KnowThis Blog Postings
- Published on November 23, 2010
- Posted by Paul Christ
The Internet's dramatic impact on business is causing some to conclude that, in the long term, marketing success for many companies may be hard to sustain. In particular, the speed at which information is exchanged and knowledge is gained makes competitive advantage a fleeting proposition – here today, gone tomorrow. While this picture of business is somewhat dire, most executives and business owners are probably not losing much sleep over what these prognosticators envision. But maybe they should, especially when it comes to creating and maintaining customer value.
THE ESSENCE OF VALUE
From a customer’s perspective, value is the perception of benefits received for what he/she must give up. In other words, what you get for your money. For some products, there are tangible aspects to value obtained in a purchase. For instance, customers receive three donuts from one store for the same amount that another store will sell them two. Yet this type of value essentially amounts to a pricing battle that is extremely tricky to maintain so many companies find a better way to create value is to build perceptual value. That is, get the customer to “think” there is a difference rather than have customers actually “know” there is a difference.
Whether a company chooses to focus on the tangible or the perceptual (or both) for creating and maintaining customer value, it can be argued the Internet has made this task much more difficult. For tangible value, the Internet is the perfect venue for supporting a price war. The Internet closely represents a state of pure competition (an economics term), where there exists many buyers and sellers and a lot of market information on which to base decisions. In fact, with the proliferation of methods for assisting shoppers, such as promotional email and text alerts, social media messaging (e.g., Tweeter), and coupon sites, it is very difficult for any company’s product to sustain value based solely on a low-price position.
With value through price advantage being problematic, companies must then proceed to build value in perceptual ways. But, here again the Internet presents problems. Here are a few examples:
- Reliability - The perception a product is more reliable than another might add value since it is associated with fewer usage problems. In other words, it saves on frustration. Yet the Internet may knock this down. A product’s reliability can be explained by the company using research information, such as test results, but many customers want to see real customers experiencing it before they make a judgment of reliability. For example, auto buyers have learned to take an automaker’s claim of reliability with a grain of salt and instead rely more on opinions found through social media, website comments, and discussion forums. More than likely not all opinions are good and may lead to perceived reliability estimates that are well below what the company promotes.
- Status - Certain products have built a solid value proposition by convincing customers that owning their product will improve the customer's status when they interact with others. To gain value based on status frequently requires segmenting to exclusive target markets and setting up a distribution scheme that limits who sells the product. For instance, Rolex watches are not sold by every jewelry store. Gaining status symbol awareness is a powerful advantage if it can be maintained. The Internet, however, has a way of eroding status by making the product more widely available (e.g., online auction sites), making acquisition easier, and even undercutting pricing needed to maintain a status level. For marketers, positioning a product on the idea that it will improve one's status is more difficult to achieve if a large percentage of a population is able to acquire the product.
- Customer Service - Building value through strong customer service means responding to the customer with the right answer and in a timely manner. Yet, what is a timely manner when it comes to the Internet? For some customers, especially the tech-savvy breed, this may mean instant access to customer service at any time of day. They may want access via web-based direct call back (e.g., enter phone number online and customer service calls), online chat, or even video conferencing. But, companies are finding such technology solutions for customer service raises costs and are often non-revenue producing activities. Yet, possibly worse of all, investing in these technologies sends a message to the customer that the company is ahead of the curve on new methods of customer service. How then does a leader in introducing customer service technologies lose value? They do so by trumpeting the technology as a key solution for servicing customers only to discover the technology does not live up to expectations. For example, forcing customers to find answers to questions through an online Knowledge Base that does not offer advanced search options may result in hundreds of useless matches to a customer’s inquiry. Irritating customers with web-technology may negatively affect perceptions of customer service even though the company may be a leading-edge customer service innovator.
- Overall Cost - Finally, competitors can close the value gap by suggesting ways in which the leading brand is actually more expensive than the competitor's product. One common method is to suggest a product has hidden costs that are not directly related to price. For example, a competitor's promotions may indicate the leading brand is much more expensive than advertised because of the amount of time a buyer must invest to learn how to use this product. In such situations, competitors can use the Internet to narrow the value gap between themselves and leading companies by providing access to extensive tutorials and how-to instructional guides showing how easy it is to use their product compared to competitors.
RESPONDING TO VALUE EROSION
The Internet may not shake out value from all products but for many it does. Reduced value means the company’s product is not as attractive as it once was. This leaves the company with two options: 1) reduce price, or 2) maintain price but add new value propositions. Both options are worth exploring but, as noted above, pricing wars are difficult to sustain and, consequently, are only a short-run solution.
To really remain competitive in an environment that strips value, companies must respond by consistently adding more to their products. To add value, marketers must constantly seek out and evaluate new value propositions. Sources for new value propositions include: research and development activity; asking customers for ideas; and, of course, using the Internet to see what competitors are doing.
Continually adding value is a difficult, time consuming undertaking but necessary in the Internet age.
Image by Matt Biddulph