Stephan Liozu

As a CEO, I met with many strategic suppliers during performance review meetings, contract negotiation meetings and social events. During negotiation meetings, I had one simple question: What makes you unique and why should we buy from you — and not your competitors?

That was a destabilizing question for many salespeople. They were caught unprepared and could not articulate their true differentiation in a clear fashion.

I got some of the usual answers: “We have been around for 50 years.” “We have had a good relationship with your buyers for more than 10 years.” “Because we provide good value to your business.”

The reality is that many firms do not clearly know their true differentiation. Most of the times, they confuse “true” differentiators to win business, with “must-have” elements to stay in business or “nice-to-have” components to be in business.

Taking a tried and true idea

The concept of differentiation is not new. Edward Chamberlin originally proposed it in his 1933 Theory of Monopolistic Competition.

His definition is: “In economics and marketing, product differentiation (or simply differentiation) is the process of distinguishing a product or service from others, to make it more attractive to a particular target market. This involves differentiating it from competitors’ products as well as a firm’s own products.”

 

Understanding your differentiation

So, differentiation is often the name of the game to win in business, but it is fairly difficult to create, extract, measure and communicate it. In engagements with clients, I coach them through the following process:

  1. Understand your true differentiation internally. Hold brainstorming sessions with key employee groups within your organization to identify “nice-to-haves,” “must-haves” and “true” differentiators of your business model. Most often, you will identify only two to three true differentiators.

  2. Align all internal stakeholders around this understanding. Identify internal gaps in intended versus perceived differentiation among various employee groups. Create one understanding across the entire organization.

  3. Validate true differentiation with customers and prospects. Conduct an internal assessment on how customers perceive you as well as informal customer interviews about the elements of differentiation. You also can do a formal win/loss deal analysis with your prospects and existing accounts for the past year.

  4. Modulate internal perceptions of differentiation and adjust value communication. Peter Drucker said, “The customer rarely buys what the business thinks it is selling him.” Aligning internally intended differentiation with externally perceived differentiation is a must. What really matters is what customers perceive you do well for them, so your value communication plan has to reflect that.

  5. Train all commercial staff on the perceived dimensions of value and differentiation. Conduct specific training on your true differentiation so employees can believe in it fully. Have them memorize a value elevator speech that clearly states the most important dimensions of your differentiation. This will boost their value selling capabilities.

  6. Start over and never accept the status quo. Value and differentiation perceptions evolve with time. Conduct this process every year. Never get complacent about what you do well. Competitors are watching you.

 

If you claim to be differentiated versus your competitors, it is essential to understand the nature and degree of your differentiation. It is equally important that you communicate your differentiated customer value proposition to your salespeople. Then they will have a clear answer, the next time a CEO asks, “What makes you special?”

 

Stephan Liozu is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his doctorate in management from Case Western Reserve University and can be reached at sliozu@case.edu. For more information, visit www.stephanliozu.com.

Twitter: @StephanLiozu
LinkedIn: http://www.linkedin.com/in/stephanliozu
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I must confess that I was a skeptic of social media when it emerged in the early 2000s, but I’ve done a total turnaround on the topic, realizing the power of social media for communication, networking and knowledge sharing.

When used productively and with intention, social media can provide a wealth of benefits to business leaders and their organizations. Social media cannot be managed in a vacuum, it has to be integrated in the organizations overall marketing strategy. Plus, it has to be fun, creative, ambitious and impactful, while serving a purpose for your business and bringing value to your customers.

I propose the following five objectives to integrate into your social media strategy to make it a productive tool:

Follow, track and monitor your “ecosystem”

LinkedIn and Twitter allow you to easily follow critical players in your ecosystem. You can follow companies, connect with people and read the latest news they publish for free. You don’t have to check multiple websites; the information comes to you regularly and freely.

You can track your competitor’s and customer’s pages to find out what they are working on. In addition, you should connect with industry association experts who regularly share their knowledge through social media.

