A winning strategy makes integrated choices to create a capabilities system that delivers a unique value proposition and superior value to your target customer relative to the competition.
It creates a competitive advantage which increases the company’s valuation above the replacement cost of assets. The increase in valuation will be a function of:
- How much and how long your return on capital exceeds your cost of capital
- How much capital you can deploy to grow within your competitive advantage
For details see our blog The “Six Million Dollar Question” for Valuation and Management.
When formulating or reviewing your strategy it is best to start with your customers’ problems and then work back to what value proposition would uniquely solve them and what capabilities system would be required to deliver the benefits.
Strategy can’t be reduced to a closed-end solution and unavoidably requires you to iterate back and forth between the target customer, value proposition and core capabilities system. These three comprise the middle section of IVC’s Strategy Blueprint© visualised below.
When we start with the customer, we need to integrate marketing strategy. At the core, this is about:
- Identifying your customer from a demographic and psychographic point of view
- Understanding what your customers value from a monetary, functional, social and psychological perspective
- Determining how to deliver that value in a superior way to the competition
This sounds strikingly like business strategy – and so it should. For marketing to be effective, it must be integrated with business strategy; a fact perfectly captured by these two famous quotes:
- “Marketing is too important to be left to the marketing department” – David Packard
- “The business enterprise has two – and only two – basic functions: marketing and innovation” Peter Drucker
The Problem
Companies are typically viewed through a functional lens with the organisation chart being the preferred way to visualise how the divisions, departments and people connect.
However, in reality companies operate as an integrated set of activities and are better visualised using a Value-Based Business Blueprint© – see our blog “You Need a Blueprint of your Business to Increase Profits & Scale and Work “On” it – Business Plans, Accounting Reports etc. don’t work”.
A functional approach to strategy formulation may lead to each division performing well but will tend to produce products and services, remarkable or not, that don’t solve customer problems and don’t deliver superior value to them. It is too late in the game to engage marketing after the products/services are ready to be rolled out.
Starting with the product or service first is like putting the cart before the horse!
Marketing strategy focuses on who the target customer is, what problems they are trying to solve and what benefits they are willing to pay for. Only when you know this, can you introduce tactics (for example, advertising) to target and position the offering.
Of course, you could be lucky and reverse engineer to find a customer with the exact problems your product/service solves. Serendipity is great but dangerous for your product/service innovation process to rely on.
Nintendo Wii – why the customer must come first
In 2006 Nintendo Wii was launched and it rapidly revolutionised the gaming industry and outmanoeuvred the industry goliaths Microsoft’s Xbox 360 and Sony’s PlayStation. It did so by identifying a large segment, non-gamers, whose specific problems were poorly served, and creating a product which delivered benefits that non-gamers had a strong willingness to pay for.
Avid gamers want complex games with cutting-edge realistic graphics where you spend weeks learning the different levels and become absorbed in the game’s story and numerous sub-plots. Non-gamers want a game that is easy to learn and fun to play, even as a family. Wii Fit now also delivers the unique benefit of video games making you fit!
Had Nintendo attempted to take on Xbox and Play Station with an engineer led better technological product they would have been in head to head battle and it could have quickly been Game Over!
Nintendo Business/Marketing Strategy Successfully:
- Identified an under-served segment – non-gamers
- Targeted this segment with a unique value proposition that non-gamers valued
- Used advertising (a marketing tactic) to position the product around ease of use
- Leveraged a tailored capabilities system to create the products
Marketing is about attracting the customers you want and repelling those that you can’t deliver superior value to. The Nintendo Wii was probably a joke of a product to hard core-gamers, but provided lots of value to non-gamers.
Nintendo’s business strategy, innovation, design, production and marketing looked through a value-based lens and acted as a connected whole.
The Solution and Benefits
As described, we believe that when formulating business strategy, it is best to start with the target customer, what they value and how the company can/could deliver that value better than the competition. Naturally, business strategy must incorporate the competitive dynamics of the industry and particularly those within the specific industry segment.
As a result, consumer research needs to be incorporated early on and can be conducted through quantitative and qualitative analysis. Big data has increased the prevalence and power of quantitative analysis. However, observing real customer behaviour and adopting an ethnographic approach often yields innovations that deliver significant value to customers. It is not an either-or choice, and it is best to leverage the benefits from both quantitative and qualitative approaches.
Additionally, if leveraged correctly, a lot of consumer insights will exist within employees minds and internal data that the company already has close to hand.
Examples of how great companies leverage their customer insights
Below we run through examples from the companies whose mission statements we analysed in our previous blog – Blog 2 in this series. Notably, they were all centred on the target customer.
