When Value Added Does Not Add Value

Published On August 17, 2009 | By mbalogh | Blog, Uncategorized

The concept starts as an organization who wishes to increase value to their customers.  Not so bad.  But what happens when this goes horribly wrong?  Suddenly it becomes blatantly obvious that you really don’t know your customers very well.  And that’s a scary thing.

1. Do not inconvenience your customers to add value .

A friend of mine, like a lot of people these days, is looking for a job.  She’s been working on her resume for some time, has consulted a professional career counselor and utilized the resume critiquing services of a prestigious pay-to-play job placement website.  While in her job search she found an opportunity on a job board which caters to the alumni of her alma mater and wished to apply.  Within reason, to create an account on the website and apply for the job her account needed to be approved by the university and she needed to upload a resume.  No problem.  But then the twist.  Her resume was denied.  It had taken over a week for them to get back to her, a week she had spent not applying to a potential job opportunity, and now she was denied.  She had worked hard, payed good money for professionals, and her resume was denied.  As it turned out, the university has it’s own set of career counselors who, as a service to her, review and critique resumes.  But, rather than offer this as a value added service, they impeded her job search and frustrated her.  Where’s the value in that?

2. Understand the value your customers are seeking before adding to it .

There are lots of ways organizations can add value, but without understanding customers it’s really just a shot in the dark.  This is where customer relationship cultivation and behavior first marketing comes into play.  Cultivating relationships with your customers helps you understand what is important to them and the real value your organization is providing.  It might not be as straight forward or obvious as you think.  To do such a thing requires commitment on both sides of the fence.  The organization needs to support the marketing, and the marketing needs to support the customer.  Circuit City, for instance, tried to become Best Buy but they had neither the infrastructure nor the customer base.  As a result they increased the size of their stores, lowered service, their true value to the customer, and still couldn’t match Best Buy’s prices profitably.  The end result: no more Circuit City.

If Circuit City truly understood why certain customers stuck with them instead of going down the street to Best Buy or simply shopping on Amazon and how customers used the sales staff to purchase they might have survived.  Price, as it turned out, was not the primary value they were providing to their customers.  It was the knowledgeable staff and service which kept people coming back, two things they removed in an effort to add value.

3. Value is not a zero-sum game.

I recently heard a story about poor use of information with a good intention.  An organization I know of nearly crashed their company in an effort to add value to it’s most profitable customers.  Their idea was to identify the customers responsible for the most revenue and treat them like royalty in an effort to gain new business.  Grow deeper not wider.  Sounds reasonable, right?  Their mistake:  forgetting about The Long Tail .  The plan: add value to one set of customers and remove value from a very large set of smaller customers.  The reason:  there are only so many sales people and the day isn’t getting any longer.  As individuals, members of this segment do not contribute very much but, as a group, they  make up a significant percentage of the bottom line.  This was known and understood, but an incorrect assumption was made.  Management assumed that, because a customer makes a relatively small purchase, the purchase is less important to said customer than one who makes a larger purchase.  Taken as fact they could make the associative leap that smaller customers require less attention.  For some reason they thought smaller customers wouldn’t mind being informed that their business is, in fact, relatively small and thus less important than someone else.  The customers got the message loud and clear and took their business elsewhere.

In this case the organization did not understand the elasticity of their product and the value the sales representative, not the product itself, was providing.  As a result the organization did not add resources to the initiative and value became a zero sum game.  Some customers won, and some customers lost.  As it turned out the most profitable customers are not automatically the most valuable and revenue was severely impacted.

4. Take the step.

Many of these individuals are already our customers.  We already have the data.  Knowing our customers, their behavior, and the real value we provide is just one step away and will help us make informed decisions.  Take the step.

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One Response to When Value Added Does Not Add Value

  1. “Value-Added”, and subsequent business revenue and profit benefits is a reality, quantifiable and must be managed with “all hands on deck” within a B2B environment. There are well established tools and examples of how companies may provide conventionally normal products and conventional operating costs with an exceptional “buyer” experience and “win” the race to growth and goal achievements.
    In the Consumer Electronic Retail market the Circuit City – Best Buy example tells the tale. Same products, similar locations, a “different” client experience. One company wins and the other company is out of business.
    Best Buy, whom I had my personal consumer run-ins with over the years, has demonstrated continuous improvement in client experience. This is my personal observation from a “marketing and sales” professional perspective. Circuit City, on the other hand, and from personal experience, simply attempted price gimicks to attract business and actually had a relatively poor client centric culture.
    As in Consumer Retail, this is true within the B2B environment. The “Thrivers” culture must be based upon continuous improvement in their clients’priority of needs, wants and wishes, as well as their (Thrivers) relative position with best alternate supplliers as well as moving trends within segment.

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