Find great knowledge at no cost

Most service companies, particularly consulting firms, publish white papers and research reports that are priceless. Lately, I have accessed some amazing reports from McKinsey & Co., BCG and Deloitte Research.

Business schools have great blogs that offer links to papers and other relevant essays. There is a wealth of knowledge available out there — get connected to what thought leaders are working on and discover potential trends and signals from other industries.

Develop your own network

The power of networking for business has been demonstrated over and over. LinkedIn and other similar sites are the best way to establish strong and long-lasting connections. I have used LinkedIn to target potential hires, to launch discussions on particular topics of interest, to run polls in specialized groups and to establish a network of more than 4,000 professionals.

Create a corporate brand, image and content

Social media managed with intention can help develop your corporate brand. Use social media to publish your content, create your image and complement your traditional marketing strategy. Create a small team within your organization that will manage digital marketing. Use it as a team-building activity and as an opportunity to bridge generations at work.

Use it as a productivity tool

This is probably the most attractive reason to use social media. I used to have a long list of websites to check every day. I have now streamlined this list and am using LinkedIn and Twitter to read news, find content and communicate with my ecosystem, saving me considerable time. Encourage your marketing team to be active in industry-relevant social media groups.

There’s no doubt times have changed. Technological development is going to accelerate and the next generation of workers will probably be the most connected and technology-savvy. So it is not a question of whether or not your organization should embrace social media, but when and how it should do so. ●

 

Stephan Liozu is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his doctorate in management from Case Western Reserve University and can be reached at sliozu@case.edu. For more information, visit www.stephanliozu.com.

Follow Stephan Liozu on Twitter @StephanLiozu

 

The business world is still facing extraordinary circumstances due to a combination of flat growth, rising cost pressure and an increase in competition. It is not surprising to see a lot of companies announcing mixed results on Wall Street, as well as going on another round of cost-cutting efforts.

In recent months, the Dow and S&P have reached new highs as traded companies make quarterly announcements of expected profitability results. While all companies are facing flat sales or barely increasing volumes, we see a mixed bag. Companies that announce poor profit results typically blame lack of demand and commodity pricing pressure in their market space.

Leaders are increasingly forced to react to competitive price wars in the market. As a matter of fact, 46 percent of executives report that they are in a price war, and 83 percent blame competition for starting it, according to Simon-Kucher & Partners’ 2011 pricing research.

My view is that it is not reasonable to only blame tough market conditions and commodity prices for poor business performance. One of the major differences between firms that are doing well and those doing poorly is pricing power and how much firms pay attention to value and pricing management programs.

I would venture to say that profit outperformers on Wall Street manage pricing and value management programs with a vengeance. Others simply surrender their pricing power to the market and focus on maintaining market share and capturing volume to maintain sales revenue levels. In the end, it is a question of culture and focus at the C-suite level.

So what can you do if your sales revenues are flat and your cost pressure is increasing? Here are some practical recommendations to test your pricing power and significantly increase it.

 

Get the price you deserve for the value you deliver

Easier said than done, but as a business leader you have to make sure you capture the value of your products and services.

Identify the products and services that may be severely underpriced. Conducting some basic data analytics will give you that information.

 

Improve your pricing discipline

Manage your deals better and make sure you give your sales force the proper “guardrails” to make the best pricing decisions.

Not every deal is a good deal for you. Your customer transaction data can give you that information.

 

Announce a moderate price increase and make it stick

On average, firms only capture 53 cents for every dollar of announced price increase.

Take a strategic approach to price changes and get the customers used to price increases every year, even if they are very small.

 

Reinforce your innovation process

Launch more differentiated offerings for which customers might be willing to pay a bit more.

You will see your overall margin move up by introducing higher price products and services.

 

Fire some customers if they create a loss for your business

Conducting cost-to-serve analysis will give you the real profitability of every customer.

One of the issues of being in a crisis is that we try to maintain all customer relationships because of the fear of losing more sales. Don’t let your company forget to focus on pricing strategies and pricing power!

