Creating “Monopolies” from Customer Value Propositions

I have always believed that essence of creativity is the ability to see relationships. As a student of today’s super-competitive marketing environment, I have recently come across two relatively disjoint scholarly theoretical observations that I believe provide great insight for companies seeking to better compete in the business-to-business environment.

Miland Lele’s ‘Monopoly Rules’

I learned of the first of these theoretical observations when I attended a University of Chicago Roundtable discussion featuring Prof. Milind Lele.(1) He has written a book entitled “MONOPOLY RULES – How to Find, Capture and Control the World’s Most Lucrative Markets in Any Business.”

While the conventional wisdom sees a monopoly as an enterprise that has obtained a business advantage through patents, trademarks, production efficiencies or sheer size, Lele’s type of monopoly involves “owning space,” which he defines as a patch of open space that a competitor can control to the exclusion of other competitors.

“The best monopoly opportunities are situational, soft and intangible,” according to Lele. “They’re market segments, often in the customer’s mind. For the customer there is no one but you, since what you provide can’t be easily copied, duplicated or ripped off.”

Among the many examples he uses to support this thesis are two of the most successful enterprises in existence today – Starbuck’s Coffee and Southwest Airlines. Both got into competitive businesses where they were hardly the biggest players yet found a space they could control and, in fact, created mind monopolies on the part of customers.

‘Customer Value Propositions in Business Markets’

The second of my theoretical observations came from an article in the most recent (March, 2006) HARVARD BUSINESS REVIEW entitled “Customer Value Propositions in Business Markets” by James C. Anderson, James A. Narus and Wouter van Rossum.(2)

The basis of the article: ” ‘Customer Value Proposition’ has become one of the most widely used terms in business markets in recent years. Yet our management- practice research reveals that there is no agreement as to what constitutes a customer value proposition – or what make one persuasive. Moreover, we find that that most value propositions make claims of savings and benefits without backing them up. An offering may actually provide superior value – but if a supplier doesn’t demonstrate and document that claim, a customer manager will likely dismiss it as marketing puffery….”

Thus, they observe that today’s customer is wise and sophisticated and wants to be convincingly shown that the vendor’s products delivers that value proposition.

The three authors next develop the three levels of value propositions and explain them: (1) all benefits (2) favorable points of difference and (3) resonating focus. ALL BENEFITS include everything the customer receives from the product’s or service’s marketing offering. FAVORABLE POINTS OF DIFFERENCE focus on the differences in the market offering versus the next best alternative. Finally, RESONATING FOCUS are those one or two improvements that will deliver the greatest value to the customer for the foreseeable future.

Another way of looking at RESONATING FOCUS is the idea of “unique selling premise,” a traditional concept advertisers use to focus on that one key point that will convince the customer to try or buy.

The authors go on to explain that customers want to do business “with suppliers that fully grasp the critical issues in their business and deliver a customer value proposition that’s simple yet powerfully captivating.” They do on the explain that such a value proposition is “distinctive,” “measurable,” and “sustainable.”

In the way of an example, they take a resin supplier that is addressing a new environmental regulation so they created a new product that was in compliance and expected the paint industry to willingly pay a higher price and beat a path to the resin supplier’s door. It turns out the customer was more concerned about other things such as labor productivity. After doing further research, the resin supplier programmed into the new product a feature/benefit that allowed the paint to dry faster and enable the painting contractor to apply two coats within an 8-hour shift. Now that benefit combined with the regulatory compliance benefit created a virtual monopoly for the supplier and enabled the supplier to receive a 40 percent premium for the new product compared with its and its competitors’ traditional resin product.

Lessons for Today’s Marketer

The thinking of Lele and Anderson/Narus/Van Rossum is remarkably consistent. While Lele observes that success is a function of achieving this “space monopoly” Anderson/Narus/Van Rossum provide the road map for achieving that customer value proposition that will result in the “space monopoly.”

So, how does a business get there? The supplier must be increasingly knowledgeable about its customers and their needs to the point where they can create competitive advantage to the extent the customer is willing to pay a premium for the offering. Thus the supplier finds and occupies that special space and achieves Lele’s “monopoly of the mind.”

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Endnotes

1. Milind Lele is a Chicago consultant who formerly was an adjunct professor of strategy and marketing at the University of Chicago Graduate School of Business.
2. James Anderson is a professor at Kellogg Graduate School of Management, Northhwestern University; James A Narus is a professor at Babcock Graduate School of Management, Wake Forest University and Wouter van Rossum is a professor at University of Twente in the Netherlands.