I Would Pay 50% MoreIf
4/2/2012 4:33:00 PM
In a recent discussion with a client, he commented that he believes his hardest challenge was that of "identifying product innovations that his customers would recognize and, more importantly, reward through higher prices or otherwise". He went on to say that his firm had delivered what they considered a steady stream of improvements, but without realizing much in the way of reward. It's a very common lament.
I asked this executive if he had ever asked his customers to fill in the blank in the sentence "I would pay 50% more for [name of product] if only it ______________". He said that he had never done so.
In many business settings, working with clients in a variety of industries, I've asked that question in one form or another many times. It's fair to admit that not every answer is constructive, and many are either dismissive or humorous. Being honest, a majority of the answers fall into one of those categories. To give a few examples, among the many such answers that I've heard are the following:
- · if my wife owned the company I was buying from and I could get away with it."
- · if the sales person looked like [substitute here your favorite movie star, as I've heard this response frequently, with different subjects of affection]."
- · if I was a Chinese purchasing executive and knew that I'd get a 50% kickback on the sale."
- · if after I bought the product, I could finally break par."
- · if I knew I was getting fired tomorrow and wanted to leave something behind for my successor."
Questions such as this can indeed bring out the creative instincts in even serious business executives.
What is even more interesting than the humor in responses such as those above is the fact that in a significant number of discussions, the response is serious, thoughtful, and incredible fuel for product development and innovation plans. Here are some of the responses that I've heard that fall into the serious and thoughtful category:
- · if I never had to send out a service tech to do an unscheduled repair."
- · if [that component] lasted as long as system that it's part of."
- · if [that product] helped me to differentiate my product from my competition."
- · if half of them didn't break during the installation process."
- · if my own customers would pay me 51% more for using it."
- · if I didn't have to hire a triple Ph.D. in order to operate it."
- · if I never had to call their 800-number support line again."
None of the above answers were delivered with any humor whatsoever. And it took very little time for the individuals providing these answers to respond. They knew what an improvement would look like, probably as a result of unpleasant experiences contending with the status quo.
In providing these examples to the executive that started this discussion, I emphasized two points that have emerged from experiences asking this type of question.
The first conclusion is quite obvious: It pays to ask. Especially in business-to-business markets, customers care about their suppliers and their products, even if they often fail to show it at contract negotiation time. They have strong opinions as to what is good, bad, and ugly about each product and each relationship. In most instances, they have strong ideas about what they would do if they were in charge of the supplier organization. In an earlier article, I quoted a customer who characterized the most recent several releases of one company's product as being totally disconnected from what they needed as a customer. He commented that "Maybe someone in [that firm's] engineering department thinks these are good ideas, but clearly no one has ever asked us customers if we share that opinion". It pays to ask, and sometimes richly so.
The second conclusion sometimes emerges from a single response to the question, but more frequently requires asking the question of multiple customers. This conclusion is that there are many flavors of innovation, and customers can point your product development and innovation investments in the right direction. If you look at the examples provided above, they are all over the map, not surprisingly since the answers were provided by customers of very different categories of products. Some of the answers focused on lowering the cost of operation (avoiding service tech calls, avoiding breakage, not requiring highly-skilled operators) Ã¢â‚¬â€œ and the focus of even these themes vary quite widely from one to the next. Another focused on a key product attribute (durability). Some of the responses focused on contributions to the customer's ability to sell his own product (differentiation, a price premium). And one of them even focused upon the supplier's business system (avoiding the 800-number line).
While these examples from diverse industries were all over the map, when customers of a specific product are asked the question, more often than not, the responses from each market segment tend to cluster around specific themes. Such clustering of responses can define the direction in which product development and innovation investments should be focused. If no customers are worried about durability, why invest in longer-lived products. But if that's what most of them say they would pay for, the odds are strong that successful investments in that arena will be rewarded.
It is often useful to look for clustering by thinking of three flavors of innovation that are frequently of importance to customers. The first of these is a request for innovations that contribute to the customer's merchandising ability. The responses in such situations will often focus on the customer's own challenges is differentiating his product and gaining share or price premiums with his own customers. Ingredients suppliers are especially likely to hear responses focused in this area, and, when they do, they have a wonderful opportunity to contribute to solving their customer's own growth challenges through product developments and innovations that help to solve such merchandising challenges.
A second cluster of responses that defines a different flavor of innovation requests advances that respond to and solve technical challenges being faced by the customer. Such a focus often occurs in conjunction with the customer's own development of a next-generation product, but that's not the only instance in which it surfaces. Other examples that have occurred recently involve customers that are facing new environmental challenges (e.g., energy efficiency or fuel economy) or that have seen major increases in the costs of certain purchased commodities and are looking to substitute lower-cost materials. Solving a technical problem that is on a customer's critical path is another route to a stronger and more profitable relationship.
The third cluster of responses to watch for focuses on innovations that help to take costs out of the system for the customer. Customers facing new competitive challenges and those that are operating in a slow-growth market are likely to be focusing on operational improvements, and a supplier that can help to point the way to cost savings can often share in the pool of savings from an innovation that takes costs out.
More and more firms are learning that innovation doesn't always involve raising the bar in the traditional sense. Some critical innovations involve making the product simpler and less expensive to buy and use. Other critical innovations simply preserve product functionality while at the same time responding to a change in some dimension of the business environment or the ingredient cost structure. Others contribute by adapting the product for use in a different environment, which can range from a new country market to a new application. And, of course, there will always be instances in which there is a legitimate need to raise the bar in terms of performance attributes and features. Getting your customers to identify which of the flavors of innovation matter can allow you to focus scarce investment resources in the right direction and deliver results that matter to those customers.
In summary, understanding the multiple flavors of innovation and listening for customer guidance as to which ones are most likely to be recognized and rewarded is the path that will enable executives like the one quoted at the beginning of this article to celebrate the latest innovations delivered by his firm to his customers. It pays to listen, and it pays to translate customer messages into a well-directed innovation game plan.
George F. Brown, Jr. is the CEO and cofounder of Blue Canyon Partners, Inc., a management consulting firm working with leading business suppliers on growth strategy. See www.bluecanyonpartners.com. Along with Atlee Valentine Pope, he is also the author of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, published by Greenleaf Book Group Press of Austin, TX. George has published widely on such topics as listening to customers, pricing, best practices in implementation, and the changing competitive environment.