“Service. Price. Quality. Pick any two”
Someone in a company I used to work at had written this old bromide on the white board in the conference room. Thinking like this is slowly killing this company.
They are a major national and international distribution company in their market space, and have been in business for over 100 years, with sales branches all over the world, and distribution centers strategically located throughout the US.
- Their stock price has fallen from a higher price, and been flat for five years.
- They are losing market share to competitors because of pricing, and in many cases, service.
- They are trying to grow through acquisition, but integrating the new companies is proving to be more expensive than the resulting benefit to the balance sheet.
Here’s the problem: Anyone who thinks the value proposition someone wrote on the whiteboard is still valid needs to get out of the way before they are run over by companies in their market space who are delivering on all three, and succeeding.
Companies who hold to this old chestnut send out memos to their regional and branch managers exhorting them to hold the line on pricing, and try to justify their higher prices to their own sales people (who know better, but are ignored) and customers by touting their largely mythical "higher quality and service.”
Here is the problem with this: if your products are identical, or even substantially identical, to those your competitor sells, any differentiation on quality is a delusion that exists in your own mind only.
And service – can we admit that we all need to get seriously better in this regard. Good service costs money to deliver, and the full costs can rarely be passed down to the customer. The best service is delivering a product or service so perfectly the first time that follow up service is never required. They way successful companies manage to deliver exceptional customer service is by cutting operating expenses to the bone anywhere that the customer is not directly benefitted, and pushing their investments where the customer can see them. (No – NOT a new headquarters tower!!)
Successful companies know that customers expect a great price on a high quality item delivered with great service – all three, not any two. Deciding to leave one of these parameters out of your value proposition in today’s high speed, Internet connected global marketplace is the recipe for slow suicide by Chinese water torture – the death of a thousand drips. And many of those drips have corner offices in the executive wing, if you know what I mean.
Stop managing to your stupid numbers, stop already with the metrics, and manage your business to meet your customers’ expectations, and by all means, drive your non-customer facing costs out of the business. This might mean killing some of your sacred cows, to eat their meat. This might mean losing headcount on the inside, where the customer does not see it, cutting the dead wood out of senior and middle management. If someone’s job is solely checking on the results of another group, sack them. They add no value anywhere, and are a cash drain. This might mean outsourcing software and IT projects that you are delivering slowly, ineffectively, and poorly using your own resources.
Spend your capital doing the one thing you do the best, and hire outside talent to do the many other things that other people do the best, control your costs, and spend your resources improving anything that touched your customer, and not a dime on anything that doesn’t.
Here is why the "pick any two" mentality is doomed.
Firstly, the main reason a company needs to deliver all three components of the Service – Price – Quality triad is this: You never can know which two the customer is choosing, if they are not really choosing all three. If you don’t deliver on all three, you automatically reduce your market.
Let’s say your company is delivering Service and Quality, but with a higher price. You automatically lose that part of the market that buys primarily on Price only, Price and Service, Price and Quality, or on Price – Service – Quality. This is going to be a large percentage of your available market.
When I was in sales and sales management, the sales trainers of the day taught that there actually five decision criteria that customers use when deciding on a purchase. The first is the reputation of the vendor, the second is the level of trust they felt for the sales person, the third is whether the product fully fit the perceived need or desire, the fourth was the time frame of the purchase, and the fifth, and last, is whether the price is perceived to be a fair value.
The problem is this: In a world where competition tends to drive everything to the level of a commodity, when all things appear to be equal, price is the deciding factor. Low price wins in a evenly competitive environment.
Plus, the Internet has created an opportunity for your current customers and future prospects to compare you and your competitors without having to deal with hour long meetings with yours or your competitor’s salespeople. And all your flaws, missteps, and bad product reviews will follow you forever. So the fact of them matter is you will prosper to the extent that you can be the company your customers wants you to be. I do not see very many companies that are even aware of this issue, much less driving their business model into the new paradigm.Share