- No Big Difference There will be times when two (or more) competitive product or service offerings deliver effectively the same value to a customer. Often, the seller’s focus on dollarization will, in itself, be enough to break the tie (as this discipline demonstrates a focus on the customer’s economic well-being). But if a company regularly finds that its incremental value to the customer is inconsequential, the marketer must evaluate its offering and seek enhancements that create new customer value.
- Regulatory Checkbox There are some products that businesses are required to purchase to satisfy a government regulation. If the product does nothing else but to satisfy the letter of the law, and other products are available that can perform the same function (e.g., safety signage), there is little room to create value.
- Unmaking the Omelet Once you mix the onions, cheese and eggs, it’s difficult to separate the ingredients of an omelet. At times, a product will be but one of many “ingredients” in a customer’s business formula. The business creates value due to its use of all the combined ingredients, but the downstream impact of a single "ingredient" might be difficult to track. Further, each ingredient needs all the other ingredients, so dividing the credit for value creation becomes unwieldy.
- Degrees of Separation Similar to the omelet scenario, a product may create a small impact that is several degrees of separation away from the final value-creating event. Again, tracing the allocation of final value back to that early input is a challenge that may prove unworkable. Your product may in fact contribute to a Dollarized outcome, but not before several layers of other products and services have their say. Distance and separation from the final outcome may cause the customer to discount the impact your offering contributes.
- Chance in a Million Some products create value by helping customer’s avoid rare, but costly (and sometimes catastrophic) problems. For example, consider a seal company selling to an aircraft maker. If the seller demonstrates superior seal durability and persuasively correlates that durability to reduced maintenance costs, he would have a good chance of success. But if the same seller then tries to claim additional value for the reduction in future costs due to catastrophic plane crashes, his dollarization attempt might be tossed aside. This is because the probability of that future event is so slim, and the timing so unpredictable, it is unrealistic to expect a customer to ascribe specific value in advance. This is not to say that there is no real probabilistic connection between the seal and the ultimate likelihood of catastrophic failure. There may be. But the connection may be too tenuous to merit real financial measurement.
- What is Life Worth? Sellers of certain products that deliver benefits in the areas of health and safety may find that the value they create, though real, may be difficult to use in selling. For example, I have seen medical products companies attempt to dollarize – to physicians – the value of reducing the likelihood of a catastrophic malpractice claim. Though technically all parties may agree to the analysis, the physicians involved refused to address an issue of human life in strictly financial terms. Likewise, a marketer of commercial door hardware found that the improved reliability of its products could improve the safety of, say, a college dormitory. But getting a college official to agree to a financial value for the potential reduction in harm done to students proved nearly impossible.
Wednesday, July 29, 2009
Unmaking the omelet and other situations that may make Dollarization difficult
As enthusiastic as I am about the opportunities dollarization can present to a marketer, this approach is not without limitations. There are certain situations where dollarization may not be appropriate, feasible, or economically worthwhile. This is not to say that dollarization of real benefits is not always theoretically possible. It is always possible, just not always practical. Following are a few common contraindications.