A SUMMARY OF THOUGHTS: INNOVATION & ENTREPRENEURSHIP VI

[continued from the Last Post.]

The Changing Values and Characteristics Strategy has a different focus to that of the other strategies.

Whereas the other strategies attempt to satisfy existing customers by creating new products or services, the Changing Values and Characteristics Strategy attempts to find new customers for existing products or services.

Drucker provides four ways of exploiting the Changing Values and Characteristics strategy:

· creating utility from an existing product

· pricing the product differently

· adapting the product to the customer’s social and economic reality, and

· delivering what represents true value to the customer.

An example of creating utility from an existing product is Rowland Hills’s re-engineering of the British postal system with the introduction of fixed postal rates and the creation of the postage stamp, in 1836.

By changing variable postal rates to fixed sums, evidenced by the use of a postage stamp, Hill made it possible for consumers of postal services to serve their own purposes: namely, sending a letter quickly and easily.

Previously, postage depended on the distance the package or letter had to travel; and the consumer was required to visit a postal center where the rate was calculated.

Standard postage rates improved the utility of the postal services through the use of collection boxes, and by substantially discounting the price of mail.

Classic examples of pricing the product differently are provided by the The Gillette Safety Razor and the introduction of the copier by the Haloid Company, later Xerox.

In both cases, the product, as razor or as copier, was sold at a steep discount. The supplies, razor blades in the case of the razor, or the paper copy itself in the case of the copier, were priced to make a profit.

Adapting the product to the customer’s social and economic reality usually means providing a system whose heart is the product and then selling the entire system.

Examples would be:

• General Electric’s packaging of GE consulting expertise with replacement turbine blades for its steam turbine products. GE’s competitors adopted the same practice but by then GE had market dominance.

• The financing that Cyrus McCormick provided to American farmers who purchased his harvesting machines.

Banks considered farmers a poor risk in the 1840’s; farmers, under-capitalized and with cyclic cash flows that depended on crop harvests, could not afford to purchase outright a McCormick reaper despite the obvious advantages of the machine.

McCormick provided farmers with an installment plan that spread payments over several years; the payments were due only when the farmers had cash, at harvest time.

Delivering value to the customer means using the product to deliver to the customer, values well beyond the retail value of the product itself.

An example would be a lubrication company that sells a special lubricant, indispensable to the machinery, as part of a maintenance programme for heavy equipment.

The company essentially sells the maintenance program, providing in-built peace of mind. This is because the lubricants ensure the continued operation of the heavy equipment, thereby minimizing down time.

[Excerpted from the 'Lifescaping' seminar participant's manual. The 'Lifescaping' seminar is conducted by Dilip Mukerjea about four times a year under the auspices of the Singapore Institute of Management.]