Danbryan E. Go BEN 2209 1:30 p.m – 3:00 p.

m M,W
BS ENTP 2
ASSESSING VALUE TO THE CUSTOMER

1. A framework for identifying differentiating factors:

The image above is a basic framework that helps enterprises find their differentiating factor.
The four main factors of which are: (1) Product innovation, (2) Product design, (3) Higher
quality product, (4) Unique product, lets take into example one of the most successful companies
in world history: Standard Oil.
Standard Oil Co. Inc. was an American oil producing, transporting, refining, marketing
company. Established in 1870 by John D. Rockefeller and Henry Flagler as a corporation in
Ohio, it was the largest oil refiner in the world of its time. Its history as one of the world's first
and largest multinational corporations ended in 1911, when the U.S. Supreme Court ruled, in a
landmark case, that Standard Oil was an illegal monopoly. If the company had existed today, it’s
net worth would be estimated at $1 trillion. The success of the company can be traced back to a
single marketing move that John D. Rockefeller ingeniously implemented to differentiate his
kerosene products from others similar to it in the market.
(1) Product innovation – In order to differentiate your product from the market, it has to be
innovative in the sense that it offers that convenience and functionality to your customers
that your competitors lack. For Standard Oil, this could be seen in John D. Rockefeller’s
strategy to higher top of the line scientists to work in his refineries to ensure that his
product was of a standard quality so that it would live up to it’s name, and that his
product would burn more smoothly than his competitors’.
(2) Product Design- Product Design is commonly defined as the holistic approach of building
a new product from start to finish. In the case of Standard Oil, Rockefeller grew his
business from a single refinery in Ohio to a multinational corporation, and with it so did
his product. He sought to perfect his kerosene solution and did not settle for less in order
to stay ahead of the competition.
(3) Higher Product Quality- Having a higher product quality compared to your competitors
for the right price will naturally draw customers to your enterprise. In the case of
Standard Oil, they ensured their Kerosene to burn more smoothly compared to their
competitors as was the problem at the time (since it was a normal problem at the time for
kerosene lamps to start house fires because the kerosene being used was volatile).
(4) Unique Product – Uniqueness is a essential in differentiating your product as it sets your
enterprise apart from the others, which helps your customers identify what you have to
offer and whether it can help benefit them. Standard Oil, by name alone gave of the
impression of a reliable standard brand that ensured quality for a solid price.

All four factors combined helps define your competitive advantage and helps you
compare yourself to the nearest possible competition in the marketplace. Thus if
coordinated and positioned properly will in turn lead to sales and growth of your
enterprise.
 Another framework by Schneider involves:
(1) Need for objective performance
(2) Need for Hedonic and Aesthetic Performance
(3) Need for Social Performance
(4) Need for Performance Reliability
(5) Need for Product Convenience

2. Understanding the individuals involved in the customer's buying decision;

 In a business setting, purchases typically require input from various parts of the
organization, including finance, accounting, purchasing (and or marketing), information
technology management, and senior management.
 On the consumer end , those involved in the customer’s buying decisions are the
consumers themselves, indirect buyers (such as kids to their parents), advertising outlets,
and external influencers (friends, etc.)
From a B2B perspective:
 An economic buyer is a typical member of the DMU. The buyer is buying the product to
achieve some sort of business advantage.
 The infrastructure buyer, another typical member of the DMU, influences the buying
decision because he’s the guy that is going to make the purchase happen.
 The user buyer, another member of the DMU, influences the buying decision because he
is one of the people through which the economic buying objective will be realized.

In Another example by Schneider, those involved are:

1.) User – those in the organization who use the product
2.) Influence – Specialists, such as engineers, Financial analysts, or legal advisors,
who have input on the purchase of goods
3.) Gatekeeper – those who control the flow of information to other members of the
purchase process, such as those who decide which companies are invited to
submit proposals
4.) Decider – Managers, who rule on whether or not the purchase should take place
5.) Purchaser – Those in the organization who carry out the purchase
3. Determining a differentiating factor's value by considering monetary consequences;

To identify the monetary consequences of a differentiating factor, it is important to

consider and explore the customer’s needs relating to the product. If a product has a
characteristic not possessed by its next closest substitute that results in a customer
benefit, then it is useful to consider the question, “What money would be gained by the
customer from receiving this benefit?”

The question of what money would be gained by the customer from receiving a
differentiating benefit can also be useful in determining differentiation values for
consumer products, For example, if the more effective cleaning mechanism of a home
carpet shampoo steamer enables the product top remove types of carpet odors that cannot
be removed by the product’s next closest substitute (such as odors from pet “accidents”),
it could be asked why this differential odor removal ability is important to consumers.
Suppose that interviews with consumers indicated that the persistence of unwanted dog
odors leads many consumers to have their rugs cleaned by a professional carpet cleaning
service, at an average price of $250 per cleaning. Suppose further that these interviews
indicated that the home carpet shampoo steamer would save these consumers an average
of three such professional cleanings over the lifespan of the product. With such
understanding of the consumer’s monetary savings, the positive differentiation value of
the shampoo steamer’s more effective cleaning mechanism could be calculated 3 X $250
= $750.

4. Determining a differentiating factor's value by measuring customer trade-offs;

While it’s easy to blame business failings on external factors like the economy, the truth
is that more than 80% of business failures can be traced to a single cause – bad strategy.
In my career, I’ve worked with more than 100,000 managers to help them develop their
strategic thinking skills and what I’ve discovered is that one of the most challenging
strategic issues organizations face is creating meaningful differentiation.

