





We have long been advocates of Treacy's Value Proposition framework. Over the years, it has helped many of our clients clarify their competitive strategies in order to align their resources, organizational structures and cultures more effectively.
We still believe having one primary value proposition establishes a clear focus from which the rest of the organization is developed. Yet the clarity derived seems less impactful in the face of changes in market forces. We have wondered why. Borrowing liberally from the 13th century Persian poet, Rumi, perhaps the answer is...
Treacy's research suggested that most successful organizations are clear about the specific value that they provide to their customer. To do so they must emphasize one of three approaches – Product Innovation, Customer Intimacy and Operational Excellence – without taking their eye off the other two. Organizations that try to put equal emphasis on more than one often fail.
If in fact Treacy's Value Proposition is having less impact in driving company success, it behooves us to understand why. Are the three values no longer the right three? Are there now four? Or none? Are they still there, but with muted impact?
Our belief thus far is that the three are still alive and well, and perhaps not even muted. Rather we believe the dramatic rise in consumer power has brought with it a new dimension that cuts across all three equally. And it is coming from a different place – from the outside of the door.
Consumer Engagement may be the new Value Proposition. And if indeed it is, then it must be perfected in addition to – not in place of – any one of the original three Value Propositions a company has selected. And to call it out explicitly: Consumer Engagement and Customer Intimacy are not one and the same. More on that below.
By now we are all familiar with technological forces that have combined to create a dramatic shift of power to consumers, including:
1. the "democratization of knowledge" and information flowing through the internet, accessible to anyone and everyone,
2. the kind of disintermediation possible in a networked world where individual consumers can now go directly to the source,
3. and the new but quickly evolving technological capacity to "individualize" consumer transactions along the entire product (or service) value chain from design to delivery.
Transparency of information and direct access to a vast range of small, previously unknown providers of products and services, regardless of geographic location, have lowered barriers of entry for small companies and removed the dependency on distribution intermediaries. Think Amazon. Consumers can shop when they want, where they want and how they want. Remote, totally unknown, unproven shops can go-to-market immediately at minimal cost with huge marketplace exposure. The breadth of information, choice and direct access has shifted the balance of transaction power to consumers.
And while still in its infancy perhaps, technological advances continue to make feasible the individualization of products, services and transactions...right down to personalized medications designed around a single individual's DNA.
More and more, consumers now seek, expect and DO have a say in shaping their interactions with business entities in alignment with personal preferences. Consumers now expect to be able to engage companies on their own terms... knocking on the door from the outside ... and expecting someone inside to know how to answer.
A fundamental and perhaps unspoken assumption underlying Treacy's Value Proposition framework is that the choice an organization makes regarding its Value Proposition is well within its control. Consumer Engagement is not.
The knocks on the outside of the door are now "viral" in nature, and occur at every conceivable consumer touch point, sometimes humorously, sometimes embarrassingly:
These kinds of consumer-to-company exchanges now grab media headlines on almost a daily basis. Not exactly the kind of free publicity the PR strategy had envisioned. Not at all within an organization's control. And by no means indicative of the depths of change that is being required inside organizations to compete successfully in a consumer-driven world. The fundamental underlying dynamics of how business operates have changed.
If we think of Treacy's original Value Proposition as a flat, two dimensional triangle, Consumer Engagement approaches it from an unanticipated third dimension – knocking from the outside.
This new dimension of consumer demand knocks on all three points of the triangle equally. And the position from which the consumer is seeking engagement is not fixed or constant: it is rapidly evolving, changing, and emerging. It has created a force that impacts a business' Value Proposition from a totally new and unanticipated angle: from the outside in.
There is evidence to suggest that companies that are increasing market share and profitability are those that are engaging consumers in the kind of reciprocal experience that enables consumer choice and individualization to the benefit of both consumer and company alike.
