How do you develop this critical understanding? The first answer is to supplement educated marketing judgments with carefully designed consumer testing. In so doing, companies can distill the near-infinite com- binations of features and product attributes possible to those that end-customers most value. Take car seats as an example. An auto- motive seat manufacturer has nearly limitless choices within a given budget for a seat set. For the same money, the manufacturer can add adjustable lumbar sup- port or an adjustable headrest. Interestingly, while research reveals that consumers place much greater value on the
adjustable lumbar support, most seats today are designed with adjustable headrests and no lum- bar support. That’s not under- standing the customer.
But there is a better process. Consumers can be asked to assign a value to every major option for a car seat, and tradeoff analyses can further refine the understanding of preferences. Manufacturers can match up indexes of consumer value against the approximate cost of each option, yielding a hierarchy of features from highest value (relative to cost) to lowest. For an economy car seat, only the top few features might be used, but on a seat for a luxury car,
Case Study: Harley-Davidson
Acquired in the 1980s by a Japanese company known for its cutting edge technology, design prowess, and manufacturing efficiency, Harley-Davidson was very nearly run into the ground. It turns out these modern strengths clashed with the traditional values Harley represented and its riders cherished. Harley owners wanted bikes that made them feel like a young Marlon Brando. They wanted a classic look and a rugged sound. Investment bankers and lawyers wanted to buy into the Hell’s Angels experience. All the manufacturing efficiency in the world was not going to supply that feeling.
In this case, there was more value to be gained from looking backward than looking forward. Harley-Davidson began selling its “throwback” mystique not only through its dealerships but also in the form of T-shirts, jewelry, and a chain of restaurants — and the rest is history. While the company aggressively streamlined its supply chain and strengthened relationships with dealers behind the scenes, it went “retro” in its market-facing activities, including its consumer Web site, building up revenues substantially.
The lesson: Harley-Davidson was able to stem its decline by refocusing on what its customers truly valued.
many more would be employed. Features would always be added in the order they appear on the list; if a seat had items from low on the list and was missing some of the top features, it would be evidence of less-than-optimal design choices.
The Internet, of course, facilitates this process by enabling cost-effective interac- tion with the end consumer. Priceline.com’s “name-your- own-price” methodology, for example, has allowed the travel industry to gain a better sense of the true “walk-away” prices that different consumers have for different products — and conceivably, even attributes within these products. That intelligence can be leveraged to improve design and expand demand.
Of course, building an understanding of demand is but one facet of a total value chain perspective. Companies also need to gain clarity on what drives their costs. A total value chain perspective looks at market returns as a fraction of assets deployed, with an eye to maxi- mizing those returns. This objec- tive can be partially achieved by cutting costs. But the greater part comes from finding out what cus- tomers really value, then produc- ing the products that will com- mand premium prices. Whereas a total cost-to-serve focus might well improve the bottom line, a total value perspective will beef up the top line as well.