Ken Vermilion

Value can be viewed through a set of lenses that include your customers, internal business processes, and traditional financial perspectives. This article looks at value through the customer lens.

The Customer Perspective of Value Influenced by Value Related Qualities (VRQs) –

As stated in the first article, Conversations About Value, I put forward the hypothesis that value is in eyes of the beholder. When customers use phrases like “I really enjoy” or “It’s our favorite place,” it’s difficult know exactly what customers mean. Steven Lauer and I co-authored a book, The Value-Able Law Firm. We developed Steve’s Value Related Qualities (VRQs) concept to help law firms better manage the creation of value by better understanding client expectations.

VRQs can help define value and can be applied to many consumer service or product relationships. For example, when a customer indicates they really enjoy a particular restaurant, they could be indicating:

Parking is always easy;
The bartender recognizes us by name when we enter;
The food is delicious;
Daily specials are a great value;
The service staff makes me feel like one of the family.

Each of these elements can be viewed as specific VRQ that contributes to the consumer’s overall evaluation of enjoyment. The consumer’s value equation.

Value Related Qualities (VRQs) can be found in any consumer product or service. The key to understanding how VRQs create value is to understand the VRQ’s order of importance to the consumer.

Remember, value is in the eyes of the beholder. For a particular restaurant, is easy parking more important than delicious food or for a burger joint, is feeling like one of the family more important than speed of service or consistency of product? And are consumer VRQs fixed in order of importance or do changes in the business environment change consumer VRQ priorities?

Consumer VRQs don’t necessarily remain static over time. And, as often as not, changes in the business environment can dramatically alter how consumers prioritize VRQs, no fault of the provider of consumer goods and services. Value is further complicated because not all VRQs are created equal. Some VRQs are convenient or cosmetic in nature while others can change the way we think about ourselves.

Stocking the larder and COVID-19 –

As COVID-19 spread and news coverage of a possible pandemic declaration became more likely, social media lit up. Hoarding was the order of the day with toilet paper and hand sanitizer being at the top of the list. Almost instantly, these two (2) items went from ordinary household supply items to high value and scarce items subject to rationing. Worse yet, they became items worth fighting over in big box retail outlets!

People were forced to bunker at home meaning the home galleys were pressed into service like never before. Pasta inventories quickly shrank. One of our favorite pastas is bucatini. Manufactures of this specialty pasta shelved its production to accommodate the increased demand for more pedestrian pastas. If you can find bucatini and can’t live without it in your pantry, be prepared to pay between $10 and $60 per pound. Some specialty foods have become scarce causing the consumers VRQ structure, or order of importance/priority, to shift. Cheese and yeast were other items that suddenly became scarce and therefore more valuable.

Grocery pickup services, shopping services and meal kit services also mushroomed as the pandemic took hold of society. What drove the value? People didn’t want to subject themselves to crowds. Grocery shopping could be seen as a COVID-19 super spreader activity and therefore too risky.

Can political views impact VRQs? –

There were the political influences related to the pandemic. Were facemasks really necessary to slow the spread of the virus? Are vaccinations key to eradicating the virus? The science unequivocally says yes and citizens found value in following the guidance and being vaccinated.

However, there was the spread of conflicting non-science-based arguments that convinced others to believe the value to them was in not masking-up or being vaccinated. Depending on the consumer’s point of view, the VRQ for facemasks could have been rooted in personal safety or freedom.

Consumers reprioritize their VRQs –

An example of consumers being forced to reprioritize VRQs would be General Motors doing away with the Pontiac and Oldsmobile brands. General Motors needed to look strategically at production costs throughout the organization. A question raised was whether or not there was enough differentiation between Chevrolet, Buick, Pontiac and Oldsmobile. A result of General Motor’s brands introspection resulted in Pontiac and Oldsmobile consumers being forced to reevaluate their VRQs related to the feelings of a car’s attractiveness or prestige.

The trash heap of failed innovation is littered with great ideas and products with mismatched marketing strategies, e.g. Sony’s Betamax.

Sony’s marketing pitch was, “Watch whatever, whenever.” Their emphasis was on recording TV programing. The Betamax recording machine was solid as a rock at 36 pounds and produced superior recordings on 60-minute tapes. And it was expensive. Early adopters didn’t care about the cost.

Enter JVC and the VHS tape format. JVC’s machines did not produce as quality a reproduction of images and sound as Betamax, but was lighter by 7 pounds which allowed for a significantly less expensive product and their tape recorded for 2 hours which could accommodate TV programming and the length of most movies. Sony thought they would prevail in a battle with JVC.

JVC developed relationships with the now extinct video rental industry and the rest is history. While consumers entertainment VRQ lit up about being able to record their favorite TV shows and watch the shows when it was convenient for them, watching movies at home on an okay tape format using a machine that was significantly less expensive trumped quality and created different entertainment VRQ priority.

