstrad or a Commodore computer, a walkman, that little black dress, Rubik’s cubes, Communism, an iPad, cocaine, whatever has a ‘Green’ sticker on it.
Some of these items came at an outrageous price considering the small amount of material or work they required, and I am not only referring to the dress. However, such items were the it-thing of their era and price would not matter such a great deal. So, point made: price does not matter as much as we think. Perception does.
What is this perception made of? It mainly consists in the value the consumer thinks the good or service can deliver to him / her. Consumers will compare two goods with similar or a different value propositions. If the value propositions are the same, then price becomes the discriminating criterion. If the value proposition differs from one item to the other, price is reduced to being only a part of that proposition. The bigger the difference, the less the price will be used for discrimination purposes.
At a certain point in the value spectrum, the value propositions differ so much that they no longer compete: comparing prices is irrelevant because comparing the two items becomes irrelevant. Price is then only a matter of affordability and ultimately, a matter of priority (let us call this latter concept “price elasticity” for short. E.g. Heroin. Price is only a factor of prioritization for the addict: what comes before heroin if I am in need? Not much. What comes after? About everything, Mom included. Let’s put her on the market).
The other side of the spectrum is the commodity. What happens in a market where all actors offer the same value proposition? The item is commoditized, these actors compete on price! The best way to get away from this, is to renew, re-think, re-whatever you want but do something to that value proposition. De-commoditize it. Many ways to do this, but we will talk about it another day.
That sounded easy, right? It sounded like “Value Proposition for Complete Morons 101”, did it not? So let us have a look at the following documents.
Here is a document coming from a very official corporate leaflet. Glossy recycled paper, rich colors, laughing kids, diversity and visible minorities (yes, women). It advertises the Values – capital V – of the firm, is handed out in the lobby of the Headquarters of the company, and quite a renowned company it is. Let me ask you: in which sector does this company operate? I have used a few illustrations:
a) Bob’s Big Burger, a restaurant chain.
b) Laksa International, a financial services firm
c) Ekson Gomez, a raw material / commodity exporter
That is the best bit: not only these Values will not help you find out which firm this is, but it impossible to find out in which sector the company works! Change the name, from my sister-in-law’s babysitting student initiative to General Motors Corp., these values are generic enough to apply to all.
A question for you in that case: since I cannot find anything more valuable here than I will at a competitor’s, what will I think of it? Easy: no better value proposition than the neighbour’s, that spells “commodity” so let us see how I can drive that price down. Besides, how can I trust these values? They are so common everyone feels the urge to have them engraved on their frontispiece.
Bottom line: someone paid to have this “imagined”, validated, printed, distributed as the “official image” of the company. That is: for the company to resemble more a commodity than it did before this hm… act of communication was bought. They paid and therefore they lost money since the importance of price as a factor of differentiation has increased. Let me sum this up: someone paid to lose money. Trust me: this is much more frequent than you think. Every business promoting products that are complex or complicated to explain, with too many criteria to compare, does the same mistake: French wine, cars, computers and computer parts, flower delivery services (go compare flowers!)… They all advertise on the same things and therefore end up all looking alike. They pay to become commodities. There is someone out there lurking in their corridors, that needs to be fired.
The company who issued the original document is Areva. They do nuclear power plants and fuel. Since they deal with the atom and the ways to harness its power, let us hope these guys draw the line at destroying value.