Editor’s note: Wade Boudreaux is director of marketing at Danos & Curole, a Larose, La., marine contracting company.
Listen very closely because I’m going to answer a question that’s probably been on your mind a lot lately: “What will it take for my company to be profitable this year, next year, and every year thereafter?” The answer lies deep in the customer jungle, and to find it you must be willing to navigate the raging rivers and treacherous swamps to reach the shining temple, where its awaits you. Your guide for this journey will be someone very familiar to you: your product. And your weapons will be none other than your eyes and ears.
If your company is anything like mine, then your customers and competition have driven your product(s) down to nothing more than a commodity. If you’re one of the lucky companies that sells unique or scarce products, milk it while you can, because your product too will one day be driven down to commodity status. Some of you are probably laughing and boldly stating, “Surely not my product.” Yes, your product too. It is an undeniable truth. Customers and competitors will not allow you to continue to make high levels of profitability for an extended period of time. Alternatives will come about. Improvements will surface. If new, alternative products do not make your particular product extinct, then they will definitely push it towards being a commodity. Why can I be so confident in stating this? Because I for one cannot name a single company that has been around for a long, long time whose core products have not been driven toward commodity status. Look at the automobile industry, the soft drink industry, the hotel industry, the microchip industry, and the pharmaceutical industry - heck, pick any industry. They all have one thing in common, and that is all of their core, longstanding product lines have been pushed to commodity status over time.
So, you might ask, if this is the case, why can some products still command a higher price for the same basic product? Say, for instance, laundry detergent. Why would Tide still be a market leader and charge more than other brands? The answer, in my opinion, is that they’ve been to the jungle, probably more times than many, and reached the shining temple where the answers to profitability awaited.
So let’s uncover the mystery of the temple. The temple represents the results of value-added research. Value-added research involves trailing your product into the realm of the customer (the jungle) and observing. Watch how your customers physically use your product, what difficulties they have in using it, how it interacts with other products they use. While you’re there, also take a look at what other difficulties they have, what tasks or duties make their job harder, what types of needs are not being met. The simple, basic thing that you want to know is “where is the pain” in your customer’s operations? The customer knows where the pain is, but what he/she doesn’t know is how to alleviate it. Even if the customer does alleviate it, it may not be the most efficient or cost-effective way. The customer knows he’s spending too much time on “A” when he should be spending more time on “B.” It’s your job to figure out how to alleviate that pain, and translate it into a separate product or service that accompanies your core product. And that’s how you create value for the customer. This value will always be something that the customer is willing to pay for, because you can easily show him/her how it will take away their pain, save them time, and, most of all, save them money. If the customer is not willing to pay for it, then scrap the idea because what you have is not a value-added product but rather a free service. Free services are nice and customers tend to like them, but they can cut down your profitability tree quicker than a champion lumberjack.
Many routes
Once you’ve made the decision to enter the jungle, there are many routes to follow. Some of the methods that can be used to conduct value-added research are listed as follows.
Total process observation
This is by far the best method in my opinion. With this approach, the researcher actually physically follows his/her product from when it is first distributed to after the customer uses it. Look for how the product arrives, how it is handled, how the customer uses it, what problems accompany its use, what other products are required for the customer’s specific application, and so on. For the best results, the researcher should follow the same product a number of times to many different customers using all applicable distribution methods. The data will usually be in the form of note-taking or voice recording, which can later be transcribed.
Depth interview
A simpler but less effective method is to actually sit down with the customer and ask him/her a series of open-ended questions that will try to determine how the customer interacts with your product. Questions should probe for problems with using the product, difficulties with competitors’ products, what is causing the customer the most pain in dealing with your product or company, what are other services that the customer wishes were being provided, what does the customer physically do when he receives the product, and so on. As with total process observations, the data will be in the form of note-taking or voice recording.
Paper/online surveys
An even simpler but much less effective method is to send a survey, although the incentive for the customer to fill it out should be a very nice one (try a $100 gift certificate to a fancy restaurant vs. a $1 bill). Remember, you are asking the customer to respond to open-ended questions, so he/she will probably want to be rewarded substantially for the time they spend thinking and writing. The questions on this survey would be like the ones mentioned in the depth interview section.
Some savvy value-added researchers have actually gotten surveys/interview tools down to one or two questions that tell them everything they need to know. For instance, a financial institution might ask customers to describe their ideal banking experience and describe what services they would most like to see their bank offer. And as trends emerged over time by asking these two simple questions, they could truly offer value-added services that their customers were willing to pay for.
So, what does value-added actually look like? It will usually be something that costs you little to provide, but exponentially enhances the value of the core product. Many value-added products or services may surround one core product. Value-added is the personal, face-to-face consulting and neighborhood location that goes along with Edward Jones investment services. It’s the extreme levels of service you receive at a Ritz-Carlton hotel. And it’s the non-spill spout on the top of a laundry detergent bottle.
Let’s look at an example of value-added that may have been created from conducting a total process observation. Say you sell outdoor flashlights, mainly used for hunting. Watching a customer purchase a $20 flashlight (which costs you $10 to make), you may observe the customer do some of the following things: 1) purchase batteries for the flashlight and put them in; 2) wrap the flashlight in camouflage tape if he is going to use it for hunting; 3) buy a holster or other device to put it in to attach it to his belt; and 4) buy or make a device that can be used to attach the flashlight to a tree or hunting stand.
Now, let’s assume that all the additional products the customer used to supplement the flashlight plus the customer’s time to do so was valued at an additional $20. What if your flashlight included batteries, was already camouflage in color, and came with a holster and a device to mount the holster to a tree or tree stand? Let’s also assume that your flashlight company has a product alliance with the companies that made the batteries, the holster, and the tree-rigging device. What if all these additional products and features cost your company about $5 extra and now you sold the flashlight and accessories for $35 and sales were just as good or even greater because your product had all these additional features that customers wanted anyway but had to go though the hassle of putting the complete package together themselves? Many hunters might be happy to pay $15 more for a flashlight with all the accessories they need in one nice package for what they perceive to be a minimum of $20 worth of extra value. And the real beauty is, your profitability just went from 100 percent to 133 percent because you provided added value for the customer.
In the above scenario, we see a core (commodity) product being given new life with ancillary products that make the whole package worth more than the sum of its parts. Notice that all the auxiliary products can be standalone (commodity) products themselves, and this is the case with most value-added products and services that surround core products.
If you only remember one thing about this article, it should be that core products will never continue to make you high, sustainable levels of profit over the long haul. Even value-added services that accompany the core product can turn into somewhat of a commodity product over time - look at General Motors’ auto financing, which was the definition of a value-added product many years ago. It still is, but not to the extent it was when it was first offered now that other car companies are offering credit financing as well.
Make that journey
Companies must continually make that journey through the jungle, watching intently and asking the right questions along the way. They must routinely add supplementary products and services to their core products, quantify the value, and add it to the base price. The more true value-added services there are, the more profit the company will rake in for each product line throughout the product lifecycle. Many companies attempt to accomplish this, but fail because they believe that they can provide the answer without making that difficult journey into the jungle. Many companies actually do develop some very creative products or services that accompany their core products, and many are well liked by their customers. The only problem is that while the customer likes them, they may not be willing to pay for them, and thus they actually have little or no value at all.
Yes, ultimately you must be the one willing to go and find the answer, but make sure you go to the right place to find it. If you don’t make that trek deep into the heart of the customer’s business, you risk the chance of raising costs without any return. So, roll up your sleeves, put on your hiking shoes, grab your product by the hand, and let it lead you to that shining temple in the jungle, where the true answer to the riddle of product, service and business evolution lies.