This quote is attributed to Warren Buffet and captures a strong central theme of customer value. I also came across a snippet from a Harvard Business Review article (1990) by Day and Fahey that really socks home the idea and importance of customer value.
In the early 1970s, Schlitz reduced brewery labour per value, switched to low-cost hops, and shortened the brewing cycle by 50%. Its costs were the lowest in the industry. To the great pleasure of shareholders, profits soared, and the market applauded. By 1974, the stock price had risen to $69.
Consumers were slow to react to the degradation of product quality, but by 1976, complaints were continual and market share was slipping. That year Schlitz destroyed ten million bottles of beer that failed QC tests. In 1978, Schlitz management tried to get its quality back on track, but consumers had such a low opinion of the product that the company couldn’t recover. By 1981, Schlitz’s market position had fallen to number seven from number two in 1974, and its stock price had dropped to a mere $5 (p. 157).
There are several lessons to be taken from the Schlitz story.
Lesson 1: In the fervor of cost cutting, companies can cut the very value adding costs that drive consumer preference and market share. This can happen very easily especially if the company is not listening to the voice of the market (VOM). I have seen this occur in several companies who have an internal focus – one that does not have a clear line of sight to the buyer. Brand and market decisions are based on intuition and agendas that replace solid customer and market information.
Lesson 2: Customer value is a leading indicator of market share, in fact, the best indicator. Put another way, customer value is an indicator of the strategic health of a brand or company. Strategic health is a leading indicator of the financial health of a brand. Financial health can continue beyond the strategic health of a company or a brand. But a brand whose strategic health is ailing will more than likely find its financial health in jeopardy. I have worked with several companies that have developed dashboards to manage their brands. Unfortunately, many of these dashboards are populated with lagging indicators instead of leading indicators. This is akin to driving your car looking into the review mirror.
Lesson 3: Once value is lost, it is difficult, if not impossible to regain. Manage the value proposition of your brands because if you don’t your competitors will. Value is relative – my brand has greater value than your brand. A value management failure can result in an inferior value proposition and the resultant decline in market share. Your brand’s value proposition is an important asset and requires constant vigilance.
Six Sigma Marketing (SSM) is a fact based disciplined approach to growing market share in targeted product/markets by providing superior value. It does so by means of a structured but modified DMAIC process. The process begins with a clear focus on the product/markets that have the most economic value to the organization, understands how these product/markets define value and uses this information to acquire and retain customers. It then places a premium on the management of the brand’s value propositions – to maintain its strategic health.
Marketing has been defined as the creation and retention of customers for the organization. Current market practice is under scrutiny for its lack of accountability and lack of effectiveness and efficiency. SSM replaces the agenda driven, intuition based traditional marketing approach with a powerful market focused and disciplined approach for creating and retaining customers. SSM supplants the traditional marketing cost center with a dynamic machine that generates market share and profitability for the firm.
Learn the lessons from the Schlitz story. It’s not as uncommon as you might think and, more importantly, could actually happen to you. After all, I doubt if anyone at Schlitz actually planned to reduce their value proposition and decimate their market share. Do you?