It's Not Luck - Eliyahu M. Goldratt [64]
“Bring the beer.”
The lunch crowd has cleared out, and the place is relatively quiet. Our waiter is gone. Trumann goes off and returns shortly, frosty mugs in hand.
“Excellent. Thanks, Brandon.” I take a big swallow, wipe off my mouth and start. “In order to significantly increase sales we have to increase the perception of value of the market for our products.”
“Yes, if you can do it,” Brandon agrees. “It’s much better than reducing prices.”
“Usually we think that in order to increase the perception of value of the market we have to come up with new, improved products.”
“That appears explicitly in our tree,” Jim concurs. “And you know how much I dislike this approach. Considering the huge investments and the low chance of success, it simply doesn’t make any business sense. I always say, let the competitors pave the way, we’ll follow.”
“There is another way,” I say. “A way that does not involve investments or high risks.”
“Now you’ve piqued my curiosity,” Jim admits. “I’m all ears.”
“We can see the alternative way when we examine what Pete has done. He didn’t touch the physical product, he upgraded something else.”
“What do you mean?” Brandon asks.
I try to explain. “From the supplier’s point of view, the product is the actual physical product. This view gives limited options for improvement. Look at it from the market’s point of view. From the market’s point of view the product is much broader. It includes the service that goes with it, the financial terms, the guarantee. . . . The product is the entire offering.”
“Makes sense.” Brandon is slowly nodding his head.
“All suppliers know that,” Jim is more critical. “Look how much importance is given to customer service these days, to due date performance, to short lead times.”
“Nevertheless,” I argue, “when we, the suppliers, talk about upgrading the product, instinctively it translates into investments in engineering, equipment, and massive amounts of time. What Pete noticed is that in order to drastically change the perception in the eyes of the market, he doesn’t have to upgrade the physical product. He can change the periphery, the section of the offer that is not the product itself. And this, my friends, can be done with almost no investment, and very quickly.”
Jim doesn’t seem enthused. Far from it.
Brandon is more polite. “I’m all for it,” he says. “However, Alex, is this practical or just a theory? I mean, it sounds great, but there’s a problem. How are you going to find out which changes in the offering will have a big impact on the clients? Changes that your competitors have not implemented yet?”
“Oh, that’s easy,” I smile. “But let me start by giving some background. Remember what is really determining the perception of value of a product in the eyes of the market? It’s not the effort to produce it, it’s the benefits derived from having the product.”
They nod their heads; we’ve discussed this before.
“We know that there are two types of benefits. Adding something positive or eliminating something negative. Look at any advertisement. Look at how a car is advertised. It’s comfortable, reliable, or comes with a great factory rebate. If you noticed, only the first one, comfort, is an advantage. The other two are the elimination of negatives.
“What is the meaning of reliable? You won’t have to take the car to a garage as often. Reliability is not a plus on its own, it reduces a negative that is inherent in having the product.
“A price reduction, or factory rebate, is the same thing. Paying is an inherent negative that comes with the product. But, if you buy ours, it will cost you less.”
“This distinction between plus and less negatives—this minus minus—is quite interesting,” Jim chuckles. “But why do you mention it?”
“Because you are putting me under time pressure. I believe that the more powerful way to increase the perception of value of the market is through bringing