The best-in-class companies have shown the power of pricing. Why not try it?

 

Stephan Liozu is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned his doctorate in management from Case Western Reserve University and can be reached at sliozu@case.edu. For more information, visit
www.stephanliozu.com.

Twitter: @StephanLiozu

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Thursday, 15 August 2013 12:50

Managing this, that and the other thing

A 2010 global survey of more than 1,500 CEOs conducted by IBM revealed that 60 percent of top executives face an increased amount of complexity in their business. Seventy-nine percent of them expect an even greater level of complexity over the next five years and only 49 percent of them estimate that they will be ready for it.

The questions then become: Are you ready to face more complexity? How good are you at managing complexity? Can you leverage this complexity to create differentiation and competitive advantage?

Complexity can be good and bad at the same time. There are four types of complexity in business and it is important to break them down to be able to understand them and eventually address them:

Imposed complexity is coming from regulations and mandatory compliance guidelines both at industry and governmental levels. It is typically not controllable and manageable so it is best to prepare for it and find a way to minimize its impact on the business.

Inherent complexity is structural complexity, which is inherited and well rooted in the business. It can be addressed by making deep structural changes that might be painful but beneficial to the future of the business.

Designed complexity is based on purposefully designed strategies and programs to support the long-term vision for the firm. This complexity is based on managerial choices aimed at creating competitive advantage.

Unnecessary complexity is the result of legacy management design and structure that might not have been updated, eliminated or refreshed. It is unnecessary because it brings no value to the business and it solely exists because no one is paying attention to it.

As a leader of your organization and in the face of resource constraints, I highly recommend you start paying attention to these four types of complexity. Assemble a process and team to review complexity and engage in the design of strategies that will leverage complexity to bring differentiation to the market. Here are some quick tips on how to do this:

Design positive complexity to create differentiation.

This should be the main focus of your critical actions and priorities. Can you create complexity that differentiates your supply chain processes, your customer service experience levels and your digital marketing strategies without overwhelming your customers? Can you create unique value selling propositions based on unique internal designs and systems?

Quickly kill unnecessary complexity while reassigning resources and skills.

Unnecessary complexity might be inherited from legacy management designs or decisions. They might bring zero business value and need eradication. Be decisive and free up resources for something else.

Transform internal complexity into simple value propositions.

Remember that internal complexity has to be transformed into simple offerings for customers. If you propose something to your customers, do it by absorbing complexity and acting as a consultant for your customers.

Focus on pockets of value-creating complexity for customers.

It is all about value. Complex designs have to bring value to customers. If not, they should not be implemented. As a leader, make sure value is real and can be monetized through pricing. You might have the best supply chain management process, but will customers see the value in it and be willing to pay for some of the services?

Assign your best talent to manage complex problems and initiatives. Complex problems need mindful problem-solving.

The business world is changing in front of our eyes. What are you doing to change with it while remaining nimble, easy to do business with and focused on value? Are you leveraging complexity to create sustainable competitive advantage?

 

Stephan Liozu is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management.  He earned a doctorate in management at Case Western Reserve University and can be reached at sliozu@case.edu. For more information, visit www.stephanliozu.com.

Friday, 31 May 2013 20:00

The mindful organization

Mindfulness, a concept originally characterized by Ellen Langer in 1989 as a state of alertness that is manifested in active information processing, includes creating new categories rather than relying on categories present in our memory; welcoming new information by being open and attending to changed signals, welcoming more than one view and being aware of multiple interpretations, and avoiding being on auto-pilot.

In 1999, Karl Weick and Kathleen Sutcliffe extended the concept of individual mindfulness to the collective dimension, describing it as the widespread adoption and diffusion of mindfulness by the organization’s members. Mindfulness helps organizations to notice more issues, process them with care, and detect and respond to early signs of trouble. Weick and Sutcliffe describe five cognitive processes that constitute organizational mindfulness: Preoccupation with failure, reluctance to simplify interpretations, sensitivity to operations, commitment to resilience, and deference to expertise. These, they contend, are prevalent among members of high reliability organizations.

