Trends in management are often as transient as the couture fashion of Paris and Milan. Occasionally though, a classic transcends fashion and endures simply because it represents a fundamental steppingstone in effective management.

The value chain is one such concept. Described by Michael Porter in his 1985 best-selling book[i], the value chain is a mechanism for disaggregating a company into its strategically imperative activities.

Almost three decades ago, Forethought adapted the value chain approach for guiding effective marketing communications. The impetus behind this initiative was our realisation that value-for-money[ii] was the optimum, non-financial lead indicator[iii] of business success. As a result, we determined that the constituents of value-for-money – price and quality, should be the primary components of marketing communications.

The value chain elements adapted for embedding the concept into the brand were define, deliver and communicate value.

This is where things often go horribly wrong.

For the brand owner to define value they must first understand the relative importance of the category choice drivers along with their brand’s relative performance on those drivers. The gold standard for developing such an inferential causal model of consumer behaviour starts with the dependent variable or rather, the non-financial lead indicator (value), a list of hypothesised drivers as the independent variables, a random sample of the addressable market, and data collection. The finale aspect is the application of multivariate analysis to produce the hierarchy of category drivers.

However, instead of such a scientific based approach, usually in marketing an army of opinions come to the fore. It could be the creative partner’s big idea, the CEO/Board or CMO’s gut instinct or perhaps the product of “a couple of quick focus groups?”

Deliver Value

Let’s assume for a moment that either through science or serendipity, the right value proposition is chosen. Now comes the question of relative performance. If the chosen driver of value is one where operationally, your brand has a performance deficit, then a transformational customer experience program may be called for in order to raise the relative performance on the identified driver.

In other instances, the focus might not necessarily be on raising performance. Sometimes brands choose a driver where relative performance is already strong however, its importance is not high. Here, the focus becomes raising the salience of the driver through advertising. Some marketers reason that it is easier to raise the importance of an attribute than get the organisation to lift its performance.

When it comes to improving relative performance, it is at about this time when the proverbial tricky question is raised. Must we deliver value before we can communicate value?

Forethought has been involved in this debate countless times and observed clients operating at the two extremes of the solution spectrum. That is, waiting two years until the brand had absolute superior performance before moving onto communicating value or, just going ahead and promising something the brand in the short run, would not live up to. Incidentally, with respect to this latter option, infrequently purchased goods such as life insurance or financial investment are most open to such expeditious conduct.

Irrespective of a brand’s answer to this question, one thing that has been found to be universally valuable is the measurement of staff intention. Frequently, we have found a misalignment between what the organization is promising in its marketing communications and what staff intend to deliver. For example, a bank was promising problem resolution, and the staff were delivering minimum queuing times. The two objectives were at odds with each other.

Communicate Value

Continuing the assumption that we have the right value proposition, and the organization is in a position to promise performance; that is, communicate value, now comes the time for the creative and media partners to land the message.

The challenge is, most brand and advertising trackers use a raft of made-up, intuited measures, such as ‘likeability,’ ‘entertaining,’ ‘new news.’ Instead, the marketing and advertising performance to be tested should be based largely on the identified category driver and the outcomes predicted by the modelling.

Wherever possible, the veracity of the predicted change in market share outcomes should also be tested against independent, third-party data of actual relative changes. If the change in predicted market share does not strongly correlate with actual changes in market share, then your brand tracker is not measuring brand. After all, brand equals stored value in the form of goodwill. Brand building therefore is increasing that stored value, and performance marketing is realizing that goodwill.

All in All

For some practitioners, the concept of a value chain has never gone out of vogue. There are questions and risks at each stage of the value chain, but none so dislocating and debilitating as failing to define the value your brand is going to stand for.

[i] Porter, Michael E. (1985). The Competitive Advantage: Creating and Sustaining Superior Performance

[ii] A quick word of caution, it is common for respondents (and alas, some marketers!) to interpret “value” as being inexpensive. Consequently, we do not use the term “value” in our survey design. To avoid the ambiguous wording of value, brilliant Bradley Gale PhD came up with the timeless wording, ‘worth what paid’.

[iii] Or if you like, dependent variable in an equation to explain drivers of category choice.

ABOUT FORETHOUGHT

Forethought is a leading customer and marketing analytics and strategy advisory firm.

Forethought, with the largest commercial marketing science team in Australia, partners 80 clients in Australia to drive customer and market share growth via providing the evidence and CMO advisory support focused on customer acquisition and retention strategy and market share growth. In North America, Forethought partners with the fastest growing airline, JetBlue as well as several category leading brands.