StrategyStreet and the Board of Directors
PRODUCTS AND SERVICES
4. What value improvements must the company make to reduce its shortcomings versus competition?
A Core customer the company already has is highly profitable on any continuing sales. The most expensive Core customer to sell is the one the company once had but who left dissatisfied for some reason. Before it considers any other product or service innovation, the company should reduce the occurences of these unfortunate transitions from satisfied current customer to dissatisfied former customer by correcting the reasons for customer dissatisfaction. If the company eliminates some or all of the reasons for its Negative Volatility, it steals a cost efficient march on its competition by losing less market share than they do, at very little investment.
These company value shortcomings fall into one of four categories: Function, Reliability, Convenience, or Price. Function represents the features of the product, what it does for the customer. Reliability represents the quality of the company's delivery on the promises made or implied to the customer. Convenience represents the ease with which the customer may purchase from the company. Price is the cash equivalent the customer pays for the product.
The company faces different degrees of difficulty in correcting shortcomings in each category. Price corrections can be very fast but also very painful for the top, and bottom, line. Most companies can correct Function shortcomings easily – once they make up their minds to do so. Convenience problems are the next easiest to correct, though not necessarily easy. Most difficult are Reliability shortcomings. These attack the heart of the customer's relationship with the company and cause the most long-term damage. On the other hand, industry-leading performance on reliability undergirds the performance of many industry-leading companies.
Difficult as these corrections may be, they are essential if the company ever expects to attract new Core customer sales. You can't win a foot race on crutches. You also must understand company shortcomings that might be hidden in the normal course of serving most customers. A successful building products company enjoyed a high quality and profitable distribution system selling to installation contractors. Still, it watched some of its key contractor customers ebb away to "big box" retailers who were establishing contractor programs. Since the company did not offer its products through these "big box" retailers, it was excluded from any of their purchases.
For further discussion of this question, see:
Basic Strategy Guide Step 14: Determine the reasons for the Company's "hidden" Negative Volatility.