The core of each business strategy centers around identifying and addressing those attributes and values your customers care about most.
In the Strategic Blueprint for Business World Domination I outlined three fundamental questions for each business that wants to achieve sustainable growth. In this post we continue expanding on the opportunity question. When you figured out the raison d’etre of your business – the job to be done – and have carefully considered the business macro- and micro-environment, it’s time to move forward with the business strategy.
Business Strategy Definition
In a blog post I wrote one year ago I used the following definition of business strategy.
“Thus, we can propose the following definition: a business strategy defines the unique set of specific attributes the firm chooses to focus on aiming to achieve superior long-term return on invested capital.”
While the definition above still holds true, I’d like to expand on that definition and be more specific.
“A business strategy sets out to identify the existing and potential attributes or values of a product or service, choose those attributes and values your target customers are willing to pay for, and focus on achieving market-leading performance on those specific attributes and values.”
Notice there are four important aspects of the business strategy.
- Identification all the existing and potentially new attributes that your target customer may or may not care about
- Championing of those attributes you believe the customer values most and therefore is willing to pay for
- Satisfying those attributes your customer deems as a minimum requirement but isn’t necessarily willing to pay for
- Eliminating those attributes your customers don’t value at all
The identification process is rooted in the job-to-be-done analysis. The better you understand what your customer is trying to get done, the more specific you’ll be identifying the attributes. Note that we mention both the attributes your customers care and those they don’t care about as both are significant. In strategy formulation it’s important to not only know what you want to do but equally important to know what you don’t want to do.
Eventually you should have a list that comprises of three distinct types of attributes: the ones that you absolutely need to get right (champion), the ones you need to have (satisfy), and the ones you shouldn’t have (eliminate).
Categories of Attributes and Values
We can identify two broad categories of attributes and values and further segment into five distinct categories.
- Functional Attributes
- Attributes related to quality (how well does it get the job done?)
- Attributes related to reliability (how long can it perform at the right quality?)
- Attributes related to convenience (is it easy to acquire or hire?)
- Emotional Attributes
- Attributes related to personal needs or desires
- Social Attributes
- Attributes related to social needs or desires
Generally, the functional attributes are the most important to any product.
When thinking about attributes and values related to the business strategy formulation, it’s useful to link two related topics. First, the Blue Ocean Strategy and second the relationship between Value and Price in marketing strategy.
Blue Ocean Strategy
Blue Ocean Strategy is a business theory and published book written by W. Chan Kim and Renée Mauborgne, both professors at INSEAD. The theory asserts that business should systematically focus on unexplored new market areas (blue oceans) rather than endlessly compete in existing markets and industries (red oceans).
Red oceans are red because they feature cutthroat competition between companies targeting the same customers with similar products. The companies fight for market share by constantly trying to outperform their rivals. As more companies enter the market space, the prospects for profits and growth come under pressure. The cutthroat nature of the rivalry makes the market blood red.
Blue oceans are blue because they untainted by competition. They are in fact unexplored markets. The demand is created rather than competed over. Neither the total market size nor the profit formula is set in stone, meaning there’s plenty of room for growth and profit.
The cornerstone of Blue Ocean Strategy is Value Innovation. Value innovation is the simultaneous pursuit of differentiation and low cost, creating a leap in value for both buyers and the company. The point of value innovation is to make the competition irrelevant by reducing the total cost as well as increase the overall value. Cost savings can be achieved by eliminating and reducing the attributes an industry is currently competing on while value is lifted by creating attributes the industry has never offered.
This is very much aligned with the process outlined above. Cost savings are essentially a satisfying the identified attributes the customer doesn’t really care about but deems a minimum requirement. Satisfying doesn’t mean matching the industry standard, but in fact matching the customer expectation. Value lifting is championing the new potential attributes that the customer cares a lot about.
On the Blue Ocean Strategy website, you can find plenty of useful tools to help you explore the framework. One tool I find particularly useful is the Strategy Canvas which visually captures the difference between current market landscape and the future prospect of your business strategy.
Value and Price
In a blog post titled Value and Price Dynamic, I covered the dynamic between three distinct perspectives:
- The firm’s perspective on the value offered
- The customer’s perspective on the value perceived
- The firm’s perspective on the price
Whether a customer is willing to pay for your product or service depends on whether they believe to capture a significant amount of value. That value is the difference between the value perceived by the customer and the price to pay. The higher the customer incentive to purchase (CIP), the more likely the customer is to purchase.
From a company perspective, the goal is to maximize the value perceived while minimizing the cost. This can be achieved by following the process of Value Innovation as proposed in the Blue Ocean Strategy or by following the steps outlined earlier in the post.
- Identification of attributes will help you understand what the customer perceives as valuable and what they perceive as not valuable
- Championing attributes ensures that the customer will perceive your product as more valuable than competitor products as you offer the best performance
- Satisfying attributes ensures that the customer isn’t paying for things they don’t inherently find valuable while avoiding removing attributes they deem a necessity. These are crucial attributes because including them doesn’t add much value but excluding lowers the value significantly
- Eliminating attributes ensures that the value gap between the firm’s offered and customer’s perceived value is low, and reduces the overall cost
As the business is increasingly proficient at identifying, championing, satisfying, and eliminating those attributes and values the customer cares and doesn’t care about, two things will happen. First, your product or service value proposition becomes increasingly unique in the marketplace and more difficult for competitors to copy. Second, you become increasingly more proficient at optimizing the total cost ownership of the specific set of attributes that makes your product unique. This makes it difficult for a competitor to copy your product with a lower cost.
With the right business strategy and the right execution, inevitably your business will develop inimitable sustained competitive advantages and economic moat.