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Three Dimensions of Value
Why is it that Swatch can produce a good watch at a low price, while Rolex cannot do the same for 100 times the money? Why does Starbucks offer great coffee at $1, but most airports don’t serve decent coffee? FedEx provides consistently excellent delivery, yet many airlines misplace their customers’ bags. What’s going on here? Market leaders have accepted the fact that they cannot be best in everything; instead they’ve mastered one of three areas:
Some companies are great at providing the best value for their customers. They usually operate in a mass market and focus on reliability and consistency, like Wal-Mart does with its low prices.
The best products are the ones that have a high-quality and are worth paying more for. For example, Intel is known for its top quality products.
It is not easy to figure out which of the three directions a company should take. It requires restraint and pinpoint attention. A consumer value that belongs to your company, and yours alone, can be difficult to find. Airborne provides its clients with a total solution by solving their logistics problems for them.
There are four rules for market leaders. First, they must excel in one of the three dimensions of value: price, quality or convenience. Second, they should maintain threshold standards on other two values. Third, they should dominate their markets by improving value year after year. Finally, a well-tuned operating model is needed to deliver the chosen dimension of value and be dedicated to that goal.
Three Operating Models
A company should choose one of the three value dimensions to pursue. That choice defines the nature of that company. Consequently, there are three types of operating models for each dimension: providing good quality and low price, while making it easy for the customer to shop; improving products constantly through product leadership; and focusing on individualized solutions for customers by delegating decision-making power to employees who are close with them.
First Model: Operational Excellence
Operationally excellent companies offer their products at low prices. They strive to have little overhead and they usually sell reliable, durable products that last for a long time. One example is Toyota cars, which can run up to 300,000 miles before needing repairs. Therefore, customers are likely to buy another car from the same company and recommend it to their friends.
Efficient companies have good customer relations. They make the most of their resources and are proud to have a team atmosphere. Employees work with suppliers as part of a team. For example, Wal-Mart sends sales data to its suppliers every day. Operationally excellent companies use highly automated systems that apply to everyone in the company, for example Hertz employees can access customer information from anywhere in the service process with one system they all share.
One habit that leads to operational excellence is consistency. If a company always does things the same way, it will be more efficient and scalable. Operationally excellent companies have great growth potential because of their efficiency. If consumers wait for sales instead of consistently getting low prices, then the overall efficiency of a company lowers. Operationally excellent companies are passionate about measuring every step in their processes and making decisions based on this information using state-of-the-art technology where possible.
Second Model: Product Leaders
Companies that follow the product leader model are very good at developing products that meet customers’ desires. For example, Nabisco created too many versions of its successful Oreo cookies and sales did not increase. However, when Nabisco concentrated on a new product tailored to specific consumer needs (low-fat SnackWells), sales began to rise.