So how does organizational mindfulness apply to the management of organizations?

Let us look at these five processes one by one.

Preoccupation with failures

Mindful organizations demonstrate an ability to learn from failures and breakdowns. The organization learns from what did not work and identifies gaps to ensure transformational success. These firms see failures as an opportunity to learn and to try again instead of getting discouraged and throwing in the towel.

In no way does this mean that you ought to get totally absorbed with failures. Mindful leaders spend equal time celebrating successes and analyzing failures to move the organization forward.

Reluctance to simplify interpretations

High performance organizations refuse to simplify interpretations, especially when facing intense competition, increased complexity and large amounts of data.

Business professionals are exposed to an enormous amount of internal data and market information. They face variations in the degree of analyzability of market information, in the degree of information commensurability, and in the equivocality of information coming out of multiple sources in the organization.

The inherent levels of information uncertainty and ambiguity require they focus on complex problems without reducing and oversimplifying them.

Sensitivity to operations

Leaders of mindful organizations purposefully invest in developing capabilities of their front line personnel. They pay attention to all organizational actors whether in leadership or in the “trenches.”

Mindful leaders listen actively to the rumor mill and embrace feedback coming from organizational skeptics. Being sensitive to operations also entails adjusting strategic programs by taking into account the knowledge of people who actually do the work.

Commitment to resilience

Resilience is one of the dimensions of the organizational confidence construct.

Leaders of mindful organizations commit to the success of all organizational programs. They purposefully develop shared beliefs, courage and resilience when implementing business strategies so that the organization keeps going when facing adversity.

The role of organizational champions and change agents is equally important to build collective confidence in teams.

Deference to experts

Decision-makers in business units should rely on the expertise of specialized centers of excellence to optimize business decisions and firm performance. Business leaders should avoid improvising and ought to defer tough decisions or complex problems to internal experts.

The five characteristics of high reliability organizations proposed by Weick and Sutcliffe can be applied and operationalized by any company in search of business excellence. Organizational mindfulness and mindful champions can play a critical role in the success of organizations. I call this mindful business management. I encourage you to read more about this emerging theory on organizational mindfulness.

 

Stephan Liozu (www.stephanliozu.com) is the founder of Value Innoruption Advisors and specializes in disruptive approaches in innovation, pricing and value management. He earned a Ph.D. in management at Case Western Reserve University and can be reached at sliozu@case.edu.

Sunday, 31 March 2013 20:00

Stephan Liozu: The value imperative

With the world of business changing faster and becoming more complex every decade, organizations today have to adapt, reinvent, differentiate or die. Over the past few years, the nature and intensity of these changes in the business landscape has created organizational disruption and a realistic need to redesign organizational strategy and leadership approaches.

The process is not easy, and this is why many executives in organizations decide to stay the course, bury their head in the sand, and copy and paste what others are doing. Today, businesses are realizing that they cannot cut their way to prosperity and that their growth potential has been severely reduced due to the continued recessionary trends.

They are starting to look at their business models and are reinventing their value propositions in order to generate customer excitement, boost value-creation programs and capture value through value-based pricing. These companies get it. Many, though, do not.

The following are tips on how you can embrace the value imperative and design and implement leadership initiatives to place customer value at the center of business.

Conduct meetings

Organize a series of off-site meetings with key people to have a realistic, candid and mindful conversation about your value proposition: Why are customers buying from us? What makes us truly different? Are we paying enough attention to our business model? Are we working on the right projects to support our value proposition?

This meeting should be led by top executives to demonstrate the importance of the process. I recommend you avoid the use of consultants, keep the agenda semi-structured to create conversational flow and reinforce that this is a confidential and safe environment.

Define your core

Identify what your true “core business” is that brings most of your revenue and profits: Are we bringing enough value to customers? Are we losing steam in our differentiation? Are competitors catching up on us? Does the core business need to be reinvigorated? Defining the true core business might end up being an interesting process as a team.

