This is “Introduction: The Value of “Sorting””, section 5.1 from the book Competitive Strategies for Growth (v. 1.0). For details on it (including licensing), click here.
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5.1 Introduction: The Value of “Sorting”
Kraft Foods’ Tang—the orange-flavored drink that Americans closely associate with astronauts and the space program—experienced 30% growth in 2009 in developing markets, including Asia, Latin America, and Eastern Europe. It is instructive to note how the firm has leveraged different kinds of value in achieving these results. In competing in any market, there is some basic value a brand must provide, including adequate distribution and certain levels of market awareness and understanding of the product. Other dimensions of value differentiate the product; in Tang’s case, it is a unique flavor and established brand equity. The company has new flavors, including mango variations in the Philippines and maracuja (passion fruit) in Brazil. As the brand reach was expanded, the company remained open to research and insight about unmet needs, and potentially yet-to-be-determined attributes. In China, they discovered both a strong belief that children’s hydration was important and required drinking a lot of water (up to 6 glasses a day) and that kids found water boring! Most significantly, though, they found a strong preference for single servings, leading to the development of single-serve powder sticks to address this unmet need. This new form of packaging was adopted in place of pitcher packs, which Chinese moms found to provide nonvalue (in being wasteful and expensive).
At this point in the book, we have established the challenges of growing in the competitive marketplace today, introduced the 3-Circle model, and explored the basic concepts behind it. As reflected in the Tang example, we have also reinforced throughout that in any customer market, there are different dimensions of customer value that can play different strategic roles for the firm. Different strategy and customer value frameworks over the past 30 years have identified categories of value in disparate areas of the literature. Cutting across those frameworks and adding unique insight around nonvalue, we can summarize these categories as follows:
Required but nondifferentiating attributes. There are certain attributes that a firm must have to play the game. What is important about these basic attributes is that (a) their absence leads to customer dissatisfaction, because all competitors have them, and, for that reason, (b) they do not provide a basis for differentiation. In Theodore Levitt’s words, a customer of strip steel not only expects a product that meets specifications but also expects the product has minimal requirements for delivery times, purchase terms, support, and ideas for improving efficiency. In contrast, the absence of these attributes leads to a significant drop in overall satisfaction.
Differentiating attributes. Kano’s model suggests that there are two types of attributes that may provide a firm’s basis for differentiation. The first are performance attributesAttributes that consumers expect but on which performance can vary., which are attributes that consumers expect but on which performance can vary. So while the Ford Escape Hybrid and the Jeep Compass are each characterized by fuel efficiency, the Escape gets a superior 31 miles per gallon. Performance attributes are those for which customers base their willingness to pay. But Kano’s model also defines excitement attributesAttributes that may not be anticipated by customers. as those that may not be anticipated by customers. These are attributes whose absence does not lower customer satisfaction but whose presence may well significantly increase it.
Yet-to-be-determined attributes. For hundreds of years, travelers carried suitcases. But there existed a latent demand for ease of transport. This was finally discovered and solved by a stewardess who jimmy-rigged wheels onto her suitcase. Other stewardesses followed suit, the luggage companies took note, and today it is difficult to find a suitcase that does not have wheels. Sometimes, potential new, desired attributes are known to both firm and customer. For example, for years, people walking around with a cell phone in one pocket and a PDA in another recognized the need for an integrated unit. But often, new ideas that better meet existing needs are a matter of discovery by firms (and customers!) who are continuously on the lookout.
There are three kinds of nonvalued attributes. Surprisingly, very important growth implications emerge from considering different attributes that are currently not valued by customers.
NonvalueAttributes that can be reduced or dropped with no loss in value.: Attributes that can be reduced or dropped with no loss in value. In a case identified in Kim and Mauborgne’s work, Accor developed a new hotel concept called “Formule 1” by taking out a number of dimensions of value they believed were not valued by a short-stay segment of the market. Accor eliminated fancy lobbies, restaurants and bars, workout rooms, and even the receptionist, who was replaced by an automated teller machine (ATM). They eliminated these values to invest heavily in the other attributes that were highly valued by this customer segment: quiet, clean rooms with excellent beds. Independently, the idea of eliminating nonvalue has emerged as a strategic theme in Jean-Claude Larreche’s interesting work on the Momentum Effect model discussed in Chapter 4 "The Meaning of Value".
NonperformanceAttributes on which our performance fails to meet expectations.: Attributes on which our performance fails to meet expectations. In the Tang example, the pitcher packs required a parent to make a full pitcher, which led to waste. This is a good example of a feature that can be corrected (i.e., eliminated or changed) and an immediate positive boost to customer value may be provided.
Low awarenessAttributes that may have value to customers but are largely unknown.. Attributes that may have value to customers but are largely unknown. It turns out that a very common reason why customers may see little value in a particular attribute or benefit is that they are simply not very aware of them.
In short, experience has shown that there is significant insight in recognizing these different categories of value in developing growth strategy. But what is needed is a way to simultaneously represent all of these categories of value in a manner that can be easily taught within the organization in order to get team members most quickly focused on the important dimensions of growth strategy.
We will describe a case study in order to illustrate how the 3-Circle framework provides the basis for integrating all of these value concepts in an actionable way.