Value Maps provide a useful framework that helps visualize a product’s positioning in the market.
Building on our basic computer system example, the experience of Alpha Computers shows how internal misperception can skew value analysis and how an accurate value map can suggest proﬁt-building actions. Alpha supplied advanced computer networking systems and prided itself on its engineering skills and its ability to deliver high technological performance at a reasonable cost. Unfortunately, much to its surprise, Alpha had begun losing market share.
To help diagnose the problem, Alpha built the value map shown in Exhibit 4-3, based on their internal understanding of how customers perceived beneﬁts and price in its market. Perceived price was believed to be straightforward since industry prices were scrutinized carefully by outside analysts, published routinely, and highly transparent. Also, the mix of volume discounts, rebates, and payment terms offered by computer makers was on average fairly standard. Alpha was also comfortable with its internal understanding of the beneﬁt attributes that drove customer systems choice: It believed customers chose networking systems based primarily on processor speed and system reliability.
Using its internal views on beneﬁts and price, Alpha plotted itself and its key rivals—Ace Computer, Keycomp, and Baseco—on the value map. Alpha saw itself in a value-advantaged position, meaning it should have been picking up rather than losing market share. Ace was the obvious premium competitor, ranking highest in price as well as in system speed and reliability. But compared to Keycomp, Alpha’s computers were not only cheaper but also faster and more reliable. Company managers were stumped to ﬁnd an explanation for their server’s disappointing market performance. Why were they losing share instead of gaining share as their value map would seem to predict they should?
Alpha faced a common problem. It understood its products well, but not its customers. Although managers thought technical superiority was important, they never took the time to research carefully what attributes customers considered when choosing network servers. To determine exactly what perceived beneﬁts drove customer choice, Alpha’s marketing department stepped back from its assumptions and commissioned a market study. Sixty buyers in Alpha’s targeted customer segment were interviewed about their criteria for selecting a network server supplier.
The ﬁrst steps were to understand clearly which beneﬁts were important to the market and to compare Alpha’s relative performance in those areas against the competition. Using conjoint analysis, Alpha identiﬁed the key buying factors that were important to the marketplace. The results, shown in Exhibit 4-4, revealed that system speed was indeed very important. The next factors, in order of importance, were professional services (the technical skills of the sales and professional staff), system interoperability (the ability to communicate with other systems), and system reliability.
Further insights arose when Alpha compared its performance against the competition based on these key factors. While system speed was important, as Exhibit 4-5 shows, all of the main players were comparable on this attribute. Alpha’s slight system speed advantage over Keycomp was not a critical factor in driving customer decisions because both met minimum requirements. However, there was a distinct gap in other beneﬁts, such the perceived quality of professional services and system reliability. In these areas, which were the key differentiating factors of customer choice, Keycomp performed much better than Alpha.
Exhibit 4-6 shows a more accurate value map based on customer perception of beneﬁt attributes and the performance of suppliers against those attributes. Since Keycomp scored well on attributes most important to customers, it sits in a value-advantaged position despite its higher price, which explains why that company was gaining market share. Alpha has shifted into a value-disadvantaged position since it performed relatively poorly on the attributes most closely linked to buying decisions. The reasons for Alpha’s poor market performance were now clearer.
Armed with these fresh insights, Alpha began a crash program to tackle its problems. Many of its customers faced compatibility problems linked to their enterprise resource planning (ERP) system, as well as conﬁguration and energy usage problems. These problems were corrected with a minor rewrite of the software and the introduction of a standardized conﬁguration tool. Reliability problems from an earlier generation continued to taint the market’s perception of Alpha’s new system, so the company mounted an aggressive marketing campaign to demonstrate the reliability of the latest model. And ﬁnally, the sales and professional staff were given new training and improved conﬁguration tools that simpliﬁed the sales process and better-matched customer integration requirements.
Within six months, Alpha shifted its position on the value map dramatically, as shown in Exhibit 4-7. Customer perception of the beneﬁts of Alpha’s new systems improved so much that it was able to increase its price by 8 percent and regain 5 percent of market share. The price and volume increase more than doubled the company’s operating proﬁts in this product line.
The key to success is often gaining a clear understanding of the real attributes driving customer choice and their relative importance.
What does the Alpha Computer case show us about managing value?
- First, the key to success is often gaining a clear understanding of the real attributes driving customer choice and their relative importance. Trusting internal perceptions of which attributes drive customer choice, rather than information from the customers themselves, can be a fatal mistake.
- Also, in many situations, softer, nontechnical attributes like perceived reliability, support quality, and the ease of doing business can match or outrank measurable technical features in the minds of customers, especially when several suppliers can meet most customers’ minimal technical requirements.
Channel partners create an added complexity to understanding a company’s value position. These intermediaries run the gamut from retailers and distributors, who simply include a company’s products on their shelves or in their catalogues, to value-added resellers (VARs), who perform a wide range of services linked to the product, such as design, modiﬁcations, installation, and maintenance. Whatever the relationship, the channel partner becomes an integral component in the delivery of beneﬁts and value to the customer and must therefore be carefully managed.
When dealing with channel partners, a company must face an unavoidable conﬂict: Its partners’ economics often are based on getting the best price from their suppliers, suggesting that it would be smart to play down a product’s actual beneﬁts when dealing with their suppliers. But a partner must also actively promote the product to its own customers—in other words, emphasize these same beneﬁts. These conﬂicts and dilemmas make it more difﬁcult for the supplier to get an accurate reading of end-user demand, as well as a true measurement of the beneﬁts being delivered to and through its channel partners. Although the water here is murkier, a company must endeavour to use the same standards for understanding the beneﬁts delivered to and through its channel partners as it does in other situations.