Thursday, August 5, 2010

Purpose-Profit balanced Value Strategy

If you have been following my last 10+ blogs closely –You would have observed a consistent message – Purpose-Profit balanced strategy. On the other day, one of my friends, outside the business world made a casual comment – “It all sounds great to keep pounding on this purpose message – but what does that mean to us (the normal consumers) in terms of us getting a better value from the products/services we buy from these corporations/retailers”. On the surface – it sounded like a casual statement – but when I looked at it carefully- I quickly realized that this is a key question most consumers across the board are asking today - and so, I spent some time analyzing - what do consumers mean when they say "Value". More specifically, what is Value and where does that fit in to this purpose-profit balanced strategy? Is value and low cost are synonymous?Does that mean Corporations need to cut corners and sacrifice quality to offer their products/services at a lower price point? Does that mean every corporation/retailer must have a purpose-profit balanced value strategy?

With all of these questions in my head - I stepped back and classified value in three dimensions from any corporation/retailer standpoint –

  • Value to external stakeholders (investors, suppliers and partners) – P&L or PROFIT focused.

  • Value to internal Stakeholders (ethics, sustainability) including the code of conduct – Employees and Community (E&C) or PURPOSE focused.

  • Value to consumers/customers – Products and Services (P&S) focused with emphasis on both PURPOSE & PROFIT.

Within each of these dimensions – the degree of value again varies depending upon how it is being perceived by the players/owners of the respective dimensions. For example, some products/services are perceived more valuable than others depending upon how consumers view them within the context of their ' life situations and experiences -and so, value is not necessarily always low cost or lower price point- which made me to realize the importance of coming up with some common value definitions in these three dimensions.

  • Value from consumers standpoint is “… the proposition of experiencing the “good enough” product/service consumption attributes (it varies depending upon the product/service & for food/beverages it includes, but not limited to - taste, texture, nutrition etc.) within an acceptable price point that is accessible and relevant to their life situations and experiences.”. In other words, the term value to consumer is the summation of all the experience attributes divided by the price they are willing to pay.

Consumer Value Equation = Top Experience attributes/Price

  • Similarly, value from external stakeholders or P&L dimension standpoint is spread across four perspectives (as identified by Kaplan and Norton in their BSC) with a chain of cause and effect relationship: The continuous improvement in core business portfolio elements (internal business processes, products, services and assets etc) creating an improved financial value to key stakeholders (investors, suppliers and partners).

External stakeholder Value Equation = Financial KPI from the four perspectives as outlined in the balanced scorecard design from Kaplan and Norton.

  • Similarly, value from internal stakeholders or E&C dimension in nutshell - is employee productivity – i.e. the way employees conduct their business across various profit and purpose focused initiatives – thus creating the 5P (Purpose, Profit, People, Planet and Passion) effect within the communities.

Internal stakeholder or E&C Value Equation = Employee productivity KPI and Sustainability Indices in business and people related areas.

With this foundational definition background – I did a deeper dive analysis on the larger consumer value question using a Value/Experience based Spending (VES) framework as outlined in the top of the page. With the tough economic conditions still lingering- most consumers, of late, have started changing their spending patterns when it comes to buying various P&S categories. Our research also suggest that more than 50% of the consumers are looking for better value deals while buying consumer products/services - followed by another 30% who are willing to sacrifice their preferred brands for better value brands. This is definitely an alarming trend for the branded players - and so I did some “deeper dive analysis” on the spending patterns of consumers across various product/service categories. The insights I garnered was all the more intriguing - that consumers have started altering their spending patterns, not only based on value, but also, based on the way they map their preferred products/services to their personal consumption experience life cycle.

For example, consumers are not likely to reduce their spending on certain essential products/services (like utility services and house-hold items, even though they see them as less valuable) -whereas, they are more likely to reduce their spending on categories like Books and CD’s albeit their higher value. With this renewed insight and findings – I grouped the products/services under five experience categories and plotted them within the VES framework – with “degree of spending” on X axis and “degree of perceived value” in Y axis as outlined below and on the top of the page.

  • Essentialize Me – addressing the basic experience -where consumers do not even think of reducing their spending as they believe that these products/services are essential for their livelihood even if they are not highly valuable.

  • Energize Me – addressing the nourishment and Health &Wellness experience where consumers are less likely to reduce their spending as they see the value in these products/services serving their body, soul and spiritual needs.

  • Enrich Me – addressing the “educate/enhance me” experience – where consumers are likely to reduce their spending, although they recognize the value.

  • Entertain me – addressing the relaxation experience – where consumers are kind of divided 50-50 when it comes to value and spending patterns.

  • Exuberate Me – addressing the luxury or feel great experience – where consumers are more likely to reduce their spending on these products/services as they do not see much value.

Interestingly enough, four of these experience categories fell perfectly in to the four quadrants of the framework with an exception of one category – which got placed in the centre of the framework covering all the four quadrants. What does this tell us? There is a new reality or a “new value based experience equation” evolving when it comes to consumer spending. This new reality - is indeed a wake up call for the corporations and retailers alike – and so, it is time to accept this new reality (i.e. placement of their products and services within this VES framework) and devise an appropriate value strategy to answer this emerging spending patterns and value perceptions of the 21st century consumers. However, by no means – I am suggesting that super premium strategies have lost its relevance – I guess “doing both” is the way to go.


  1. Hi Charles,
    This is a remarkable post. It really expanded my knowledge. I liked the simplicity, but the depth of your analysis, which kept me diving with you.
    I liked most one great conclusion. Let me quote you first “Interestingly enough, four of these experience categories fell perfectly in to the four quadrants of the framework with an exception of one category – which got placed in the centre of the framework covering all the four quadrants. What does this tell us? There is a new reality or a “new value based experience equation” evolving when it comes to consumer spending”. This is a huge conclusion. If one inspects the center it is actually a mini quadrant within the mother quadrant. Is there a new fractal structure emerging?
    I want to refer to your comment on my most recent presentation entitled”” . In this post I used value (rightly, you used perceived value”, while on the X-axis I used time whereas you Degree of Spending. Thinking about it if you would extend your analysis to accommodate time, you may be able to observe how the mini quadrant develops over time. This will be a great addition to your work.
    Charles, you have done a great job

  2. Great point Ali! Now that you have brought up the “mini fractal structure” in to the framework –we perhaps can iteratively divide the “entertain experience category” in to 5 sub fractal structures until we arrive at the lowest product denominator at the SKU level.

    Along the similar line of thinking – we perhaps can also consider interactively dividing every one of the remaining four categories (essentialize, energize, enrich and exuberate) as well – granted it may not result in a perfect fractal structure- but it might result in some kind of 70-10-10-10 mix or 55-15-15-15 mix as – as the remaining 4 experience categories in a way always has a major spending quadrant (say 55% essentialize) followed by a smaller percentage of minor quadrants (15% each of energize, enrich and exuberate).

    Again, a great value-add comment.

  3. Charles,
    What you said is exactly what I meant. What you have is a "snapshot" at a fixed point of time. To get thing moving (like a moving average) moves, we need many more snapshots over time. I have strong feeling that a fractal structure would emerge. Surely, all five mini-quadrants may be studied, but the central one is worth more attention. It is both emerging and central. Studying it further will bring more facts to the surface.
    I think you have great work coming ahead.