6
VALUE
HOW INSIGHTS
BECOME REVENUE
IN 1989, STEPHEN HAD one of the worst jobs of his life. He was a door-to-door meat salesman. While the job was pretty poor—selling a new type of processed food to food service establishments—the idea was actually a good one. His employer was one of the first companies in the United States to offer sous vide, a method through which food is cooked inside a vacuum-sealed plastic bag, sealing in juices and freshness.
The company had not calculated what value this would create for food service customers, so it priced its offerings on a cost-plus basis. The cheapest item on the menu was the least costly to produce—chicken tarragon. It was pretty awful. Unfortunately, when potential customers wanted to try the offerings, this is what they opted for. Disaster. One day, however, a deli owner tried the fish, and he reported back to Stephen that it was fantastic. More importantly, he could never serve fish before because of the smell and freshness issues, but sous vide cooking in a pot of boiling water solved these problems. He was the only deli in the area to be able to offer fish, which made him stand out and feel proud. Jobs to be Done! The value created had nothing to do with the price of the ingredients. Understanding the real sources of value enabled the company to position itself in entirely new ways.
IN THIS CHAPTER, YOU WILL LEARN:
How to calculate how much money is at stake with respect to a new potential solution.
How to determine how expensive your new solutions can be.
Whether your proposed business model will support sustained sales of your new solution.
HOW MUCH MONEY IS AT STAKE
When you’re trying to pitch a new idea, someone will undoubtedly ask how big the opportunity really is. So how do we know how fast a market will grow or how much of the market will be interested in your solution? With time, concept tests and prototype demonstrations will help refine your estimates. In the early stages, however, the Jobs-based insights you’ve uncovered can be quite enlightening. By the time you get to market sizing, you’ll already know what jobs customers are looking to get done, what pain points they want to eliminate, and what job drivers are pushing them to prioritize some jobs and pain points over others. Quantitative surveys can help you assign hard numbers to the insights in your Jobs Atlas, ultimately giving you the data you need to create a robust customer segmentation that more accurately predicts purchasing behavior. Benchmarks that illustrate how similar jobs have been satisfied in other industries or through other product lines can help further refine market size estimates.
Beyond more accurately measuring market size, Jobs-based thinking allows you to design solutions in a way that actually expands that market potential. In the early 1970s, Mars overtook Hershey as the leading candy company in the United States, and it continued to expand its market share through the end of the decade. By the early 1980s, Hershey realized it needed a new strategy. Through rigorous customer research, Hershey gathered a number of important insights. Perhaps most importantly, Hershey learned that children are not the biggest consumers of candy. In fact, Hershey learned that adults age 18 and older were consuming 55 percent of all candy sold.1 Hershey used that knowledge to design and market confections that helped adults satisfy latent emotional needs, retaking its position as the U.S. confection leader and expanding the overall candy market. To this day, Hershey continues to innovate based on the jobs to be done of adults. Part of Hershey’s focus, for example, has been on helping adults reward or treat themselves in guilt-free ways, such as through its 2011 acquisition of Brookside’s relatively healthy fruit-infused dark chocolate.2 With its focus on products for adults, Hershey continues to lead the U.S. chocolate market.
HOW EXPENSIVE OFFERINGS CAN BE
Part of the calculation of how big a market can grow is a determination of the price at which you will sell your product. In well-established markets, this may not be too much of a consideration. Competitor-based pricing—a strategy that involves copying your competitors’ prices or discounting below them to attract market share—will dictate a range of acceptable prices. If most video game makers are selling their games for around $60, you’re not likely to have much success selling a game for $120. You might do a calculation to determine whether the optimal price point (based on a combination of volume and price) is $60 or $65, but the range worthy of consideration will be quite small. And in industries like the video game industry—where a relatively small number of game publishers tend to set strict price controls for retailers—there may be limits on how far from the established pricing scheme you can drift.3
In less established markets, things begin to change. Some companies try to minimize risk by adopting a basic cost-plus pricing model. They figure out what the solution will cost to make, then mark up the price to create a margin that they know management will be happy with. Ultimately, however, this strategy is somewhat arbitrary, and it may not coincide with the marketing or branding strategy you have laid out for the product. A better alternative—value-based pricing—allows you to set a price based on how well your product can satisfy customers’ jobs to be done. Using this strategy, the price you choose can help reframe how customers perceive your product, and it can also focus attention on the emotional jobs your product satisfies.
Let’s think again about Uber. At first glance, it may have appeared that Uber was going to adopt a standard competitor-based pricing approach. After all, much of the early conversation about Uber was that it was a cheap alternative to taxis. Depending on the market you’re in, however, the service now offers a pretty wide range of price points (including UberPOOL, UberX, UberBLACK, and UberLUX) depending on the jobs you’re looking to satisfy. Customers who decide that cost isn’t everything can choose to pay more—and in some cases, much more—to ensure a private ride and direct route with no stops, enjoy a more comfortable ride, and impress others by showing up at their destination in style. Adding another layer of complexity, Uber also uses “surge pricing,” charging higher prices when demand increases, such as during rush hour or when the weather is bad. While a competitor-based pricing model or a cost-plus model would suggest that prices should remain relatively static even as demand increases, surge pricing makes complete sense under a value-based pricing model. As certain jobs become more important or customers realize new jobs (such as preserving a pair of expensive shoes or arriving on time in unfavorable weather conditions), a value-based pricing strategy suggests that fares should rise as well. While these higher prices may turn some off, they also help cement the idea that Uber isn’t just a cheap taxi alternative; it’s an on-demand car service that’s catering to you.
