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Value Creation As A Form Of Discounting

by David Brock on June 17th, 2015
wasting money

There are all sorts of articles on creating superior differentiated value.  Lots of them talk about creating more value than the customer expects, surprising and delighting them.

In truth, I’ve been raised in this camp and have espoused some of these concepts myself.   Just the concept of “added value,” is actually value over and above what the customer needs and expects.

In reality, value creation can be a slippery slope.

We need to create the value needed to win the business, at a price the customer is willing to pay and that is acceptable to us.  Going over and above that can be creating value the customer doesn’t want or need, or can be tantamount to giving value away and providing huge discounts.

Stated differently, value creation has value.

If it doesn’t create value, then we are wasting the customer’s time.  If we provide more value than required, we are actually “giving it away.”

The trick is determining what value the customer is willing to pay for at a price that we are willing to accept—-and providing no more.

This may sound like a lot of double talk, and perhaps there’s an element of double talk.  It’s hard to know, in any situation, specifically what the proper balance is—but I think there are ways that we can minimize the amount of “added-value.”

I think it goes to some basic principles.

  1. We have to really know what problems we are the best in the world at solving and who has those problems.  These are the customers we can create value which they value and for which they will pay.  Everything else is a waste of time.
  2. We have to really understand the magnitude and impact of those problems on the customer.  This comes from understanding and engaging the customer very deeply in discussions about these problems.  We can’t deal with them at a superficial level, we have to really dive into them.  The good news is that in all but the simplest purchases, the customer needs the same deep understanding and analysis to know what value they need and should expect.  Since we are, presumably, experts in solving these problems, we know how to get to these root issues most effectively and efficiently.  Others less skilled, will stumble around, perhaps getting to the same point over a longer time and higher cost (good news for us, because it limits their discounting capability).  Those that don’t engage at this level, aren’t creating the value the customer needs, so they are likely to be disadvantaged when the customer reaches a decision.
  3. We have to gain agreement from the customer about the magnitude and impact of those problems.  As part of this, we need to understand what the customer values–each person involved in the buying process.
  4. As we move to discussing the solution, we have to do that in the context of what the customer values–each of them.  Additionally we have to gain agreement about the value of the solution–that is the specific outcomes they expect.  We are working on constantly shifting ground.  What the customer wants/needs/values changes in the process–as they get smarter about the issues and solutions.  What the customer wants/needs/values will vary by individual buyers in the customers through the buying process.  And when they get together to “decide” this will change even more.
  5. The value we need to create is never formulaic, it’s constantly changing based on the changes in the buyers, our engagement, the competitors’ engagement, and how the buying dynamic changes in the buying journey.
  6. In determining the “right” value to create, the more we earn the right to help facilitate the customer’s buying process, the more they rely on us in making their buying decision, the better we can manage the value delivery process.

This is still somewhat theoretic and esoteric, so how do we bring this down to something we can implement and execute?  We have to find ways of putting these principles into practice.

It starts with paying attention to the customer–what they are trying to achieve.  Engaging them in discussions about what they really value–they often don’t know until you do really deep dives on this (You can’t ask them, “What do you value,” you have to explore to determine than validate/verify that it is meaningful.)  Doing this actually helps us to determine how much value we need to create, and when we are creating more than needed or appreciated.

Sometimes there are things that we think customers should value–we can explore that, but if the customer doesn’t value it, then we are pushing a rope up hill.  We need to stop it–regardless how important it is to us, if it isn’t to the customer, then focusing on it reduces our value.

This means paying close attention to the customer, challenging them, gauging their response actually enables us to determine what value we need to create at what price.  Stated differently, it’s being engaged as well as being engaging.

Making it even less obscure, it being conscious that piling on more and more value simply doesn’t make sense.  Creating the most value doesn’t create profitable wins.  Creating the right value is what drives profitable wins.

We can learn a lot from Lean pracitioners.  Lean focuses on understanding value and delivering it–not delivering too little or delivering more than needed.  All of that is defined as waste.

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  1. David Locke permalink

    Thanks for the heads up on this form of discounting. Discounting is OK during specific phases of the technology adoption lifecycle. Similarly, discounting is not OK in other phases. In the late mainstreet, aka consumer markets, except then newly acquired, discounting is not OK, because you are discounting away profitability.

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