This is one of the questions we deal with when developing a strategy for a business.
If you are a retail watch seller today, you are not selling something to tell the time.
Nowadays, people use computers, cell phones and dashboard clocks in their cars. A watch has become a piece of jewellery that has some functionality. As a retail store that sells watches, you may stop trying to source watches that are more and more accurate; at the accuracy level of a second per day, most people's needs will be met. The greater consideration is the style and purpose for which a watch can be worn. It is no longer a timepiece, but essentially a piece of jewellery.
In Theodore Levitt's 1960 Harvard Business Review publication called Marketing Myopia, he argued that companies and entire industries declined because management defined their businesses too narrowly, focusing on the product or service and not the needs of the client/customer.
The McDonalds Experience
The company makes money by leveraging its product - fast food - to franchisees who have to lease properties, often at large markups, that are owned by McDonald's.
Former McDonald’s CFO, Harry J. Sonneborn, is even quoted as saying, “we are not technically in the food business; we are in the real estate business. The only reason we sell fifteen-cent hamburgers is because they are the greatest producer of revenue, from which our tenants can pay us our rent.”
The strategy that you apply is vastly different in a real estate business to that of a restaurant. This is why it is import to know the business of your business.
Practical Application
When we apply this to a financial planning business, we realise that the value we deliver is not the financial product or solution but the journey we take with our clients to get there. Over the years, we have seen recognition of this with most financial planning businesses, even those owned by product providers, using terms like advice-led or lifestyle financial planning.
However, what we say and what we do are often in conflict. In 2012, Morningstar conducted research to answer the question, “Do advisors know what their clients want?” They surveyed advisors with 15 questions and asked them to rate them in order of importance.
The biggest gap was around the value: “Can you help me maximise my returns?” Clients rated it as the fourth most important while advisors rated it at 14. Why the disconnect? Most financial planning businesses that use advice-led as a value proposition have not changed their strategy and processes to reflect this. Clients are as a result still being taught that the value offered is around the returns delivered.
Our strategic development process helps our clients define what their strategy should look like, develop coordinated actions to implement it, and then do change management to ensure that it is not just a great-looking document, but correctly implemented to fuel their growth.
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