I recommend you avoid the use of the constraining and sterile strategic analysis tools such as SWOT analysis, market forces analysis and others. Start with a white sheet of paper and see where it takes you.

Find ‘hidden assets’

Identify your “hidden assets” that are creating excitement with customers and generating profit but that you have taken for granted, not paid attention to or underestimated. List these assets, celebrate having them and evaluate their contribution to the overall value proposition.

The definition of what a hidden asset is might get tricky, but it is worth having it. Launch the conversation of what-if scenarios: What if we had more of this or we did more of that? What would be the impact on customers?

Based on the previous steps, start redesigning your core business and value proposition by reinforcing the strengths you clearly have identified and by leveraging your hidden assets. While it is important to fix gaps or work on weaknesses, leveraging strengths and hidden assets might have a greater return.

Eventually, the result of this business model redesign process will need to be integrated in the strategic planning process. This process is critical to re-energize your value proposition and your overall business model. It is also a great opportunity to emphasize with your leadership team that all you need to do is create customer value and increase loyalty.

When times are tough, customers will make quality/performance sacrifices, will try other alternatives to reduce costs and will challenge your value proposition. My view is that the best defense is a calculated offense. ?

 

Stephan Liozu (www.stephanliozu.com) is the founder of Value Innoruption Advisors. He specializes in disruptive approaches in strategy, innovation and value management. He is also a Ph.D. candidate in management at Case Western Reserve University and can be reached at sliozu@case.edu. 

Thursday, 31 January 2013 19:00

Stephan Liozu; The next 50 years of business

The world is changing faster than ever. We now face megatrends of monumental proportions: a global population of 7 billion, greater disparity between rich and poor, increasing numbers of cataclysmic events, the rise of emerging countries, increased consumerism, increased social and technological complexity, increased globalization trends, and so forth.

As leader of a business, how do you face these trends and events?

Can you survive by conducting “business as usual,” or do you embrace, adapt and leverage their potential? Fundamentally, can a firm and its leaders operate without facing these trends and transforming their business to play a productive role in society?

For many decades now, economics and management scholars and behavioral scientists have studied and debated the role of the firm in society.

Why does the firm exist, and what is its role? From these discussions, the theory of the firm has evolved over the years from concepts of profit maximization (neoclassical economics) to customer satisfaction (customer-value theory of the firm) through the management of resources to create competitive advantage (resource-based view of the firm) and the organization of agents and actors to make choices and decisions (behavioral theory of the firm).

Among the vast array of derivative theories and multiple schools of thought surrounding the theory of the firm, none of them actually captures the fundamental question facing our businesses today: Why do firms exist in society, and what will their role be during the next 50 years?

More recently, the concept of sustainable value has emerged at the nexus of discussions about sustainability and corporate social responsibility. Based on Chris Laszlo’s work, this concept proposes that just “doing good” is no longer enough. Firms need to think strategically about their long-lasting value to all stakeholders and make it part of their strategic orientation.

This is a holistic approach that requires vision, action, support and resources. The following quote captures this concept well:

“Companies that are breaking the mold are moving beyond corporate social responsibility … to social innovation. They view community needs as opportunities to develop ideas and demonstrate technologies, to find and serve new markets and to solve long-standing business problems.” — Rosabeth Moss Kantor

So, you might ask, what does this mean for me? It means that you cannot ignore the megatrends. You and your firm can make a difference in society. The question then becomes how to get started.

The following are some recommendations for starting your journey.

Start small, but do it fully.

Select a few programs and partnerships to work on, and fully engage your firm and your staff. Less is better. At Ardex, we work closely with Habitat for Humanity and the local food bank, and we support veterans in need every holiday season. It starts at the top: Business leaders and owners are the organizational champions.

Capture the energy of your employees.

You will surprised by the amount of employee support you receive, as well as the positive impact on the organizational climate. You might not reach everyone, but many of your employees will be motivated and enthusiastic.