This suggests the existence of a new Value Proposition that does not eliminate or replace Treacy's three Value Propositions, but instead underlies, enables or circles around all three. It is becoming fundamental to the success of any one of the three Value Propositions. Well-established companies appear to be losing growth, market share or profitability, even with a clear Value Proposition. This is something more. This is developing the capacity to be engaged when the knock is coming from outside the door: Consumer Engagement .
ronically perhaps, where the challenge of Treacy's Value Proposition has been most perplexing is where you would least expect it – for those who have pursued the Customer Intimacy Value Proposition.
We are seeing a significant uptick in the number of client organizations who now gravitate toward Customer Intimacy as their primary compass. In many cases, this is likely in response to a recognition of the changes in market forces described above. But we believe it is important to understand that Customer Intimacy and Consumer Engagement are two overlapping but different Value Propositions. They should not be confused.
Customer Intimacy is a discipline that starts with the selection of a specific customer segment. USAA is a clear example: their Value Proposition is fully serving all the needs of the customer segment of the military and their families. All the products and services USAA has developed from inception remain centered on that customer segment. Entire business strategies and organizational structures are built to serve that one customer segment. Data-driven customer segmentation is a core competency – know the needs of that customer segment better than anyone else. The expansion of products and services are all aligned around the needs of that customer segment.
Given the mobile nature of military life, from the start USAA was oriented toward building service platforms that engaged a transient, geographically disperse customer segment circling the globe – electronically, on line, virtually, time zone agnostic, 24/7 accessible, mobile. It just so happens that the rest of the world has caught up. As a result, almost every other Customer Intimate company must now do the same. They must learn how to "co-create" with their customers the "engagement platforms" the consumers in their customer segment now demand. They must do this outside-in as well as inside-out.
But they must also remain true to the discipline of clear strategic focus on their customer segment. That is the bow of the ship. Customer Intimacy and Consumer Engagement go hand-in-hand, but do not replace each other. Together, they are knocking from both sides of the door.
But for Product Leadership, the bow of the ship is product, not a customer segment. The discipline is to continuously create new and innovative products (Apple, Intel, etc.) that outpace the competition. Does this mean that Apple and Intel are free from the powers of consumer demand? Hardly. That is why retailers like Starbucks have created an open consumer platform online, taking the risk of being totally transparent in the process of engaging passionate and even critical consumers in the design of products, stores, service, etc.
And the same goes for Operational Excellence. Yes, Walmart is a retail store, but many would argue that what has made them successful is Operational Excellence – managing the supply chain side of the business to perfection, reducing costs, providing local convenience and dependability to shoppers. Again, the bow of the ship.
As Treacy would say, all companies must perform beyond a certain level of acceptability on all three Value Propositions just to stay in business, but those that outperform financially and otherwise excel on one.
Now that may be two. Regardless of the bow of the ship – Customer Intimacy, Product Leadership, Operational Excellence – Consumer Engagement may be just as essential for success. There cannot be any questions that the groundswell of consumer demand is making it clear that this kind of impactful, genuine, direct engagement with the provider of products and services is of huge value to individuals. One that cannot be ignored.
This is a different world, a different dimension, and it looks like this:
For many business leaders the toughest challenge is a change in mindset – opening the door. Even before opening the door, one must learn to listen for the knock. If the door is soundproof, you're in trouble. As Rumi might say in today's world of consumer power, not enabling consumers to engage you is like knocking from the inside only, and that is "living at the lip of insanity."
There are new kinds of engagement platforms that support consumer-driven experience – from the outside-in. The efforts that are still internally driven and controlled do not sufficiently acknowledge, invite in or engage consumers as authentic partners in designing their customer experience. While many companies continue to knock on the door from the inside with familiar but outdated tools, consumers are knocking on the door from the outside. Many companies have not yet figured out how to answer the door.
In the words of the 13th century Persian poet, Rumi:
"I have lived on the lip
of insanity, wanting to know reasons,
knocking on a door. It opens.
I've been knocking from the inside."