If you're competing on price, you'll never achieve maximum profitability. Instead, everyone's job must become value creation. But are you sure that you're providing value to your customers?
Even if your answer is an emphatic yes, you might want to take a closer look. Based on my experience, more than half of all companies feel that they aren't getting true value from their suppliers. That number almost certainly includes some of your customers.
The danger is that you may be assuming the fault lies with them—maybe it's an implementation issue or maybe they're frustratingly blind to the value that you can see in flashing neon. It doesn't matter.
Value truly is in the eye of the beholder. If your customer can't perceive the value you provide, it doesn't exist. Period. That's the value gap we explore in my book, and it's one of the biggest roadblocks to sustained growth and maximized profitability.
The value gap can often be traced back to cross-functional dysfunction, a term that basically means your departments are not working together—or, even worse, they may be in conflict with each other. For example, R&D creates new products that have little connection with the customer's real problems. Marketing generates leads but is not held accountable for the results. Salespeople merely "present" solutions instead of seeking out relevant information on what the customer's real requirements are.
In the confusion, customers default to the lowest common denominator—price—which they do understand.
When various departments are operating at cross-purposes, a company's value strategy is likely diluted by the time it reaches the customer. The customer perceives, rightly or wrongly, that the value he is being offered simply isn't there, isn't unique among the alternative solutions, or he doubts he will receive the value being promised—all of which leads to what is referred to as commoditization. Companies ultimately watch their margins erode as price becomes the driving force of the customer's decision.
To close the value gap, companies must create "Prime Solutions"—i.e., those that...
- Deliver optimal results, capable of leveraging value to the highest level of the customer's business
- Ensure that customers have identified and purchased the best answer to their problems
- Provide solution implementation and value enhancement strategies that enable customers to achieve the value that they anticipated.