In the Eye of the Beholder

13 August 2014

I recently put my car up for sale. It is a beautiful thing. I bought it new and I’ve babied it; I’ve cared for it and I’ve loved it. In time though, I decided it had to go; I needed a more efficient car.

I started asking around for buyers (I didn’t want this thing of beauty to go to just anyone; I wanted someone to love it—like I did). At the price I was asking, I got almost no interest. I was shocked. I mean, the car is perfect—like new! Why couldn’t everyone see what I saw in it?

It got me thinking; how do we see the things we sell? Do we spend so much time talking about their attributes (which are of the utmost desirability to be sure) to our customers that we stop thinking about how the customer actually perceives these attributes?

Value (as with beauty) is in the eye of the beholder.

The tendency to “fall in love” with your own products is very common and toThomas Edison thumbs up a degree it is really useful, since promoting your product with passion and conviction is compelling. Where it begins to work against you is when that love is blind—failing to adjust to the reality of customer value perception. So, presenting the case for any product needs to be put in terms of that perception. This is not always easy, but one key I have found is to break value into three parts: price, performance and risk.

Every purchase decision is based on these three elements (think about this in the purchase decisions you make). The weighting of these elements varies in each purchase situation, but they are always there.

Price, of course, is a discrete number and where the item is a commodity (lots of choice, low performance expectation) it can dominate. (Consider when your want a fast-food lunch; there’s not much expectation of performance—Mickey D’s isn’t the Ritz—so you look for “cheap” while “performance” is limited to convenience).

As a product rises out of a commodity, differentiation grows—and while this can be price differentiation, generally it is in terms of performance (or risk reduction) with price usually rising. Performance in this context is tangible, but not often discrete. It can mean a lot of things: features, visual appeal, power, efficiency, pretty much any intrinsic product attribute. The valuation of these attributes is mostly subjective. (So, a steak delivered by a waiter to your table by the window overlooking the bay is definitely a performance-weighted lunch choice).

Risk (that is to say, risk reduction) is also subjectively judged and therefore the least measurable of these three elements. It is the hardest to promote, the hardest (when perceived negatively) to defend and generally the most important element. (Ever notice how in every election, the candidates hammer on what risk their opponent represents?) Even in low-price commodity sales, risk looms large because no one wants to “waste their money.”

At the higher differentiation levels, risk is weighted far higher; this is because 1) more money is involved, 2) there are fewer alternative options and 3) it is more likely the product is part of a larger system that could also fail as a result of a bad choice.

So, in making the case for your product, awareness of two things is important. The first is knowing the customer valuation view; the second is knowing how your product meets that valuation view.

In my experience price/performance opens doors; risk (reduction) closes sales. At GE, we spend enormous effort on risk reduction. As well as helping our customers ensure their programs come in on time and on budget, we invest significant amounts of time, effort and money on counterfeit parts prevention, strict materials handling and process control, extended product lifecycle management (PLM), long warranties and more because we know risk reduction is what makes the difference. It is assurance of performance delivered at an affordable price.

Of all the things we sell, the reduction of risk is by far the most sought after. Think about this for a while; I think you’ll find it is true.

What do you think happened to my car?

Larry Schaffer

Larry Schaffer has been with us in a business development role since 2001, and works to create and maintain long-term, strategic relationships with key companies engaged in embedded computing for ground systems applications with a strong emphasis on image processing and distribution. He was born in Pennsylvania and educated as an Electrical Engineer in New Jersey and California (where he now lives). Just don’t ask him to tell you about being a war baby…