LOADING...

Identify Your Value Proposition with This Mathematical Concept

Identify Your Value Proposition with This Mathematical Concept

In a given industry a company will have a number of strategic factors to weigh in creating a value proposition.  Typically, it can take one of several positions for each factor, resulting in an often wide variety of overall strategic positions.  In determining the best overall competitive position, the company should look at these factors from its target customer’s perspective.

We’ve made our coronavirus coverage free for all readers. To get all of HBR’s content delivered to your inbox, sign up for the Daily Alert newsletter.

A Greek restaurant, I’ll call it “Athens,” has been struggling to survive. This family-owned business has been around for many years, with the same menu, midrange price point, decor, and location. George, the owner and manager, had run out of ideas to lift sales. He asked me if I could help with suggestions for the restaurant’s resurgence. Not being in the restaurant business I warned George that I could only take a customer’s point of view in exploring options. “That’s exactly what I need,” he said.

We sat down to consider how to reposition the restaurant. Where to start?

I asked George had he ever heard of combinatorics. His answer, not surprisingly, was no. “Let me illustrate,” I said.

“Combinatorics is the branch of mathematics involved with the combination of things. Say I wish to manufacture small plastic figures involving three different head types, four different body types and three different leg types. I only need to manufacture 10 different products (3 + 4 + 3). Right? But if these parts are interchangeable, I can produce 36 different toys (3 x 4 x 3) – 36 products from 10 inputs. Neat. Add colors to those shapes – you get the picture. This is how modular toy manufacturing works.”

George understood this and so I moved to restaurants.

“Have you ever wondered why there are so many successful restaurants in the industry? Not just one?” I asked George. “Whatever happened to competition?”

George looked puzzled so I explained: Competitive advantage is achieved by doing better than the competition on a combination of strategic factors. For customers, these are the handful of decision criteria that they use in deciding to choose one restaurant over another. The way I see it, these are food type (Thai versus Italian versus Greek), menu range (narrow, large), food quality, restaurant presentation (traditional versus modern), customer service (polite and cheerful versus sour), location (good parking options, close to transport), hours of operation, and price. Customers make their decisions based on a combination of these factors that yields the most value to them.

Leaving aside food type for the moment, there are seven strategic factors relevant to a restaurant’s success. There are roughly three positions that any restaurant may take on each. For example, customer service can be rated: poor, average or good. Price can be rated: cheap, average, expensive. Restaurant presentation can be rated: unappealing, average, attractive.

Put together, this produces a huge number of outcomes for a customer and a terrifying set of choices for a restauranteur engaged in strategy design through positioning. The number is 3 multiplied together 7 times which yields 2,187 unique positions. Add in, say, 10 food types (Greek, Thai etc) and the number leaps to 21,870.

“With so many positions, there’s got to be room for success here, George,” I concluded.

“At present, George, your restaurant is struggling for one simple reason. It’s not providing customer value, derived from the combination of price and the other seven strategic factors. But who is your customer? An important starting point in making your business successful again, is identifying your target customer.”

George was unclear about his target customer as things had just drifted over the years. I got the impression that it was whomever walked in the door. The problem with this non-strategic approach, as I pointed out, is that a business deteriorates at the same rate as the health of its customers. They both grow old and feeble together. This is what had happened with Athens.

I suggested that Athens needed to refocus on a different and new demographic — perhaps, millennials. Once you know your target customer, you can study them in depth and shape your restaurant around what they want. They’ll suggest the combination that works best for them.

I explained that this might require Athens to hold its position on price but to modernize the look and feel of the restaurant, to focus the menu range, and so on. I could see that George now understood that he hadn’t been strategic in his approach. He had instead been weighed down by the daily grind of running the business. Combinatorics gave him hope.

***

George’s business like so many others is in lockdown at present. It may not reopen. Who can tell? But if it does, I hope he does the numbers. Not the financial ones but those around customer strategic factors which define the restaurant’s future niche. You might consider doing those numbers too. Here’s how:

On the other side of this coronavirus crisis things won’t return exactly as normal. Industry features have shifted, and new niches will emerge. Like the pieces of a jigsaw puzzle your business’s profile must fit that of your target customer, who may emerge with slightly different requirements at the other end of this virus. There’ll be a place for you and your business. Why not use combinatorics to find it?

If our free content helps you to contend with these challenges, please consider subscribing to HBR. A subscription purchase is the best way to support the creation of these resources.

Graham Kenny, CEO of Strategic Factors, is a recognized expert in strategy who helps managers, executives, and boards create successful organizations in the private, public, and not-for-profit sectors. You can connect to or follow him on LinkedIn.

Identify Your Value Proposition with This Mathematical Concept

Research & References of Identify Your Value Proposition with This Mathematical Concept|A&C Accounting And Tax Services
Source

Leave a Reply