global-ss-awards-1Globalization is putting a premium on an organization’s capacity to create and deliver value. In response, organizations are urged to become world class product or service providers. Here’s a contrarian view complete with a process for becoming a superior value competitor market by market.

The first step is to forget about becoming world class. Instead become “best in market” – by best I mean the market share leader. Think small, rather than big. World class is a lofty goal more than likely unattainable for most organizations. As such it becomes a goal that elicits a cynical response from employees that want specific objective criteria by which to assess progress. How do you judge world class? World class can be a vapid, meaningless phrase. Perhaps more meaningful was a phrase I heard at Kmart when a senior manager was asked about their competitive position he stated, “We’re no worse than anyone else.” Now that has some meaning.

tgssa2“Best in market” means that you are the value leader and can leverage this superior value into a dominant market share position. “Best in market” means that you dominate competitors in those markets that you are targeting. “Best” can be measured in terms of your competitive value proposition and in terms of actual market share.

How does an organization become “best in market”?

Becoming “best in market” – A Disciplined Process
Becoming “best in market” is a structured logical approach. The vehicle is Six Sigma Marketing (SSM) – a disciplined fact-based approach for growing market share in targeted product/markets by providing superior value. SSM has as its focus the creation and delivery of superior value and Gale (1994) has shown that superior value is the best leading indicator of market share.

SSM uses a modified DMAIC process familiar to all traditional Six Sigma belts. Thus it becomes a relatively easy transition from cost cutting and defect reduction to growing market share. What is new that SSM brings to the table is a unique set of tools to measure and manage value. These tools are designed to accomplish specific tasks associated with each stage of the SSM DMAIC process. Becoming “best in market” is the goal of Six Sigma Marketing.

The Modified DMAIC Process
The modified DMAIC process is and the tools are illustrated with an actual case example. The organization is a manufacturer of agricultural equipment.

DEFINE: In this stage the objective is to identify the specific product/markets that the organization will target. These product/markets are the competitive arenas that you will dominate. Two tools are very useful in the define stage: the Market Opportunity Analysis Matrix and the Product/Market Matrix.

The Market Opportunity Matrix

The Market Opportunity Matrix uses two critical factors to identify specific markets or segments for targeting – the organization’s ability to compete (horizontal axis) and the attractiveness of the market (vertical axis). The objective is to target only those markets or segments that are strategically and economically valuable to the organization.

The organization’s ability to compete is measured by such criteria as:

  • Do we have the right people with the right skills?
  • Do we have the proper distribution capabilities to reach the market?
  • Do we have the right product line (breadth and width)?
  • Financial resources to penetrate the market?

Attractiveness uses criteria such as the following:

  • Market size (units/dollars)
  • Market growth rate (units/dollars)
  • Post sales revenues (parts and service)
  • Competitive intensity

Based on the rating on these two factors, markets or segments can be mapped onto the MOA Matrix. Markets will fall into one of three zones. The green zone is home to markets that are both attractive to the organization and in which the organization has a strong ability to compete. Those markets that fall into the white squares correspond to those markets with average scores for attractiveness and ability to compete. Markets located in the red zone are those that are unattractive to the organization and for which the organization has a poor ability to compete. “Green markets” are the first to be targeted followed by the markets in the white zone.

The MOA Matrix forces teams to make assessments regarding targeting based on facts and insures that all team members are operating from the same knowledge base as the different evaluations are made.

The Product/Market Matrix

The Product/Market (P/M) Matrix takes the analysis of markets one step further by juxtaposing the two elements that drive revenues and market share: products and the people that buy them and answering the question, “Which products should we use to target the chosen markets?”

Product lines are listed on the vertical axis and markets that were analyzed using the MOA Analysis across the top. Each cell represents a potential competitive arena for the organization. The green cells (segment A taken from the MOA Matrix) represent the attractive markets for which the organization has a strong ability to compete. The yellow segments are the average segments while the red segment (E) is the unattractive segment.

Which products should the organization target to the different markets? Again, specific criteria such as the following might be used:

  • Margin size of the product
  • Post sales revenues
  • Number of competitors offering a similar product
  • Price competitiveness of the product

These and other factors can help identify which products should be the drivers of the organization’s strategic focus. This analysis enables the organization to identify the specific product/markets that become the competitive arenas for the organization. These are the value battlegrounds that will generate revenues and market share for the organization and make the organization “best in market”.
The MEASURE stage: For each targeted product/market a value model is developed – the principal tool for the measure stage.

The Market Value Model

The Competitive Value Model is a market – based model that captures the VOM (voice of the market). This model represents value as defined by hobby farmers (market) who buy smaller than 60 horsepower tractors (product). The VOM represents not only how your customers define value but also how your competitors’ customers define value. The model information comes from a survey of buyers in the targeted product/market. This is the information platform that drives the rest of the Six Sigma Marketing process and insures that value decisions are based on the market, not agendas or company lore.

