“Everything is headed toward commoditization if you don’t fight it,” says Fred Reichheld, founder of Bain & Co.’s Loyalty Practice and author of Loyalty Rules! “Defending your company against it,” he says, takes a “creative redefinition of markets.”
The CEO challenge is clear: continuously innovate value in your products and services, or face margin erosion and potential extinction. Leaders have responded by coming up with several creative strategies for fending off the threat. Some have broadened or changed the definition of their customers, while others have reinvented their products and rethought the notion of customer value. The WINNERS have developed the approach of the customer specific unique value proposition (UVP).
Redefining the Customer
The first key to avoiding commoditization is to review just whom your company is serving. Gaining this understanding of customers allows companies to prevent a “downward migration” in price and transaction value.
In a recent study done by Booz Allen Hamilton and the Kellogg School at Northwestern University, 110 senior executives from Fortune 1000 companies were examined. Almost four out of five people said they planned to shift from selling products and services to developing value-added solutions in partnership with customers. The study concluded with this thought: “Companies that focus on the customer specific UVP, while emphasizing growth opportunities and adapting to a changing marketplace, are more likely to be top performers as opposed to companies that focus on decreasing working capital, supply-chain efficiency and spinning off non-core businesses.”
UVP is a Need to Have
UVP is not simply optional and “nice-to-have” in business. Tailoring your value to a specific customer is no longer a luxury; it’s a requirement. Unique and focused customer value propositions give every promise of creating the separation companies need from their direct competitors, earning the customer preferences profit margins require. However, companies must overcome the inertia of their own organization that fosters resistance to making the changes. Such changes are necessary to implement the unique value proposition approach.
Overcoming Inertia = Survival
Many companies thrive during the early stages of their life cycle, only to fall slack during periods of inertia and die out while others surge ahead. Inertia is not the enemy of the UVP approach, but it does resist it at the point of change. Therefore, at that very point, management must learn to deconstruct inertia in order to reconstitute it elsewhere. Developing the focused UVP is that which differentiates your company and creates a sustainable competitive advantage. We are all, more or less, strategically aligned. We are just being asked to execute at a new level of competitiveness.