Although the exact right price may require a detailed pricing analysis, several easy testing methods (such as mock sales, A/B testing, and feature purchasing tests) can help you choose a reasonable starting point for your analysis. Chapter 12 provides a more in-depth look at some of the tools you can use to help gauge customer interest.
TURNING YOUR VALUE PROPOSITION INTO A BUSINESS MODEL
While the Jobs Roadmap is based on the idea of creating value that the customer recognizes and appreciates, this works only if the model also creates value for the business. While finalized business plans need to contain a lot of detail, requiring that much information at the early stages unnecessarily slows down projects. Instead, we have created a five-step litmus test to help you determine whether early ideas will be viable both for attracting new customers and for allowing you to continue to sell to them for the long term (see Figure 6-1). While this assessment is far from comprehensive, it should help you think through some of the deal-breaker risks that might merit taking some ideas off the table.
ASSESSING THE VIABILITY OF YOUR IDEAS
Figure 6-1
Beyond acting as a customer lens for creating new products and services, the Jobs Roadmap is also useful for finding ways to optimize existing processes and business models, or to take costs out of the core business. Boston-based Tasting Counter, which opened in 2015, is a restaurant that has recently started offering a different take on the standard restaurant experience. Instead of making reservations, guests purchase tickets in advance for a meal at a specific time and date in the future. These tickets include the price of the meal, tax, and tip. From a Jobs-based perspective, the restaurant markets itself as satisfying several jobs that ordinary restaurants either don’t address or satisfy poorly. Because it exclusively offers a set tasting menu that heavily features local ingredients—many of which are sourced from partner food companies on-site—Tasting Counter ensures that every customer can experience variety and support local businesses. And by having customers pay in advance, it completely removes the financial element from the meal, allowing customers to focus on the food experience without worrying about the price of a particular entrée or the cost of an extra drink. From a business model perspective, those same customer benefits are also benefits to the business. By having a set menu of ingredients and sourcing from local partners, Tasting Counter can reduce its food costs and virtually eliminate waste. It knows exactly how many customers are going to be eating in the restaurant at any given time, allowing the restaurant to order food and bring in staff accordingly. And by having meals paid for in advance, Tasting Counter can actually use and earn interest on money that wouldn’t even be in hand with a traditional model. Through focusing on and branding around a few key jobs, Tasting Counter has been able to adopt an incredibly savvy business model.
THIS CHAPTER IN PRACTICE—CREATING VALUE FOR AN UNDERSERVED SENIOR MARKET
The number of babies being born every year has been on the decline in the developed world. People are also living longer. From an anthropological perspective, this means that populations in developed countries have been aging rapidly. From a business perspective, this means that senior care products represent one of the fastest-growing product categories in high-spending markets. The consumer products company Kimberly-Clark turned to its Global Innovation Center in South Korea to understand what business potential these trends unlocked. As Hari Nair—then the center’s global managing director—explained, South Korea’s seniors are more likely to remain active than elderly customers in other Asian countries, and South Korea’s unique dynamics make the country a good predictor for what other parts of the world will experience years into the future.4
When we reached out to Mr. Nair, he explained to us how the innovation team at Kimberly-Clark is using Jobs-based thinking to reframe the senior care market.
We often think of a platform competing against a similar platform rather than thinking about segmenting the market based on why customers hire our products. At the front end of innovation, we have found that identifying the next big opportunity comes from looking at the jobs that moms, or families, or seniors are trying to satisfy.
Indeed, the team has uncovered a range of functional and emotional jobs, including helping seniors feel secure when traveling alone, helping them stay active, assisting them with leaving a legacy, and helping them stay happy even after their children have left the home.
Based on the insights uncovered by the team’s jobs-based research, Kimberly-Clark launched the Golden Friends brand in Korea, which is specifically targeted to help the country’s active seniors. The company was able to attract and retain a devoted group of customers who were initially purchasing its disposable undergarments. Playing off this loyalty, the brand’s portfolio grew to include other products that interest this group, such as comfortable shoes and walking aids. While we can’t go into detail about Kimberly-Clark’s plans to further grow the Golden Friends business, Mr. Nair promises that we will continue to see exciting products based on the jobs the innovation team has uncovered.
CHAPTER SUMMARY
The tricky thing about value is that it’s not a constant. At the same time that a new solution is creating value for the customer, the business must also determine how that same solution creates value for the organization. And both stakeholders have unique concerns. For the business, the first issue is how much potential exists. Does satisfying a job have the potential to impact the company’s bottom line? Even if the answer is yes, the company also has to figure out how it can create a sustainable model for bringing in profits over time. From the customer’s perspective, value relates to how expensive that solution can be. Does the new solution satisfy jobs or alleviate pain points in such a way that it warrants a purchase? By exploring insights from the entirety of the Jobs Atlas and understanding the relationships among those insights, companies can understand both sides of that value dilemma in a way that moves beyond traditional product sales benchmarks.
You can better understand how much money is at stake with respect to a new solution by framing markets in terms of jobs, not products. Learning about the jobs customers are looking to satisfy and the pain points they’re looking to alleviate can help you more accurately size markets, and it can ultimately help you expand that market potential by illuminating new customer types that were previously overlooked.
Basic cost-plus pricing, though common, isn’t always a good fit with a company’s strategic goals. Discover how expensive an offering can be by adopting a value-based pricing strategy that accounts for the unique or emotional jobs your product satisfies.
Create a business model that allows you to sustainably capture value while simultaneously offering the customer a differentiated solution. Ask questions early that allow you to spot potential risks in your business model, especially with respect to how you’ll attract new customers, keep those customers, and ultimately grow the business.