Leverage the power of social innovation.

Study the trends and capture their innovation potential without trying to make additional profit. Make it part of your regular business model and be realistic.

Include it as part of your DNA.

Sustainable value is not short term. It is a journey for the long term, and programs cannot be cut at every downturn. It is a transformational journey toward becoming a better corporate citizen and leading with compassion at the organizational level.

Whether you work for a small business or a large corporation, you can make a difference and create lasting value. Everything counts. The role of business is changing, and the best-in-class companies have emerged. Do not sit on the sidelines. Your community, your customers and your employees are watching. The world is watching. ?

Stephan Liozu (www.stephanliozu.com) is the founder of Value Innoruption Advisors. He specializes in disruptive approaches in strategy, innovation, pricing and value management. He earned his PhD in Management at Case Western Reserve University and can be reached at sliozu@case.edu.

Friday, 30 November 2012 19:00

Stephan Liozu: Welcome distractions

Organizations and their people always try to avoid uncertainty, unpredictability and ambiguity. To create an environment of safety, sense and rationality in terms of the choices they make and the goals they set, they impose routines, standard operating procedures, decision-making recipes and risk-avoiding agreements.

Scholars’ traditional views about organizational routines explain their existence with the need for “cognitive efficiency” and the reduction of complexity. This view suggests that routines arise because they are functional, they minimize costs, they increase managerial control and they create stability in the organization.

Therefore, routines are an important element of a firm’s social system and its decision-making process.

However, rules and routines can be seen as repetitive and inflexible, fixed and mindless, and as creating inertia in organizations. They mechanize decision-making and choices, they create a “business as usual” mindset, and they put the organization into “automatic mode.”

Thus, there is a consensus that routines are generally detrimental to innovation and change in organizations. Inertia and “business as usual” form strong barriers to change and tend to comfort employees in their views that “It was never done in the past”; “Why change if it works?”; “If it ain’t broke, don’t fix it,”; and, finally, “This is not the way things get done around here.”

Sound familiar? So how do you break this business-as-usual phenomenon and wake up your organization before it becomes too complacent or before the next crisis arrives?

I conjecture that it is the role of top leaders in organizations to create disruption and create proactive mini “revolutions” in order to bring about incremental change, increase the sense of urgency and encourage people to embrace change.

The great challenge is to do this when times are good and when the organization is successful.

In my career, I have embraced Sun Tzu’s saying in the “Art of War for Managers”: “When you are at peace, prepare for war.” In other words, when times are good, prepare for bad ones, and vice versa.

I often characterize myself as an agent of disruption by trying to break organizational routines, release mental locks and create a climate of change by encouraging breakthrough thinking.

Here are a few disruptive approaches I have used to create organizational change and to accelerate organizational transformation:

Constantly challenge your business model and reject complacency

Think outside the box, release your creative potential to constantly reinvent yourself even when you are successful and achieving your goals. Are you anticipating disruption five years from now? Are you tracking mega trends? Are you scanning other industries and companies for potential failures?

Create mini-revolutions

You can do this by breaking the organizational equilibrium and bringing about change when least expected. Take your organization’s pulse and avoid organizational fatigue by designing changes in teams in advance of issues and in tune with organizational needs.

Are you suffering from too many meetings, too many PowerPoint presentations, long decision-making discussions? Experiment with new meeting formats, PowerPoint-free zones, casual Tuesdays, fun Fridays, decision-making blitzes, rapid innovation processes, creative speed-thinking, etc.

Break the level of market predictability

By surprising competitors with breakthrough innovative products and surprise moves, the traditional cycles for price increases, product launches and customer events become a moving target that is hard to predict and that will bring excitement to markets at different times.

Make breakthrough thinking a core competency

Train your leaders on what breakthrough thinking means and how you can bring about soft and mindful disruption. Look to hire people in leadership who have great change-management skills but who can also lead change. Also, hire creative and nonconventional thinkers and embrace humor and fun at work.