Value is a function of three factors: quality, image and price. In this regression – based model, quality has the biggest impact on value (.518) followed by price (.381) and value (.101). This means that the biggest change in value will come from a positive change in quality as opposed to a decrease in price.

How do you change quality? This is answered by the list of CTQs (“dealer service”,” machine operation”, etc.) that are shown on the left hand side of the model. The numbers adjacent to each CTQ represent the size of their impacts on value. The biggest impact is that of “dealer service” (.229), followed by “machine operation” (.189), “machine productivity” (.149) and so on. The single biggest impact on quality and value will come from investments in improving or enhancing performance on “dealer service”.

The following table arrays the different competitors’ scores on the CTQs. This information points out the key strengths and weaknesses of the different competitors on their performance on the CTQs. Performance scores are measured on a 10 point scale (1 = poor performance and 10 = excellent performance). This information highlights the performance gaps of the various competitors.

XYZ has a performance disadvantage to competitor A on all CTQs and value drivers and numerous weaknesses with respect to Competitors B, C and D. There are only three XYZ advantages on mid level CTQs (marked in green) and several issues of parity (white).
CTQs can be broken down into even finer detail. The CTQs are the result of a factor analysis that groups questionnaire items (survey question responses) based on the similarity of how respondents answered them. The scores are based on the same 10 point scale mentioned earlier.

How does XYZ improve its performance on “dealer service”? Here is how the market defined “dealer service” and how they rated the performance of the different competitors. Again, XYZ has a significant disadvantage on all of the elements of “dealer service”. These scores provide a guideline for enhancement and improvement that will ultimately enhance the XYZ’s competitive value proposition and market share. For example, to improve performance on “dealer service” XYZ will want to address issues regarding:

  • Dealer responsiveness in solving problems
  • The problem solving ability of dealers
  • The ability of the dealer to do the repair
  • To complete the repair when promised

ANALYSIS tools are designed to assess the value gaps that the organization either suffers from or enjoys.

The Competitive Value Matrix

The principal tool is the Competitive Value Matrix formed by the two main drivers of value: quality and Price. The market means form four quadrants.

The Outstanding Value quadrant is home to those competitors that are judged to be providing superior quality at a highly satisfying price. This is the essence of value. Competitor A is the only competitor to be located in this quadrant and is “best in market” by both measures – their competitive value proposition and market share.

Competitors located in the Poor Value quadrant are judged to provide inferior quality at an unsatisfactory price. XYZ, competitors B and D are located in this quadrant. This is the “Death Valley” for organizations. Failure to move from this quadrant leads to erosion of market share.

Competitor C is found in the Discount Relationship quadrant based on evaluations of inferior quality but having a satisfying price. In other words, the brand is not very good but they don’t charge too much for it. This quadrant is often the entry point for many competitors trying to penetrate the product/market.

Finally, the Expensive Relationship quadrant is home to those competitors with a superior quality product but who are also charging a high price. No competitors in the current case are found in this quadrant.

The distance between Competitor A and XYZ is the value disadvantage that XYZ is suffering from. Their SSM efforts should concentrate on closing this gap. Conversely, Competitor A enjoys a value advantage and should leverage this advantage by investing more heavily in enhancing its performance on the main CTQs.

The Customer Loyalty Matrix

Another Analysis tool is the Customer Loyalty Matrix. Market share is a function not only of acquiring new customers but also retaining current customers. The Customer Loyalty Matrix uses the same format as the Competitive Value Matrix but instead of locating brands on the matrix, it maps groups of the organization’s customers based on the value they are receiving.

In this product/market, 24% of XYZ’s customers are telling them that they are receiving outstanding value while the remaining 76% express receiving a level of value less than outstanding. What does this mean to XYZ? The following table provides some insight into the issue of loyalty.

The Outstanding Value group is the most loyal and the least susceptible to a price offer from a competitor. Moreover, their willingness to repurchase is significantly and substantially higher than the other value groups. Put into words that managers can understand, 76% of their current customer base within this product/market is actively and passively shopping competitors for their next tractor. They are not likely to repurchase from this organization. Additionally, the willingness of customers to recommend their brand drops significantly as the value a customer receives drops (Net Promoter Score).
What is the basis of this rejection of XYZ’s brand? The following table details the nature of the problem facing XYZ.

The red circles identify areas of weakness that XYZ needs to target. The focus is on the Average Value Group and the Discount Relationship Group (57% of XYZ’s customer base in this product/market) since saving Poor Value customers is often costly and may not be economically worth it. Understanding the reasons for value failure can be very useful. These value failures will result from either systemic issues of individual issues (“I didn’t get what I wanted”). Systemic issues can lead to the identification of people, product or process issues. Overall, and as is predictable, CTQ performance scores decline precipitously as value declines.
Again, the level of detail can be elevated by analyzing the “dealer service” CTQ, the number 1 CTQ.

