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Flipping the value creation model

To read signals that today's customers are sending, marketers must shift from talking to listening

Published: Oct 5, 2018 09:27:46 AM IST
Updated: Oct 5, 2018 10:36:33 AM IST

Flipping the value creation modelImage: Shutterstock

Historically, marketing has been based on an ‘Industrial Age’ approach. Marketers saw what they believed to be a customer need, developed a product bearing what they considered to be ‘value’, and then, tried to find buyers seeking that value. This ‘supply-chain’ approach required the manufacturer to sell what had been produced, because ‘economies of scale’ required more of that same product to be made to optimize profits.

The inherent assumption in this approach is that sufficient value has been built into the product for the buyer to extract, justifying the asking price. In an age of product development and increasing consumer demand, this approach worked—in many cases, magnificently. Witness the growth of the automobile industry,  telecommunications, household products, airlines, television and broadcasting, hotels, computers and a host of other products and services that are considered essential today. The mindset was, ‘Build consumer value into your offering; make it widely available; communicate those benefits; and watch consumers rush to buy and use it’.

Today, with sweeping changes in technology, distribution, communication and other variables, the venerable marketer-created value-development model is being sorely challenged. Technology developments such as digital communication and imaging, photography, smartphones and miniaturization have driven former leading suppliers such as Kodak, BlackBberry, Nokia and others to the wall, and many more are sure to feel that same pressure.

Traditionally, marketers have fought back using tools such as simplified distribution systems, cost reduction through ingredient replacement, lower-cost labour and increased promotional incentives in an attempt to improve cost–benefit relationships for customers and encourage them to buy. Most of these approaches assume that price is the dominant consumer variable: Reduce the cost and consumers will rush to snap up what they perceived to be ‘bargains’. This accounts for the incredible growth in various forms of sales promotion spending.

In some cases, this ‘cost-reduce your way to success’ approach has succeeded, but some have failed and others are stuck in the ‘consumer decision lane’. Even if this rebalancing of the value chain succeeds in the short term, the likelihood of long-term success is questionable. The marketplace has changed—significantly—even though many marketers and their support organizations don’t want to accept it.

Simply put, the traditional marketing model has been flipped upside down. Former consumers are now advertisers themselves, and former advertisers are now attempting to fulfill customer requests in real time—something they are generally ill-equipped to do. In short, the hunter has now become the hunted, scrambling to fill the needs that consumers are continually identifying. The problem is, the systems that sellers have built over time are simply not capable of filling the ‘respondent’ role. Hence the worried looks on the faces of marketing directors the world over.

In increasing numbers, consumers are either advertising their needs, wants, requirements and desires through Facebook, Twitter, YouTube, Instagram and a seemingly endless supply of consumer-generated communication tools. People are not posting ‘here’s what I want to buy next’ notices; but they are coming close. If one simply looks at the Facebook postings of a particular individual, it doesn’t take a rocket scientist to recognize their interests in terms of food, cars, vacations, shoes—or the innumerable lists of interests, events and activities that they post on the platform. These users are basically telling marketers what they value, want, need and aspire to.

Take ‘selfies’ as an example. ‘Here I am at Yellowstone Park’; ‘Here I am with my pals in Paris’; ‘Look at this neat snap of me boarding a plane for Rio’, and so on. It doesn’t take much to recognize that this individual is passionate about travel. And, this same thing is happening every minute of every day, around the clock and around the world. In multiple ways, consumers are signalling to their friends, family, relatives—and most of all, to marketers—what is important and interesting to them in real time, with displays of authentic interest and real intent. All that marketers have to do is capture these ‘value needs’ and let the customer know how they can solve their problems for them.

The age-old guessing game marketers have played—‘If I make it, will customers buy it?’—is quickly drawing to a close. Knowing what is needed/wanted turns ‘selling and persuasion’ into ‘filling customer needs’—creating a radically different buyer–seller relationship.