Businesses beware –

Consumer driven VRQs are a dynamic ever-changing set of variables. Keep an eye on your industry competitors and work, strategically, to avoid being surprised by the direction your industry may bend to accommodate the VRQ variables your customers rate higher than others.

By Ken Vermilion

Value –

Exactly what is value? How is it created? Is measuring value and its creation the application of straightforward financial metrics? Value can be expressed in terms of financial strength or growth, or as a function of quality or prestige. In many ways, value is in the eyes of the beholder.

What is value? It depends! Let’s take a look at a couple of short stories that illustrate this point.

Satisfaction Guaranteed –

A colleague of mine tells a story about an experience from his consulting days. Roughly, the client he was working for was discussing the values of the company and how his employees understood the company’s core values. Especially the “satisfaction guaranteed” value.

The company was a catering business. The story related to a customer not being happy with an element of the food offerings for their event. Without hesitation, the young crew chief apologized and promised a full refund, not just a refund for the disappointing offering. The owner of the catering business was proud that this employee understood that they had the authority to make things right for the customer on the spot. No need for securing approvals.

We Will Address Global Warming –

Out of the blue, the CEO announces, “Your Company has committed to reduce its carbon footprint by XX% over the next 10 years. Let’s get to work!”

The buyer of “contraptions” immediately partnered with the vendor to rethink the production process. It was determined that packaging for “contraptions” was excessive. Paper backing was reduced, plastic coverings were eliminated, and the overall package size reduced. Good news, more “contraptions” fit into the reengineered shipping containers. Job well done! Maybe yes, maybe no.

Logistics wasn’t prepared for handling the new dimensions of a box of contraptions, which caused inefficiencies in loading, distribution and storage. Inventory managers economic ordering quantities calculations no longer were efficient and out-of-stock issues bubbled up, and displays in the stores just looked goofy.

Some history –

In the mid to late 90’s, publicly traded companies began to contemplate measuring Economic Value Added (EVA) and shareholder value. Companies worked to crystalize value drivers and their employees role in the management of these drivers, e.g. customer service, new business development, return on investment thresholds, expense management, etc. And the finance group was busy developing metrics that ensured profits covered the costs of capital, including expected returns to shareholders.

Companies launched training programs focused on explaining how each employee’s role contributed to the development of EVA. Senior management began to see one more performance criteria creep into the calculations for compensation purposes.

Smaller operating units within the corporation were seeing this somewhat esoteric “Headquarters EVA” initiative begin to reshape their thinking, but not always in a good way.

For example, smaller operating units with the company began to analyze their operating costs with an eye on reducing them. But rather than looking inward for operating improvements, some looked to off load costs to other operating units within the organization. “These extra production steps accommodate the shipping department specifications. They should pay for these added costs!” “Why is my P&L burdened with the cost of the legal department? We don’t use lawyers!” “The basis for my headquarters cost allocation is wrong! Tell the finance manager to reduce it?”

Value creation within particular units of a company’s operations may be very different than within other unit operations. Value drivers for the sales department are very different from the value drivers of customer service or manufacturing or the finance department. And not carefully managed, creation of value in some operating activities may actually destroy value in other activities.

So, Tell Me More –

What do these stories have to do with understanding value? And is there a difference between a company’s value proposition and its value promise? Keep reading.

At the end of the day, senior leadership should determine what the organization’s value “promise” is going to be. That “promise” will most likely be measured differently across the various parts of the organization. The marketing department’s metrics might measure sales productivity or company reputation as viewed by customers. Human Resources might utilize any number of employee engagement measuring tools and implement an employee attitude survey. Company legal departments could create cost avoidance measurements rooted in implementing risk management and compliance initiatives. The finance department has any number of metrics that look at a company’s change in financial condition over time or value to shareholders to illustrate the creation or loss of value.

The previous paragraph doesn’t suggest that in order for an organization to create value over time that every operating entity within the organization needs to demonstrate the creation of value over the same period of time. Or does it? What a wonderful world it would be if that were the case.

Stay tuned for the next chapter in this series.

Value

Oldsmobile, Pontiac, Sony and Bucatini – Victims of Shifting VRQs

The Customer Perspective of Value Influenced by Value Related Qualities (VRQs) –

Stocking the larder and COVID-19 –

Can political views impact VRQs? –

Consumers reprioritize their VRQs –

Businesses beware –

Conversations about Value – A Series

Value –

Satisfaction Guaranteed –

We Will Address Global Warming –

Some history –

So, Tell Me More –

Value

The Customer Perspective of Value Influenced by Value Related Qualities (VRQs) –

Stocking the larder and COVID-19 –

Can political views impact VRQs? –

Consumers reprioritize their VRQs –

Businesses beware –

Value –

Satisfaction Guaranteed –

We Will Address Global Warming –

Some history –

So, Tell Me More –

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