Nincompoopery Cover - cropped.jpg HarperCollins

Value Is Always Fundamentally Determined by the End User

Precision delivery is a differentiating component of value.

Not so long ago, major corporations around the world conducted one of the greatest marketing scams ever perpetrated upon unsuspecting customers. Using fancy phrases such as Total Quality Management (TQM) and ISO 9000-certified, these companies advertised that the value of their products was their “high quality”—meaning, of course, that the products actually worked as intended.

This begs the question: Shouldn’t they have worked all along?

Customers thought so, too, and wised up in a hurry (the new international quality standard, incidentally, approved by customers worldwide in a unanimous vote, is ISO 20,000WHOCARES?). Their collective response to quality claims in advertising was, in effect, (A) “Thank you for not selling us crap that doesn’t work,” and (B) in the words of a famous song, “Is that all there is?”

Customers now expect us to provide quality—outstanding product performance and service delivery—as a minimally acceptable threshold to even be considered in a purchasing process. This means that quality, though essential to value, is no longer a differentiating component of value.

Customers want more. Figuring out what “more” might mean, however, is harder than it sounds, and requires taking a step back in how we define and think about value.

First things first: It is a fundamental truth that value is always perceived by customers at the point of the end user—even if that end user is 20 process steps and four companies away from us (e.g., from supplier to manufacturer to distributor to retailer to end user). And if that end user can’t see the value that we added to that product or service, we did not create value, regardless of how much time, effort, or money we invested in trying.

This harsh truth is why many of us own computers that say “Intel Inside,” the tagline of one of the longest-running (28+ years and still going) and most successful marketing campaigns in history. When Intel launched the program in 1991, many consumers considered the semiconductor chip a commodity product, easily interchangeable, with price as a differentiating factor in determining value. In fact, to this day, the vast majority of consumers would struggle to explain how one semiconductor chip differs from another, or why they should prefer Brand A versus Brand B. Yet the “Intel Inside” campaign—supported by nearly 200 original equipment manufacturers (OEMs) and massive investments in cooperative advertising—dramatically changed consumer perceptions.

In 1992, the first full year of “Intel Inside,” the company’s sales rose by 63%. By 2001, Intel held the sixth most valuable brand in the world. All because the company’s leaders understood that if end users (computer buyers) couldn’t perceive the value they created—even if that value was only one component buried deep inside another company’s product—they wouldn’t believe that Intel deserved a premium for the value it delivered.

VALUE NOW HAS MORE FACETS THAN EVER

The good news is that we now have more ways than ever to deliver the “more” in “more value,” which means you now have a Big Innovation Job: Leverage delivery and logistics for competitive advantage.

Customers have always wanted services and products to be delivered on time. But in an era when just-in-time deliveries are critical to organizations adopting lean management principles (66% of U.S. manufacturers already use lean, and the methodology is rapidly making inroads into healthcare, insurance and other industries), precision delivery is a differentiating component of value. If a customer has only limited inventories of a key part that you provide—or needs your service to delight their customers—and you screw up a promised delivery, they’ll never forget you. But not in the way you hoped.

For most large and mid-sized businesses, the solution to improved delivery lies within, by improving measurement practices and operational processes both internally and externally. Plumbers Supply Company, a 250-employee distributor in Louisville, Ky., had an order fill rate of 95%, which seems impressive until you realize that missing even one item (much less five) out of a 100-part order can bring an entire construction project to a dead stop. Plumbers Supply responded by adopting a lean improvement methodology focused on a new measurement: 100% complete order fill rate: Did we ship everything the customer wanted, on time? The new metric uncovered a host of process problems (also known as hidden, slow-killing profit leaks) throughout the organization; with the help of a consultant, the company invested in three years of intense analysis and workflow changes. The result? A renewed customer focus and higher margins, driven by a 20% jump in productivity.

All of which is fabulous, unless you don’t have 250 employees, three years and a consultant to improve delivery. In a truly small business it’s different: you just have customers who love your organization’s creative touch but still want things now, and aren’t afraid to tell you where else they can buy them. In this situation you’ll need a partner, likely one of the major shipping organizations to offer value-added logistics. Beau-coup, an online retailer of personalized wedding favors, started in an apartment in 2002 and grew to $16 million in annual revenues in just 10 years—in large part by making sure that excited (nervous) brides and grooms got their orders on time, with free delivery and returns, in partnership with UPS. “We are not in the business to miss events,” said founder Polly Liu. “We use every service UPS offers to get products there on time. We have a guaranteed delivery date.”

How do you use delivery and logistics to separate your organization from the competition?

John R. Brandt is the founder and CEO of The MPI Group, a global management research firm, and the former editor-in-chief and publisher of IndustryWeek, a sister publication of MH&L. Nincompoopery: Why Your Customers Hate — and How to Fix It (HarperCollins, 2019) is available in bookstores and online. This excerpt from Nincompoopery is used with permission of the publisher.

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