Notice the title starts with Problems? Without a problem, you can’t have a solution and without a unique solution that delivers value and discourages competitors, a company can’t grow. Let’s begin by considering how problems are identified, how the value of problems is ascertained and what happens to problems over time.
What is a Problem?
A problem is a challenge or issue faced by not only your customers but also their customers and end users in a selected value chain. It’s something that needs to be addressed to benefit the customers’ business or manage cost along the value chain. A problem is what those along the value chain tell you it is. Your perspective and perceptions don’t determine the problem. Your customers and others along the value chain determine the problem. High quality VOC work goes a long way in removing your perceptions from the process of identifying problems and allows you to listen clearly to what you’re being told by everyone along the value chain.
Is it Worth it to Solve the Problem?
Your ability to quantify the economic value of a problem determines which problems make sense to solve. Value is the sum total of the economic impact of the problem along the value chain. Say the problem is one of manufacturing downtime with a value chain participant, not necessarily your customer. The problem is that something is causing the production line to stop. The economic value is the cost incurred when the line stops unexpectedly, such as the value of the work in process that must be scrapped, the potential revenue lost while the line isn’t producing goods and the impact delayed shipments has on those downstream of the manufacturer. If the manufacturer keeps extra inventory on hand to address these hiccups, that’s a component of the value calculation as well. Value is not such things as incentives provided to distributors to drive sales of your product one month or the next. Value is something that can be calculated, not waved at. It’s this understanding of the quantified economic impact of the problem that determines the outcome of a pricing conversation. Often times, a purchasing agent knows more about the value of the problem than a sales person. What do you think happens to a pricing conversation if it turns out the vendor knows as much or more than a purchasing agent?
What Happens to Problems?
To grow, a business has to identify problems to solve. When a problem is first identified, the initial solution is usually seen as a specialty offering and priced at a premium. Over time as competitors enter the market, the specialty aspect of the initial offering wanes and the market becomes commoditized. To drive volume, the price of the offering must be reduced, because so many alternatives exist to address the same problem. Do you just accept that the offering is now commoditized and the problem over-served? Many do.
However, the market is a dynamic! It changes. As problems are addressed, new ones arise. If so, why do companies allow the problems and the solutions to get stale? Is it because companies get lazy and complacent? Is it because companies cut costs by cutting people not directly involved with making and selling today’s products and services? Is it because companies believe innovation lies in research and development? Yes, yes, and more yes!
Where in all this do we find that part of the organization with the skills to identify problems and determine the worth of the problems? Weren’t they the ones just laid off to pacify investors or maybe your organization doesn’t possess these skills in the first place?
A Story About How Problems Change
An industrial client was trying to determine if it was worth it to maintain a position in a long-standing market of theirs. The client had been supplying the market on a sporadic basis for many years. By soliciting input from their customers, the client was told that their business model was insufficient to support a position in the market. Upon modifying their business model and demonstrating their willingness to listen to customers, the client also learned that their offering was the preferred solution in the market. The client capitalized on this knowledge by stabilizing their business model and increased their prices with little push back from the market.
Further, with a the availability of the preferred offering stabilized, customers began making requests of the client to upgrade the offering which hadn’t changed in years. The client had been counseled to be proactive and continue to solicit input from the market once the new business model was implemented. Unfortunately, the client had not done so. Having to react was initially costly as resources were inefficiently expended to address the flurry of customer requests.
Positive Market Reaction
It is interesting how the market reacted after seeing the client listen to them. First, the market only wanted to discuss a poor supply situation. The client made the changes necessary to address this problem. Then customers shared their preference for the client’s offering. Finally, customers came back to the client again with requests to upgrade the offering. The customers were engaged with the client because the client demonstrated a willingness to listen and address the problems in the market.
What was once believed to be a commodity, was actually a unique offering that commanded rich margins. Without understanding the problems in the market, the business missed capturing a considerable amount of profit over an extended period of time. Fortunately, once they learned that these problems were their engine of growth, the client was able to modify their behavior and capture the profit rightly due them.
What Do You Do About Your Problems?
Maybe you’ve forgotten what problems your offerings address. Recognize that needs in markets change and even though an offering continues to be bought by your customers, maybe, just maybe, the need your offering addressed has changed. You may have an opportunity right now to update your offerings to capture more value.
Looking at the problem or problems from your own perspective has limited value. Who knows the problem best – you or the one with the problem? It’s not about the next great solution. It’s about the next great problem and how you solve it!