The red circles identify areas of weakness that XYZ needs to target. The focus is on the Average Value Group and the Discount Relationship Group (57% of XYZ’s customer base in this product/market) since saving Poor Value customers is often costly and may not be economically worth it. Understanding the reasons for value failure can be very useful. These value failures will result from either systemic issues of individual issues (“I didn’t get what I wanted”). Systemic issues can lead to the identification of people, product or process issues. Overall, and as is predictable, CTQ performance scores decline precipitously as value declines.
Again, the level of detail can be elevated by analyzing the “dealer service” CTQ, the number 1 CTQ.

The red circles identify some of the more glaring issues with respect XYZ’s performance on the individual items that comprise the “dealer service” CTQ. Again, this points to remedial options. How do you become “best in market”? Focus not only on acquiring new customers but also, and equally important, create loyal customers who will continue to repurchase from you.

The principal tool of the IMPROVE stage of the Six Sigma Marketing procss is the Modified Cause & Effect Matrix.

The Modified Cause & Effect Matrix

The modified Cause & Effect Matirx pinpoints specific people, product or processes for improvement or enhancement based on how the market evaluates the organization’s capacity to create and deliver value.

Constructing the C&E Matrix begins with an analysis of the CTQ gaps and their importance. The table displays the performance scores for XYZ and each of its competitors. In SSM, strategy is based on a targeted competitor (Competitor 1 the current “best in market” competitor). Clearly, while all competitors are important, it is the leader, in this case, that is the target.

The table displays the importance of the CTQs in the “importance” column. These numbers are taken directly from the value model generated in the Measure stage. The next five scores show the performance scores for each competitor. The column “value gap” shows the difference in performance scores between XYZ and the targeted competitor (Competitor 1). The last column shows the weighted gap score (gap difference x gap importance). Gap importance is a function of two factors, the actual gap difference in performance scores and the weight of the CTQ.

This analysis points directly to the “dealer service” CTQ as the principal “gap closer”. In other words, improving XYZ’s performance on “dealer service” will have the biggest impact on closing the gap between XYZ and Competitor 1. “Machine operation” is the next most important “gap closer”.

Making this improvement effort more effective and efficient requires breaking down the CTQ into its constituent items and performing a similar analysis on the items.

The VPC importance (CTQ item) is obtained by using the factor loading (the loading indicated the importance of the item to the overall factor). This is shown in Column 2 next to the individual item (Column 3). Performance scores for each competitor are displayed in the next 4 columns. Again, these are mean scores based on a ten point scale where 1 = poor performance and 10 = excellent performance.
The value gap is the difference between XYZ’s performance score and the score for the targeted competitor, competitor 1. Importance then is the product of the gap score x the VPC importance. This gives a weighted result taking into account both the actual difference in performance and the importance of the VPC. High scores (absolute value) are the targeted items for improvement or enhancement. In this case the top three are:

  • Technical knowledge of dealer service personnel (.63)
  • Ability of service personnel to understand your needs (.62)
  •  Ability of service personnel to answer your questions. (.55)

The focus of the CONTROL stage is twofold. First it seeks to monitor the organization’s competitive value proposition after changes the people, product or process changes have been made in the improvement stage. Are the changes having a positive impact on the organization’s competitive value proposition within the targeted product/market? If not, what needs to be addressed?

The second control initiative focuses on transactions or customer events. These transactions are the interactions that customers have with the organization on an ongoing basis and include:

  •  Sales experience
  • Repair experience
  • Customer support
  • Technical support
  • Billing
  • Problem resolution

These transactions are similar to the rivets on a plane’s wing. The loss of a rivet or two does little damage but after so many rivets fail the wing loses its integrity and the plane goes down. Customers can tolerate a small number of interaction or transactional defects but after a certain number will choose to go elsewhere. The goal of Six Sigma Marketing is to reduce “customer defects” to less than 4 per million.

Being “best in market” does not occur on a random basis. Rather it is the result of a systematic, disciplined approach that begins by identifying targeted product/markets, understanding how these PMs define value, identifying value gaps and value deficiencies, targeting and fixing the key causes of the problems for improvement or enhancement, and monitoring the changes these fixes make in the organization’s competitive value proposition.

The idea of value is not new. What is new is our ability to measure it and, with this measurement capability comes the ability to manage it. To do this new tools are needed. Value is the best leading indicator of market share. Being “best in market” means that you are the superior value provider and the market share leader. Six Sigma Marketing is the vehicle that can drive you to becoming “best in market”.

References

Gale, Bradley (1994) Managing Customer Value, Free Press, New York.

Dr. Eric Reidenbach is the Director of the Six Sigma Marketing Institute. He is the author of Six Sigma Marketing: From Cutting Costs to Growing Market Share (ASQ Quality Press, 2009).