The Value Equation Dilemma

December 15, 2020
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Two events occurred last week that illustrate, what I believe to be, a systemic issue faced by many companies here in the UAE and the broader GCC.

The first was a conversation with a retailer who explained how frustrated he was with the last 3 design firms he had worked with and his unhappiness with their work. When questioned further about his working relationship with these firms, he revealed that he had paid them nothing, provided no product plan or business model and had no clear brand strategy. Despite all of this, he was still unclear as to why they didn’t fully grasped his vision and, as a result, felt that he received no “value” from what they had produced.

The second event was a personal experience in an electronics store, where I asked a salesman to explain the difference between two printers with significantly different prices points. His response: “about 450 Dirhams”. This was a perfect opportunity for him to outline the product/feature benefits of the more expensive printer and upsell his customer. However, sadly, his understanding of the product was solely based on price. Any technical or functional benefit was beyond his understanding of “value”.

Both conversations reflect a common disconnect between the components of the value equation and their impact on one another. This issue is widely misunderstood to the detriment of both consumers and retailers.

What is value; and how can it be defined? To be clear, let’s define it and its constituent components, in very simple terms:

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The challenge is the proportional dynamic between quality and price. If you reduce price and quality in equal proportions value remains constant. However, if you reduce the price by 25% but reduce the quality by 50% you actually receive less value, even though the price goes down.

As notable strategist Ross Holliman rightly says, “the math is simple . . . it's the execution that can be challenging.”

From a consumer’s perspective, value is more accurately described as:

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In this era of low-cost, offshore manufacturing, consumers are looking for goods or services that actually deliver real value, not just low price. I recently had a choice between two small stepladders, one dirt cheap and one more expensive but much better quality. In a moment of weakness I bought the cheap stepladder. It broke the next day.

There was no value in that purchase at all. In fact, much like the retailer with the unusable design concepts, the transaction created negative value since it produced zero benefit but cost me money and time. Furthermore, the experience has eroded the brand equity of that retailer as I now see them as a supplier of poorly made products, regardless of the other choices available. In most cases you can’t deliver excellence without both time and money.

As the saying goes, “Fast, cheap, good: pick 2”.

The core issue at stake, for both retailers and consumers, is that there is very seldom an effective, fast and cheap answer. In order to secure maximum value in store development, retailers must provide resources in proportion to their value expectations. For consumers, there are simply too many choices and too much information available to contrast and compare retailers. Why would they favour a poorly conceived or executed retail offering when there are retailers who have spent the time and money to carefully craft an offering that is better suited to their needs and/or lifestyle?

The most common comment we receive is, “I’m still on a very tight budget, what do you do if you simply cannot afford the full comprehensive brand program”. The answer varies but here are 3 general solutions that are universal and can really add value.

  1. The Halo effect: pick one important, highly visible aspect of your store/restaurant/office/hotel and do it very well. It can be the cash desk, window merchandising, lighting, reception area, ceiling, anything you like, but do that one thing the best you can. People tend to overlook 10 little improvements, but they will notice the one big idea that makes a difference. Their overall impression of the rest of your store will improve.
  2. It’s how you tell the story: a communications (or signage) program is often the most time and cost effective way of getting your value proposition across to consumers. Many times we meet with retailers who have a great story but it’s not clearly expressed. Narrow down your focus to a few key messages that are unique and compelling and put them front and centre.
  3. A WOW entry: there are two parts to a mall - public (common area) and private (tenant) space. A key success factor is convincing shoppers to cross over into your space, to change them from pedestrians to shoppers. The trick is you only have a few seconds to make your case. One way to do that is make the entry merchandise presentation dynamic and irresistible. When they walk by, they should look in and go “wow, let’s go in there!”.

In summary, the true meaning of value is often misunderstood and often leads to process inefficiency, missed opportunities, wasted time and ultimately, unsatisfied customers. The GCC market is evolving, quickly moving from an emerging market to a developed market. The competitive dynamics in developed markets are more sophisticated and the lesson to be learned is that there is no quick and easy way to develop a retail model that is focused and effective. There are certainly shortcuts, but very few of them create value for the retailer or the consumer.

You’re standing in an elevator. An important potential business partner steps into the elevator with you. He turns to you and asks, “what is the real value that you provide?”.

You have 15 seconds to answer. What will you say?

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