To read the signals that today’s customers are sending, marketers  must shift from talking to  listening, which is not something at which they have been terribly good in the past. Remember, well over 98 per cent of all new products introduced in the consumer packaged goods field each year fail.  But marketers continue to accept these established failure rates simply because ‘that’s just the way it is’.

Instead of acquiescing to ‘reality’, marketers must face facts: The challenge is no longer, ‘How can we create customer value?’ It is instead: How can we identify the value that customers are seeking to create for themselves, and then fulfill those needs?

What does this approach look like, in practice?  My colleagues and I have developed a framework called SIVA (Solutions, Information, Value and Access). In truth, what we have done is simply flipped the traditional ‘marketer-seeking-customers’ model to ‘customers seeking solutions to their problems’.

Our premise is simple: If you know your customers’ interests, passions, deep-felt needs and so on, you have a much better chance of filling those needs than if you simply scattershoot with media advertising, hoping that a few of your supposed ‘creative, breakthrough’ messages will fall on willing ears.

Here’s how SIVA works:

1. Solutions.  Gather data from what customers are doing both online and offline—from their postings on various social media, their researching through various search engines or simply reading the ‘cookie’ trail they leave on various communication forms. The new rule is this: ‘If they tell you what they want, they will buy.’ Today, every prospective customer is signalling their needs. The marketer’s new job is to listen to what they are saying.

2. Information. As a marketer, if I know your interests and what you want to buy, it should be a simple matter for me to provide the Information you need. Not just product details, but actual solutions to real or perceived problems. Marketers no longer need attention-getting devices such as dancing bears or clever slogans. There is simply no time or demand for that anymore. Just provide the Information that clearly shows that you understand the customer’s needs and make it easy and simple for them to proceed.

3. Value. The Solution and Information you provide must lead to a simple conclusion: Here is the Value you will obtain with our Solution and here’s the cost for you to obtain that Value. As long as the Value received upon acquisition is equal to or greater than the cost to acquire (Value the customer gives up to obtain), reciprocity or shared value will be created. Simply put, cost must equal Value to the consumer. Optimizing returns from the seller’s view goes out the window when you recognize you are creating ‘shared value’ or equal benefits for both parties.

4. Access. Finally, your Solution must be available in a form, location, retail system or whatever that fits the needs of the customer or buyer, that is, how the customer can Access the Value. It’s not how the marketer wants to sell, it’s how the customer wants to buy. So, if customers want to acquire online, the marketer must be able to provide online Access. If they want a sales person to call, then that person must be available for an Access discussion. Today, there are so many consumer alternatives available, and it has to be what customers want to do, not what marketers want to do.

The SIVA concept is quite simple: Just listen to what customers are telling you and the marketplace through their online communication, and then set out to fulfill their needs, provide the solution they are seeking or soothe their pain points. It really is as simple as that.

In closing
So, how can marketers create value going forward? Put simply, they don’t. Today, value is in the eyes of the beholder, not in the eyes of the supplier. It is the customer who defines value, and it is the job of the marketer to understand what value the customer is seeking, and supply it.

Can every organization employ the SIVA approach? Yes, but it will likely cause some internal friction, because embedded and entrenched organizational and marketing systems must be overcome. Employees will have to develop new skills and top management will need to reshuffle the ‘rewards deck’ to allocate returns to employees and customers, not just shareholders. Response, not just planning, must move to the head of the management class, and salespeople must accept that solving customer problems is now more important than making this quarter’s sales quota.

Change? Differentiated change, even? Definitely. Can your organization wait to employ the SIVA principles in the marketplace? Only at its peril. The world has changed, and it is high time for the marketing function to catch up with customers.

Don Schultz is Professor Emeritus of Integrated Marketing Communications at Northwestern University and Director of the Retail Analytics Council, an initiative between Northwestern and the Pratt Retail Institute. A longer version of this essay appeared in the Journal of Value Creation, published by SAGE.

[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]

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