Failure to Understand Customer Value

Truly listening to your customers and clients is a direct line to innovation

Likely the single most important insight to innovation is a clear understanding of how customers perceive value. Failure to understand customer value will doom even the even the greatest technological innovation. Great technological leaps can fail to translate to great products when they are presented in a way that does not create true value for the user. Their initial iteration may be clunky or not user friendly, too expensive to be practically applied, or simply solves a problem to which users do not ascribe significant value. It is therefore important to understand how a customer perceives value, as that may differ markedly from your personal perception of value. Often the gap in understanding value is simply a misunderstanding of how users are applying your product or service. 

Value is determined by more than just price.

The four largest drivers of value are:  

·       Money - How much can I earn or save with this innovation?

·       Time - Does this innovation reduce labor significantly or free up time that I can otherwise re-allocate to higher value tasks?

·       Enablement - Does this innovation allow me to do something new, that I could not otherwise do before?

·        “Cool” factor - Does this innovation provide me with personal fulfillment or my brand with added cachet or market distinction?

Be aware that “money” may manifest itself in any number of differ forms, which will likely differ depending upon who in the organization is evaluating the value. For some, the metric for “money” is direct purchasing cost (price), for others it will be measured by the impact on inventory turns, working capital, labor, maintenance, etc. Any innovation should be tested against your value criteria to see if it is actually creating value. Of course, this requires you have a means of quantifying each of these factors and understanding the end user’s threshold for action (e.g. - How much savings does the user consider to be of sufficient value to prompt a switch?).

Innovation isn’t always about high technology, it’s more about understanding your customers and what they value. 

Convenience and ease of use are often simply new presentations of an existing product or process but can be significant points of value and differentiation. Examples of this added value and market differentiation include Amazon’s one click shopping to make purchasing instantaneous and Vlasic’s Sandwich Stackers pickles that resulted in a tremendous leap in sales simply by slicing a pickle lengthwise rather than horizontally creating more manageable pickles for sandwiches. 

Earlier in my career, I headed up a global innovation team for an industrial manufacturing company that was the market leader in performance for fluid purification. The company had a highly successful product line that was the performance leader, able to remove nearly 100% of contaminants. However, the technology upon which we had created that market leadership was nearing the end of its patent life, and we undertook a development program to create a next generation, performance-leading product. We discovered a technology that allowed the removal of even more contaminants - a >200-fold improvement in performance. The problem was that there was no market driver for that level of purity, and consequently no market pull for the innovation if we simply put it in the same equipment. Even though the performance far exceeded the current industry standard, customers saw no value in industrial product streams that had clean room levels of purity or better. The current performance level was already good enough. However, it was recognized that by pushing far more fluid through the device (increasing the flow rate), they could de-rate the device from essentially 100% efficiency back to the existing performance level, but do so in a much smaller and less expensive device, potentially saving tens or hundreds of thousands of dollars in capital costs for a new installation. As a result, there was a significant value proposition to the customer in having the same performance in a much smaller piece of equipment (and much lower associated capital cost). In this example, the underlying innovation was the same, but the perceived customer value differed greatly depending on how it was applied and presented. It is important to recognize the value points for customers to prevent a great innovation from being valueless.

To fully UNDERSTAND your customer, you must SPEND TIME with them.

In order to understand how your customer is using or applying your products and services in their own operations, or in the case of a consumer product, how the customer incorporates that product or service into their lifestyle, it’s important to fully understand how your customer views value. Spending time with your customer in their operations or in their life is key to this understanding. Often in industrial settings this means getting dirty, touring their process plant or field operations, shadowing them in their work environment, observing their manufacturing line or seeing them interact with their own customers. Often these environments can be hot, dirty, loud, or uncomfortable (and sometimes all of those!). But being there with them – hot, dirty, and uncomfortable – you gain insight to their day to day challenges (and likely earn some goodwill for joining them in the trenches!). These are also opportunities to pick-up on unspoken and often unrecognized customer needs.

Uncovering the unarticulated need is often the key to unlocking breakthrough innovation for your customer. 

Unarticulated needs are generally those that are not mentioned in normal business interactions and may not even be recognized yet as a need by the customer. For instance, your customer might love your product, but find the packaging onerous. I recall an instance when we were the manufacturer providing a consumable industrial product to a remotely located plant. While at the site, a plant operator mentioned that the packaging for the product (individual boxes for each unit, individual bags within the box for each unit and a large box for every four units) added labor to replacement events and generated significant waste volume since they were replacing hundreds of units at a time. Additionally, the plant’s waste was deposited at a local landfill that was nearing capacity, so much higher future disposal transport costs were likely in their future. The plant operator wanted to know, “Was there anything that could be done to simplify the situation?” This led to the development of a returnable packaging system that eliminated all the individual packaging, greatly reducing replacement times and virtually eliminating packaging waste for our product. This was a discovery and innovation that likely never would have occurred had we not been present while the customer was in the process of installing our product.

Key Takeaway

The closer you are to your customer’s operations, the greater your insight to their perception of value. The disconnect between customer and innovator can often be profound. What looks good on paper can be cumbersome or inconvenient in real world application. Understanding how customers perceive value is the most direct line to providing successful innovation and failing to understand your customer’s value drivers will likely lead to failed innovation programs and lackluster offerings.

 Up Next in the Series: Failure to Adequately Resource Innovation