Soar Above the MIddle Market Plateau | Weatherhead School at Case Western Reserve University

Soar Above the MIddle Market Plateau

Posted 9.28.2022

The Middle-Market Challenge for Growth

Middle-market companies enjoy a uniquely advantageous position: They are small and agile enough to quickly innovate while simultaneously have the nimble resources to effectively support growth. Why then, do some find themselves stalled, unsure of how best to move forward? Sometimes, when middle- market companies experience early success, they can end up believing all they need to do to succeed in the future is to replicate what has worked in the past. But these old strategies and methods often prove less effective as marketplace dynamics bring on new challenges.

One path forward for these companies is to rethink their basic relationships with customers. Businesses must understand that an abundance of opportunities exist to create value in new waysif only they view their enterprises within the broader context of how the very nature of value creation is changing over time. Think more richly about how and why customers value any economic offering.

First, define what’s truly valued by your customers.

Peter Drucker famously said, “Customers always buy something different from what a company thinks it’s selling.” 

Are you providing things for free to customers that you ought to be charging for? IBM, whose slogan used to be “IBM means service,” made a name for itself not just selling computers, but by reassuring customers that they could trust IBM to attentively service the goods it sold. For a long time, IBM offered excellent service to sell more goods, and that model worked well for them. Until, that is, competition heightened HP, Sony, and especially Dell with its on-demand computer-making service

Legacy companies often are selling the means when there’s an opportunity to charge for the ends. IBM came to realize that its services were actually what its clients most valued, and it changed its business model to charge for services, sometimes even buying clients’ computer goods in exchange for extended service contracts.

Figure out what are you really offering

Here’s another example of a business whose services were valued by its customers more than goods. At an American Booksellers conference, I was approached by a woman seeking advice for her faltering book business. She sold books to public school systems, visiting the school librarians, analyzing their collections, and making specific recommendations for which books the schools should buy. I probed further and learned she charged nothing for this service, and despite the substantial time and effort, schools all too often took her recommendations but bought the books elsewhere (Can you say Amazon!?). My advice: Start charging a fee for what was most valued, the diagnostic services.  

Efficiently serve customers uniquely

Once a company realizes what is most valuable to its customers, it can look for new ways to increase value in its offerings. Often, this is best accomplished through customization. Stan Davis, who first identified the concept of Mass Customization, once advised—in response to an inquiry about how much to customize, “You should customize as much as necessary and as little as possible.”

Every customer is unique, we should know this. Yet companies tend to seek “one best way” to offer value to customers, when opportunities abound to identify areas to customize.  But be careful. Mass customization does not mean doing everything for everyone. One would go broke doing that. Rather, it’s identifying what you should customize, that if you did would yield the greatest value for your customers.

Turn services into experiences

Customize a good, and one automatically turns that good into a service. Similarly, customizing a service automatically turns that service into an experience. Those experiences are a distinct form of output, as distinct form services as services are from goods.[MOU1]  Goods are tangible things, and services are intangible activities, but experiences are memorable events—ones for which companies can command a fee. Time is the currency of experiences. The delivery of goods and services often only saves customers time, while experiences offer time well spent. Finding ways to charge for such time represents the next frontier for growing revenue, introducing whole new ways to relate to customers and discover and address their unmet needs.

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Jim Gilmore, co-author of The Experience Economy, is an assistant professor of Design & Innovation at Case Western Reserve University’s Weatherhead School of Management.

 

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