Six Sigma Marketing: It’s All About Value Performance Gaps
07/01/2009 5:57:00 PM EDT
The first two generations of Six Sigma, with their emphases on defect reduction and cost reduction, respectively, relied heavily upon the Voice of the Business (VOB) to identify and prioritize projects. The third generation, with its emphasis on value creation and delivery, requires a shift in focus to the Voice of the Market (VOM). After all, who is the final arbiter of value? And how do you use the Voice of the Market to identify potential Six Sigma projects?
A Modified DMAIC
The Define phase of Six Sigma Marketing brought a laser-like focus on the two things that generate revenue for your organization: the products or services you provide and the customers who buy them. In the Measure phase you learned how your targeted customer groups evaluate the trade-off between Quality and Price, and which Quality factors they regard as most important. The Analysis phase of Six Sigma Marketing provides the answers to three important business questions:
- What is your current competitive value proposition?
- How loyal are your current customers, and what’s the basis of that loyalty?
- How vulnerable are your competitors, and what’s the basis of their vulnerability?
The Competitive Value Matrix
The Measure phase of Six Sigma Marketing provided information about the trade-off between Quality and Price, and identified the critical-to-quality factors (CTQs) from the perspectives of your targeted customer groups. The first step of the Analysis phase is to identify how you are performing in terms of the value you provide. The appropriate SSM tool is the Competitive Value Matrix (Figure 1). (Click on diagram to enlarge.)
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Figure 1
The Voice of the Market (VOM) provides performance ratings for each competing provider on both Quality and Price. Those ratings are plotted on a matrix such that competitors receiving Quality ratings above the overall average are located on the upper half of the matrix, and competitors with Price evaluations above the average are located on the right half of the matrix. For the current example, Competitor A is providing superior Quality at a very satisfactory (competitive) Price—which is the very definition of superior value. Company XYZ is providing inferior Quality at a rather non-competitive Price—the essence of a Poor Value Provider. Strategically, the challenge facing Competitor A is to extend the value performance gap, thereby extending a sustainable competitive value advantage that will lead to increased revenues and market share. Alternatively, Company XYZ faces the challenge of closing the value performance gap in order to challenge Competitor A for value leadership. The questions facing each organization are: What are the CTQs that must be addressed in order to close/extend the value performance gap? Which of those CTQs are most important? Are they best addressed through product and service improvements? process improvements? the improvement of people skills?
Performance Gaps Based on CTQs
The answers to those questions begin with the Market Value Model (Figure 2). In this example, focused on farmers and the farm tractors they buy and use, Quality has a greater impact on Value than does Price, so the key to closing the value performance gap is to understand what drives Quality for these farmers. The CTQs include:
- Dealer Service
- Machine Operation
- Machine Productivity
- Trial and Training
- Dealer Sales
- Order and Delivery
- Machine Reliability
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Figure 2
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Figure 3
Applying the same sort of statistical rigor to the market value metrics that Six Sigma practitioners typically apply to other metrics, Company XYZ has negative performance gaps (weaknesses) on each of the CTQs relative to Competitor A. Since “Dealer Service” is the most important CTQ, Six Sigma projects should first focus on those processes associated with the “Service” value stream.
In order to provide more specific direction for those projects, the “Dealer Service” CTQ can be further analyzed to identify gaps on the specific Value Performance Criteria (VPCs) (Figure 4) that constitute Dealer Service. The VPCs on which Company XYZ is at a competitive disadvantage include:
- Dealer responsiveness in solving problems
- Ability of dealer service people to do repair
- Ability to complete repairs when promised
- Technical knowledge
- Response time
- Quality of repair
- Service responsiveness
)
Figure 4 (Click on diagram to enlarge.)
At this point in the Analysis phase of Six Sigma Marketing, you have identified the specific outcomes—the “Ys”—of Quality that have the greatest impact on value creation and delivery, and you have identified the gaps in your competitive performance that must be addressed. In order to move into the Improve phase of Six Sigma Marketing, you will need to conduct a specific Cause and Effect analysis, and you will need to align those process improvements with your competitive marketing strategy. Those topics will be addressed in subsequent columns.
Creating and Delivering Superior Value
Generation 3 of Six Sigma is all about creating and delivering superior value. Six Sigma Marketing has value at its core, and it combines the fact-based discipline of Six Sigma with the outward focus of marketing to increase revenues and to drive substantial gains in market share. At the same time, the tools of Six Sigma Marketing enable organizations to engage in targeted cost reductions without the attendant problem of reducing the organization’s capacity to provide outstanding value. How well do your Six Sigma projects succeed at both reducing costs and generating new revenue? Is it time for your organization to shift its focus from the voice of the business to the voice of the market? Do you know whether your value performance gaps represent competitive advantages or disadvantages? Do you know how to systematically leverage or fix them?
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Identify the Root Causes of Value Performance Gaps: A Six Sigma: Generation 3 Cause and Effect Matrix -
Value-Driven Six Sigma: From Cost-Cutting to Revenue Growth -
Building an Effective Voice of the Customer System -
Value-Driven Channel Strategies -
Business Process Excellence: Understanding the Evolution -
Identifying Critical-to-Quality Factors from a Market Perspective -
Focusing Six Sigma Investments to Maximize ROI -
Value, Value Streams and Value Propositions -
Value-Driven Six Sigma Requires New Tools and Views
* = required.
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For those of you who would like to view my webinar on this subject, you can do so by following this link: http://media2.impactlearning.org:8080/wmv/ISBM/wm12276.wmv
Or, send me your email address and I'll send you a copy of the presentation. Reg@MarketValueSolutions.com |
Replies (0) |
Mike, I'd be very interested in seeing how you used SSM for your top-line growth initiative.
I've worked with DMADV initiatives, and it still comes back to how well you can quantify market perceptions of performance on the CTQs. Identifying those performance gaps (both positive and negative) is key to any improvements regarding products or services, people, or processes. |
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For those of you who would like a more comprehensive description of Six Sigma Marketing, send me your email addresses and I will send you an electronic copy of my book Six Sigma marketing: From Cutting Coists to Growing Market Share. Eric Reidenbach |
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Excellent article! Specific, practical approach.
I used SSM in a Top-Line Growth initiative. What is your view of DfSS (DMADV) in marketing? |
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Kevin - not so difficult as you might think. Depending on the industry, interviews are conducted by telephone or web-based. Customers rate the performance of their primary providers on the VPCs. In certain circumstances, and where experience permits, customer rate multiple providers. I'd be happy to discuss this further if you'd care to follow up |
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Interesting article. This assumes however one is able to get all accurate data for the competitors' quality and all categories that encompass quality. To me, this would be the most difficult part of the analysis. |
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Tremendous -- "this is the next generation of Six Sigma thinking we've been waiting for" |
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Great article and just what the six sigma community needs to focus their initiatives to drive customer value and the resulting increase in market share and profitability.
r bledsoe |
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shifting from business to market.....and what next? may i suggest the ultimate? you see in business one could keep all CTQs under complete control (if that was possible) but in market that may not be reasonable plausible at all. Consumer I feel drives both business & market. what do you think? |
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This column about 6Sigma Marketing has been really interesting. It's a very useful application for 6Sigma. |
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