Market Value Solutions

Virtually all Six Sigma gurus opine regarding the importance of the voice of the customer (VOC). Many organizations, however, simply pay lip service to customer needs. Most of the information that drives their Six Sigma deployments is internally generated either from “reliable sources” or more likely “myths” and customer “lore”. Here are a couple of points that you might want to consider if you are serious about using the VOC to drive your Six Sigma initiatives.

• First, there is typically more than one VOC. Most organizations serve more than one group of customers. Breaking these customers down into more homogeneous groups (markets or market segments) has a major benefit. The clarity of their wants and needs is crisper, more understandable, and more actionable. By focusing on markets or segments you eliminate one of the sources of measurement variance – between group variance – and deal only with within group variance – the two sources that make up total variance. This makes your measurement of customer CTQS (critical-to-quality factirs) more focused because the standard error of the mean (a measure of variability) is likely to be smaller. You have eliminated a portion of the noise that can confound interpretation. Second, the VOC is dependent not only on segments but also the products or services that these segments use. Men buying sports cars will have different needs than women buying minivans. The criteria they use to evaluate the different autos will vary significantly. Failure to capture the VOC at this level of granularity can lead to wrong conclusions and greatly warp your analyses.
• Second, if you are seeking to use Six Sigma as a tool to improve your market performance (increase top line revenues or market share) you will need to listen not to the VOC but to the VOM (voice of the market). Market share is won or lost based on the competitive dynamics of the marketplace, not solely the whims of your own customers. Customers are won either as new entrants to the market or as acquired customers who have chosen your product or service because of your superior value proposition. Consider what happened to Cadillac and AT&T during the 1980s. Both organizations were enjoying strong customer satisfaction scores among their own customers but were losing market share to their competition. What was happening was that these organizations were focusing on the VOC and not the VOM. Had they been focusing on the latter they would have understood that their competition was providing superior value and that they were losing customers to these competitors. Focusing only on the VOC can produce misleading guidance.
• Third, some product/markets (markets/segments that use specific products or services) are worth more to your organization than others. It is not uncommon to find organizations investing in product/markets that are actually unprofitable. Your Six Sigma initiatives are one such investment. Prioritizing product/markets based on such criteria as:
o Margins
o Competitive intensity
o Market share
o Market growth rates
o Synergies with other product/service offerings
insures that your organization is not wasting its resources investing in “dry holes”. Picking those product/markets that are most important to your future economic growth insures that your Six Sigma initiatives are congruent with your overall growth strategies. These are the VOMs that you will want to listen to.

A couple of questions: Does your organization have an effective market segmentation schema and do you prioritize your product/markets based on economic opportunity?

At a recent meeting of manufacturers, a question arose regarding the importance of price. One participant bemoaned the need for reducing price to stay competitive. He argued that competition was compelling him to reduce price and this, of course, was hurting his margins. When asked why price cutting was the only option he replied, my product is a commodity. It is undifferentiated from the products of my competitors. There was a lot of head nodding, indicating the apparent universality of the issue.

What to do? The quick answer to those not in this situation is simply don’t get into this situation. Once you fall into the commodity trap it is extremely difficult to get out. You have taught your customers that there is no difference between you and your competitors. The only thing that can differentiate you is price. This starts a downward spiraling falling further and further into the commodity abyss. I asked the gentleman who brought up the subject how frequently he talked with his customers. Do you clearly understand what it is that they value? Did he understand what the specific critical-to-quality factors were? Could he prioritize them in terms of importance to the customer? He offered a couple of answers, each of which was contested by the other participants. While there was unanimity about the nature of the problem, there was no unanimity regarding the nature of the CTQs and their importance. In other words, there was considerable doubt as to whether this manufacturer, or any others present for that matter, really understood their customers!

Value is defined as the quality of the product or service relative to the price of the product or service. Too often, companies that think they have a price problem really have a value problem. Think about it. When customers want a price cut they are actually telling you that they do not think that the quality you are providing is worth the price you are charging. Is this a pricing problem or is it, in actuality, a value problem?

The commercial banking industry is a classic example of an industry that has actually managed itself into a commodity position. With little differentiation among offerings, be they checking accounts, credit cards, savings accounts, mortgages, etc. the only variable left to manipulate is price or rates. They have taught the banking public that there is no difference among banks – a bank is a bank is a bank – similar to pieces of corn or other commodities.

Understanding how customers define quality and value is critical to non-price competition. These CTQs will not be limited solely to product or service characteristics. They will include such factors as ease of order placement, order confirmation, on-time delivery, repair capabilities, technical support, correct billing etc. Too often these factors are overlooked because some organizations, especially manufacturers are very product oriented and not customer focused. The point is, these are customer defined CTQs and not the guesses of internal personnel. Some people will tell you that some information is better than none. Some information, especially if it is erroneous, can be worse than none.

Two questions: What are your customers key CTQs and what is their order of importance?

For more about this subject see: www.marketvaluesolutions.com.