For the most part, consumers know what they find valuable. When you shop for a product, as a consumer, you can articulate what benefits you want and costs you are willing to give up to get those benefits. It also stands to reason that companies have a general idea of what that value proposition is; they know what you are willing to pay (costs) for a product (benefits). After all, companies hire smart marketers who know what consumers want. If this is the case, why are so few companies really good at defining value for their products in the market?Why are so few companies really good at defining value for their products in the market?
When we think about value, the equation that determines it is pretty simple; benefits minus costs equals value. If you have more benefits than costs, the product holds positive value. If costs are too high, prospects perceive negative product value. There is an old marketing adage that states prospects buy on benefits, not features. Why do companies like Apple, Walmart, Target and Amazon hit the ball out of the park on communicating value, while companies like Blockbuster and Nokia strike out? Successful marketing companies know which benefits drive positive value. Companies struggling to sell products aren’t as able to clearly articulate value. In my experience as a market researcher, one of the most common mistakes I see struggling companies make is assuming all benefits are equal for customers. To the contrary, our research shows consumers use three types of benefits as they relate to value; Foundational, Differential and Secondary. Of these three, foundational benefits are the most important to get right, because they contribute the most to the value equation. Unfortunately, they also are the easiest to get wrong. At Padilla, we define foundational benefits as product gains that are generally accepted by the market as requirements for any product to be sold in the market. They help consumers understand what the product is. The product cannot be considered a marketable product without foundational benefits.
The best way to think about this is when you buy a new car. Let’s say you are looking for a new car so you can drive to work in style and comfort. You have a price range and a list of features. So, when you arrive on the lot and see your dream car, your questions do not include “Does it run?” It is a new car, so of course the car runs! If a new car did not run, you would never consider purchasing it. Put another way, the fact that the new car runs is part of what helps you understand that it is a new car. What is critical to keep in mind is that this does not make that new car any different from other new cars. All new cars sold on reputable car lots run. Sounds pretty obvious, right?
Now, let’s put that foundational benefit idea within the context of Nokia. Nokia believed they could compete because their phones were lightweight, sleek and could provide clear communications. In other words, they competed on benefits that consumers used to define a mobile phone. The problem for Nokia was smart phones provided those same functional benefits (plus a heck of a lot more cool stuff). Apple redefined the industry by offering the smart phone and within a few years, Nokia was gone from the cell phone market. Think it can only happen to someone else? It happens more often than you think. How often does your company state, “We only sell high-quality products”? Of course your company’s products are high quality! Why would anyone even consider buying a product that is not high quality? The market will not accept a product unless it is perceived by prospects to have high quality. Prospects do not use quality to determine value; they use quality to define products.
Companies selling products with benefits that define the product, not differentiate it, are ripe for a competitor to overtake them.