Embrace skeptics and eliminate organizational bottlenecks

Make change successful, irreversible and anchored in the organization’s DNA. Remove any bottlenecks in breakthrough thinking and pockets of resistance to change. Listen to skeptics about the relevance of change and about where things need to change.

By creating these proactive changes during good times you prepare your organization for potential difficult times ahead — but most of all, you put yourself in a position to avoid the next crisis by removing complacency and business-as-usual. Give it a try. Become your organization’s “agent of disruption.”

Stephan Liozu (www.stephanliozu.com) is the founder of Value Innoruption Advisors. He specializes in disruptive approaches in strategy, innovation and value management. He is also a Ph.D. candidate in management at Case Western Reserve University and can be reached at sliozu@case.edu.

Friday, 31 August 2012 20:00

Stephan Liozu: Value and your Business

“Nowadays people know the price of everything and the value of nothing.”

— Oscar Wilde, “The Picture of Dorian Gray” (1891)

Value is probably one of the most frequently used words in business. Yet it is extremely difficult to define, to measure its drivers and fully capture it with customers. Given that most companies create their own social construction of value, we propose to explore what it might mean and introduce some practical steps to increase your understanding of it.

We focus on the definition of value proposed in 1998 by James Anderson and James Narus. Value is the “monetary terms of the technical, economic, service, and social benefits a customer firm receives in exchange for the price it pays for a market offering, taking into consideration competing suppliers’ offering and prices.”

Why is it that few suppliers in business markets are able to define and measure value?

In a 2008 survey of business executives, 79 percent attributed this difficulty to a lack of capabilities and skills needed to assess value, apply the appropriate methods, and extract the exact value differential between two products.

Second to the value-assessment issue, communicating value to the market was associated by 65 percent of the executives with difficulty in elevating the value message above the advertising noise in the market.

Bottom line: there is a need for more research related not only to theory on value but also to marketing tools for understanding, measuring and delivering value in business markets.

Scholars agree that there are six characteristics of business value that make value difficult to measure: value is 1) a subjective concept, 2) a trade-off between benefits and sacrifices, 3) multidimensional, 4) defined relative to competitors, 5) segment-specific, and 6) future-oriented.

At Ardex America, we have embraced the difficulty and complexity of measuring value and have put long-lasting value at the center of everything we do. We adopted Andreas Hinterhuber’s approach that value in business markets is composed of six tangible and intangible benefit categories: product quality, delivery capabilities, services, ease of doing business, vendor characteristics, and self-enhancement (social status, prestige, aspirational benefits).

Our mission is to be able to measure the level of value we provide customers in each of these categories. To quantify economic value correctly, we have implemented a six-step approach called Economic Value Analysis:

Identify the cost of the competitive product and the process that customers view as the best alternative. Understand who you’re competing against for your customer’s share of wallet and who might be able to substitute for your products or services in your customer’s mind.

Segment the market: Understand why customers buy from you and what needs you satisfy; identify the true nature of these needs and the level of differentiation you enjoy in each segment.

Identify all factors that differentiate the product from the competitive product and process. Identify value drivers or unique selling propositions that really differentiate you. The rule of thumb is that you cannot have more than half a dozen. These product or service drivers are your real USPs.

Determine the value to the customer of these differentiating factors: Quantify value drivers using assessment techniques such as engineering assessment, value-in-use analysis or focus groups.

This is where it gets complex! We have done well for product-related drivers and are now moving to less-tangible elements of our value proposition. Determining the value of services remains a challenge, however, and it is ongoing work.

Add the reference value and the differential economic value to determine total economic value: Define a price point by adding the reference value (price of next-best alternative) to the differential economic value you generated for your customers. At this stage you might decide to share some of the value surplus with customers to entice them to keep doing business with you while paying a premium.

Use the value pool to estimate future sales at specific price points. Assess price elasticity by market segment based on various price points and relevant volume levels. For each segment you can then establish your value positioning and your pricing strategy.

