An organisation’s success depends on the nature of its relationship with its customers.
How customers view your company is key to how they choose to interact with you.
Thinking of an organisation only in terms of its staff, its products or its processes can hide important strategic aspects from you.
1. Efficient organisations: High Value but not Unique
Organisations that produce something of value are going to have a market for their products.
Their customers, however, have a choice between many suppliers. For example, car insurance is much the same between providers.
Your supermarket shop is going to have more or less the same things between major supermarkets.
In this quadrant, the winners are the ones with the lowest delivered price, which means they are the most efficient and with the lowest costs to deliver their service.
Customers are likely to go through tendering to work with organisations in Quadrant 1 and pick the cheapest one that does all the things they need.
One more thing about this quadrant – if you reduce your costs by becoming more efficient, the customer benefits in the form of lower prices but you don’t keep the savings in the form of higher margins.
This is why textile mills in the developed world went out of business. All the investment they put into reducing costs resulted in lower prices for consumers, but the companies themselves remained low margin and unattractive businesses and eventually closed down.
2. Contract based organisations: Low Value and not unique
If customers think that what you do has little value and is not unique then they have no incentive to work with you on anything other than a contract basis.
For example, many companies think of cleaning services just as something that needs to be done, but there are many companies that can do it.
The chances are that they will agree a contract with a cleaning company. That contract will continue as long as the facilities stay clean and the terms of the contract are fulfilled.
Over-delivering against the contract may not result in anyone noticing, but under-delivering – having facilities that are dirty – will probably result in complaints and having the contract terminated.
3. Stuck organisations: Unique but of low Value
Your organisation may produce something unique, but unless there is a market and customers perceive value in it, you are likely to be stuck with early adopters and find it hard to get more customers.
Many products fall into this category – there are now museums of failure to products such as Harley-Davidson Perfume.
In the city of Ann Arbor, Michigan, GfK Custom Research North America has a storehouse of failed products ranging from microwaveable scrambled eggs and TV dinners sold by Colgate to Clairol’s Yoghurt shampoo.
Many of these products were unique but perceived as having low or poor value and were withdrawn from sale within weeks or months because no one would buy them.
4. Growing organisations: Unique and with high value
Organisations that do something unique and are thought of by customers as delivering value are likely to be able to maintain higher margins than others, invest more into their businesses and attract more customers than their competition.
Apple is probably the poster child for this category. The company is sitting on $250 billion in cash as it brings in profits every quarter of over $10 billion.
This happens becuase its products are unique and it has customers that love what it does and are prepared to pay a premium to buy its stuff.
Warren Buffett has made a career out of buying businesses that have above average earning power – and credits managers with being able to get extraordinary results from ordinary businesses.
In summary, how your customers see what you do is crucial to getting the relationship right with them.
If you do something that is currently seen as low value and not unique, the only option, if you want to grow, is to work on changing your customer’s perception of what you do.
On the other hand, if you can deliver the best service, at the lowest price, working in a contract based business or in a business where you are the lowest cost provider can still work for you.
The place you don’t want to be is where your ideas are unique but no one wants to buy from you.