How to use standards to drive sales, profits & innovation
This White Paper will show you how to make the most money from your business and its products and how to systematically ensure success.
“Standards connect your business to its customers”
Businesses have three main driving influences:
- Governments – most commonly in the form of regulation, legislation or public policy
- Industry – in the form of industry norms and the technologies employed
- Markets – which are dynamic and include the businesses own customers
Each of these drivers requires that a business meets certain specific standards. How well a business does this determines the amount of wealth created for its stakeholders, its business value, and whether the business is sustainable.
As can be seen from the following diagram, standards connect your business to its customers.
There are only two profitable markets for a firm, a commodity market, where price is a key issue and the proprietary market, where differentiation prevails.
In a commodity market, the firm must produce to a recognised standard that is accepted by the market place. There would be little point in producing batteries of unique size or light bulbs with unique fittings, since such commodities depend on complementary products produced by others. The success of this market therefore depends on a recognised standard being developed and accepted by enough of the market to make production attractive.
In the second case of a proprietary market position, a higher price can usually be charged for products which are innovative or offer some uniqueness and which are attractive to the market place. In this case it is commonly the firm that can sustain ownership of the intellectual property rights patents, trade marks, design, etc.), that is able to make the most money. Again, however, the standard defining the product has to be accepted by the market place.
This much can be found in many books on strategy and marketing.
“You make the most money by producing as standard something that your customer regards as special”
Less common, however, is the insight that you make the most money from things you produce as commodities but that your customers regard as special.
To do this you have to set or own the standard that customers ‘acclaim’. So what does this mean in practice?
There are three levels at which a business can interact with a market; market access, market acceptance and market ‘acclaim’ or adoption.
Market access involves meeting all necessary legal requirements and, in most cases, being able to demonstrate that the product is compliant and is produced by a system that can ensure consistency of production. For example in the 27 countries of the European Union (EU) a company is required to ensure that its products meet EU Product Directives. This is usually most easily done by ensuring that the product complies with specific European Standards, which have been developed by industry. The company then has to mark the product to assure this compliance (CE Marking) to regulators. In other words a company must do this or it cannot sell its products.
In addition to complying with legal requirements, for a product to be successful it has to be accepted by the market as meeting its minimum requirements, i.e. its needs, or solving a problem better than other products on offer. There could be many choices available to customers in this category. So, a company must meet these market standards or people will not buy the product.
However, the real money is to be made when a product that a firm produces as a commodity is treated by customers as special. There are many examples available. In the information technology world Apple of course stands out. Although some of its technology is proprietary, much of it is not. And it is in ensuring that others, for example, a software application vendors, are able to connect their offers to its products that makes Apple successful. After all, a brilliant player with nothing to play on it wouldn’t be much fun.
Similarly, like it or hate it, Microsoft has ensured that its products are adopted by the market. They may not be the most sophisticated, reliable or price conscious offer available but companies know that there are many sound interfaces, applications and support mechanisms around, making it a safe choice.
Dell is another IT example. Here the company cleverly exploits standardization of its components to provide a solution to the customer that appears to be unique.
As can be seen from the following illustration, the business value increases as the offer moves from left to right along the three market positions. A new innovation, however technically brilliant, will not succeed in the market without passing through this journey successfully.
Now although we’ve talked about standards as central to market access, acceptance and adoption, clearly not all standards are equal. Some are much more important to a business than others. They are the core or strategic standards and include standards for brand, technology, governance and operations. When business leaders set these standards for their business, they create a value delivery system that drives sales, innovation and profit automatically.
If you would like more information on how to make standards work for you please contact do get in touch.