Creating, developing, and communicating real differentiation that fuels the delivery of
superior value demands a carefully crafted strategy. It is a challenge that takes time,
thought, and the courage to make trade-offs with one’s resources: choosing one path and
not the other. The mark of a great company is that their differentiation creates trade-offs
that competitors cannot or will not meet.
Many organizations stick with the status quo, or offer similar products or services in the
same way as competitors, only aiming for slight improvements. But that is not true
differentiation.

To help leaders approach differentiation strategically, I’ve developed a tool I call the
Trade-Off Zone. This is a visual representation of the differentiation, or lack thereof,
being made in a market. This approach identifies common trade-off factors that figure
prominently in the customer’s value equation, and helps leaders gauge their
organization’s differentiation relative to the competition and determine which trade-offs
to make.

For example, five common benefit factors are: 1) Quality 2) Convenience, 3) Cost, 4)
Service and 5) Selection. Competitors are plotted in the low, medium, or high zone for
each factor based on their performance delivering that benefit. Depending on the
business, these factors can be used, or others can be substituted if they are more relevant
to that specific market.

Once the factors are selected, managers can rate their organization’s offering for each of
the trade-off factors as low, medium, or high, as seen by the targeted customer.
Competitive offerings are then plotted, creating trade-off profiles, to determine where
differentiation exists within the Trade-Off Zone. If your trade-off profile mirrors the
competition. work needs to be done to determine the trade-off factors, targeted
customers’ value, and how to create positive differentiation around them.

As an example, here is the Trade-Off Zone for two fictional companies—TechnoBody

and Costazon—that I created for my book, “STRATEGYMAN VS. THE ANTI-
STRATEGY SQUAD.” Using the Trade-Off Zone, it becomes apparent which benefit
factors each company is using to steer customers to their offering. Customers with a
greater demand for quality and service would be more likely to choose TechnoBody,
while customers more interested in cost savings, selection and ease-of-use would prefer
Costazon.
To construct a Trade-Off Zone chart for your business, first select the specific type of
customer that your offer targets. In some cases, the root of poor strategy is trying to be all
things to all customers. If some potential customers are not happy with how you choose
to bring value to the market, it’s a sign that trade-offs have been made. The point is that
effective strategy is going to upset some potential internal or external customers. Learn to
live with it. Just as a real leader isn’t going to please all potential followers, a real
strategy isn’t going to please all potential customers.

The trade-off profile should show points of difference among the benefit factors. If you
are bringing differentiated value to customers, this will be reflected in differences in the
Trade-Off Zone. If your offering is at parity, you’ll see competitive convergence or a
mirroring of trade-off profiles with your competition.

Research shows that a majority of leaders deceive themselves into thinking they’ve
cultivated valuable differentiation. But true differentiated value isn’t determined by you –
it is determined by your customer, and it shows up in profits.
5. Assembling the value-to-the- Customer estimate.
To put in simple terms, assembling the value-to-the Customer estimate can be followed through
4 steps:
Step 1: Calculate the profit contribution of each customer in the current year
Determine revenue per customer minus any attributable costs to servicing that customer,
including cost of goods, cost to service, etc. If you don’t have customer-level financials in your
accounting system, do your best to roll up financials across product segments. If you are in a
business with hundreds or thousands of small customers, develop a set of customer segments by
rolling up product lines or estimating the buying patterns of various customer types.
Step 2: Develop a realistic estimate of how long you might retain each customer
The relative duration of a customer relationship is more important than the absolute timeframe.
Determine which customers are more loyal and which are likely to be repeat buyers and how
often they buy.
Step 3: Estimate the cost to acquire or retain the customer
Some customers may require large discounts or heavy marketing investments up front, but little
or no cost to retain. Others may require a costly reselling effort every month. Estimate the cost of
this on a yearly basis.
Step 4: Do the math
 Build a simple cash flow model combining yearly contribution projections, costs to acquire or
retain, and continue the cash flow for the projected life of the customer relationship. Be sure to
subtract an “overhead charge” for your total operating costs and include any capital costs if
customers require incremental capital investment (e.g., working capital or equipment). Discount
future years at a reasonable cost of capital (8-10 percent is usually a good number to use—no
reason to get too technical).
Most businesses are surprised by how many customers are unprofitable when they create a “fully
loaded” estimate of customer profitability. Businesses are also likely to find drastic differences in
the value of various customers and segments.
This calculation of customer value may cause you to question many of your previous
investments and give you a better view of where to allocate future investments.
Sources:
https://www.semanticscholar.org/paper/PRODUCT-DIFFERENTIATION%3A-A-TOOL-OF-
COMPETITIVE-AND-Dirisu-Iyiola/8d86a910ba923cf06c879c6084d99bcd99276d4b/figure/0
https://courses.lumenlearning.com/boundless-marketing/chapter/the-business-buying-decision-
process/
https://books.google.com.ph/books?
id=LZQgAQAAQBAJ&pg=PA56&lpg=PA56&dq=Determining+a+differentiating+factor
%27s+value+by+considering+monetary+consequences&source=bl&ots=ji4YefqXQi&sig=ACf
U3U3SxeyeMUggia3gk3wFsA36iL8VCQ&hl=en&sa=X&ved=2ahUKEwi7r_3h84noAhXEfX
AKHfh1AVEQ6AEwAHoECAoQAQ#v=onepage&q=Determining%20a%20differentiating
%20factor's%20value%20by%20considering%20monetary%20consequences&f=false
https://chiefexecutive.net/strategic-differentiation-making-trade-offs-that-create-customer-value/
https://www.inc.com/karl-and-bill/4-steps-for-calculating-customer-value.html