Proctor & Gamble (P&G)
P&G is a strong advocate of the ethnographic approach to consumer research, and the highly regarded A.G. Laffey, P&G CEO from 2000 to 2010 and 2013 to 2015 communicated its strategy as:
- “Make the consumer the boss
- Win the consumer value equation
- Win the two most important moments of truth”
Following the acquisition of Gillette, P&G wanted to expand its Blades and Razor business in India. Before the design phase, P&G sent a team, including Scientists to observe and immerse themselves in the shaving experience of the typical Indian man. Gillette had focused more on quantitative research, but P&G under Laffey emphasised the ethnographic approach and design thinking.
The teams’ consumer insights were instrumental to the whole project. Unlike Western men, Indian men typically shaved with a small cup of cold water and the lack of running water meant that the facial hair clogged the blades, which combined with low lighting caused painful nicks. However, speed was not a problem as shaving could even be a social occasion.
A Gillette scientist who initially had been sceptical about the merits of going to India was so moved, motivated and inspired by his experiences that on the flight home he designed a prototype of what would become the Gillette Guard razor in India. His design met the specific needs of the Indian shaving man by creating a low-priced customised razor that had a safety comb to prevent nicks and with an easy rinse cartridge. Within three months the Gillette Guard became the bestselling razor in India.
Inditex
Amancio Ortega, founder of Inditex and one of the richest men in the world, has famously stated his two basic rules:
- “Give customers what they want”
- “Get it to them faster than anyone else”
Forty years ago, José María Castellano, who became Inditex CEO in 1984, developed, tested and implemented a system that revolutionised the time between design, production and garment display in stores. This innovative business model remains at the core of the company today.
Zara’s relentless focus on speed enables it to prototype new styles in as few as five days and to achieve a design, production and time to store turnaround in as short as fifteen days. As a result, Zara can surf the frequent but unpredictable fashion-waves and fulfil Ortego’s two basic rules. For more details as to how his rules translate into Inditex’s competitive advantage and valuation see our blog Competitive advantage needs a winning strategy AND excellent execution
Ikea
The late Ingvar Kamprad who founded IKEA was renowned for always trying to look through the eyes of his customers and despite his enormous wealth was even more famous for his frugal habits.
Seventy years ago, Designer Gills Lundgren who joined IKEA in 1953 as its fourth employee, reportedly had the flat-pack eureka moment when after an IKEA photo shoot he was taking the legs off a table to put in his car. He looked at this problem through a customer’s eyes and this inspired the self-assembly concept, which is a core pillar of IKEA’s winning strategy.
IKEA doesn’t start with design and then try and manufacture it cheaply. Instead, it views the firm holistically through a value-based lens and with design, production, delivery, costs etc. all considered at the same time.
Amazon
Amazon has revolutionised retailing with its customer-centric approach and unique value proposition. It has changed how we buy, receive, return, and rate goods and the customer journey gets better and better with Jeff Bezos mantra that “every day is day one”.
Amazon’s mission statement perfectly sums up its customer-first approach:
- “We aim to be Earth’s most customer centric company. Our mission is to continually raise the bar of the customer experience by using the internet and technology to help consumers find, discover and buy anything, and empower businesses and content creators to maximise their success.”
Key Takeaways
The companies above have created a durable competitive advantage by successfully focusing on their customers’ needs and delivering desired benefits through products and services created by a unique capabilities system that is hard for competitors to copy.
For your company it will be valuable to plot your target customer preference and standard industry profiles – see box 4 in the visual of our Strategy Blueprint© above.
Customer analysis/insights, like strategy, is a craft which is a mixture of science and design. It is worth spending time on as it provides a significant return on investment, as the companies above have shown. null
By Hugh Page
MD Integrated Value Consulting (IVC)
- IVC is a Business Advisory Firm enabling SMEs and investor-backed Startups to Build, Scale and Sell a Valuable Business at a premium
- We Demystify Strategy & Valuation to Increase Business & Exit Value and Attract & Wow investors for Debt / Equity Raises, Acquisitions & Exits
Take our Valuable Business Builder© Scorecard: get insights to maximise your business & exit value, for free.
For more details see www.ivconsulting.co.uk
Index of this 6 Part Blog Series
- Blog 1: Overview
- Blog 2: Mission Statement
- Blog 3: Target Customer
- Blog 4: Unique Value Proposition
- Blog 5: Core Capabilities System
- Blog 6: Measurement System
This 6-Part series is designed to add value on its own. To go faster, deeper, overcome inevitable obstacles and take your business to the next level, please schedule a call to see how we can help.
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