The process is not easy. It requires skills, capabilities and sweat equity. But you deserve to capture some or most of the value you create for your customers. Before you can capture it, however, you must understand it and measure it well.

Join us for more discussions on value and pricing management during a regional pricing workshop on Oct. 11, 2012 in downtown Pittsburgh.

Stephan Liozu is president and CEO of Ardex America Inc. (www.ardex.com), an innovative and high-performance building-materials company located in Pittsburgh. He is also a Ph.D. candidate in management at Case Western Reserve University and can be reached at sliozu@case.edu or www.stephanliozu.com.

Saturday, 30 June 2012 20:03

Stephan Liozu: The price is right

Warren Buffett recently said, “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.” Yet, in most companies pricing receives scant attention.

Data from the Professional Pricing Society indicates that less than 5 percent of Fortune 500 companies have a full-time function exclusively dedicated to pricing. Research from McKinsey & Co. shows that less than 15 percent of companies do any systematic research on this subject. Similarly, only about 9 percent of all AACS-accredited business schools offer courses that emphasize pricing significantly.

Despite this, numerous consulting studies suggest that pricing affects profitability both substantially and immediately. Small variations in price can influence profitability by as much as 20 percent or 50 percent in both directions. Are you paying enough attention to your pricing strategy? Who is managing pricing and value in your firm?

Over the past three years, my dissertation work has focused on better understanding how firms manage their pricing strategies. First, we interviewed 44 managers — from CEOs and CFOs to heads of business units and professionals — in 15 U.S.-based industrial companies. These varied in size from a few hundred to thousands of employees, and notably, differed dramatically in pricing capabilities.

In conducting this research, we identified common features of companies that have deployed pricing approaches as a key profit driver. Most important was that in successful companies, top management was attentive to two areas of their pricing function: the development and practice of skill in price orientation (or price setting) and price realization (or price getting). Armed with these qualitative findings, we asked more than 8,000 CEOs, presidents, and business owners around the world a series of questions relating to pricing. The findings revealed some interesting myths and facts.

Of the 100 points of attention allocated between cost-cutting, price-management and growth strategies, pricing received only 16 percent. Most attention, as expected, focused on cost-cutting, at 55 percent. While these top leaders indicated that pricing was strategically important, they paid little attention to it.

A commonly held belief that emerged from the research is that pricing is expensive, requires tremendous resources and is only for large firms. Au contraire! There are several steps in the pricing maturity progression model. But to get started, you can follow some of the simple steps:

Create a pricing council that meets every month just to discuss price trends, competitive pressure and new-product pricing prior to launch. Invite your marketing, sales and finance leaders and champion the process. Cost = $0.

Buy several copies of the best pricing book and give it to your staff to read. Then meet to discuss what you learn, what you can quickly adopt in your firm, and what the gaps are. Cost = $200 (depending on number of employees).

Send your marketing managers to a pricing conference held twice a year by the Professional Pricing Society. There you will learn from the best, meet top pricing professionals and get lots of insights. Cost = $2,000.

Take your best costing or financial analyst and give him or her responsibility to apply the basic techniques you will have learned in the book and at the conference. Cost = $0 incremental (part of your fixed cost).

Join our Western PA Professional Pricing Group on LinkedIn. This group gathers pricing and marketing professionals from the region. We meet twice a year, share best practices, and have fun. Cost = $45 in gas and food.

There you have it. You are at Level one of the pricing-maturity process. You have spent $2,245 in total to get started. We at Ardex, stand between level three and level four of this maturity model. Complexity and cost increase with each level. What you want to do is to find the level that suits you, your industry and your goals. Of the 15 firms we studied in 2010, 11 did not have a pricing function and did not manage pricing with intention. A staggering fact.

Stephan Liozu is President & CEO of Ardex America Inc. (www.ardex.com), an innovative and high-performance building-materials company located in Pittsburgh, Pa. He is also a PhD candidate in Management at Case Western Reserve University and can be reached at sliozu@case.edu.

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