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WHAT EVERY CLIENT VALUES

Eric AlmquistPartner

Bain & Company – Boston Office Powered by SunTrust

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent

Things Every Client Values:

The Elements of Value

September 2017Eric Almquist, Partner, Boston OfficeWith assistance from:

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 3© Bain & Company, 2015

The Elements of Value

“Strategy is based on a differentiated customer value proposition. Satisfying customers is the source of sustainable value creation."

--Robert Kaplan and David Norton

But, what is a value proposition? What are the ways to satisfy customers?

What do they value?

Our research shows that there is a relatively small set of ways to satisfy customers, which we call the Elements of Value

The Elements of Value, in various combinations, create a compelling value proposition: these elements raise products and

services above commodity status


•HBR publishes B2C article

•B2B Elements of Value research

•B2C Elements of Value Research

October – December 2015 February – May 2017September 2016

Our work on B2C Elements of Value began in 2015 and continues in 2017 with B2B


The hypothesis: “Value” is not monolithic, but is built from elements, often several elements

”It’s such a great machine! The design is beautiful, it saves me time, it is simple, and the coffee lets me fantasize about being back in Italy.”

-Nespresso Owner

“There is so much variety to choose from! It provides inexpensive,quality entertainment whenever I want it.”

-Netflix Viewer

“Not only do they make high quality and trendy shoes—they allow me to give back by helping others who are in need.”

-TOMS Customer

VALUE


Maslow’s hierarchy of needs was a start, but the theory never evolved for commercial purposes

Physiological needs:food, water, warmth, rest

Esteem needs:prestige and feeling of accomplishment

Belongingness and love needs:intimate relationships, friends

Safety needs:security, safety

Self-actualization:achieving one’s full potential,including creative activities

Self-transcendence:

altruism, charitable giving,

and social consciousness

Transcendent needs

Self-fulfillment needs

Psychological needs

Basic needs

Source: Maslow, A.H. (1969), “The farther reaches of human nature”, Journal of Transpersonal Psychology, 1(1), 1-9.


So far, we have identified 30 Elements of Value: These can lift products and services above commodity status

INWARDLY-FOCUSED VALUE OUTWARDLY-FOCUSED VALUE

EMOTIONAL ELEMENTS

How does it feel?

LIFE CHANGING ELEMENTS

How does it change my life?

SOCIAL IMPACT ELEMENTS

What value to society?

FUNCTIONAL ELEMENTS

What does it do?

Self transcendence

Provides hope Self actualization

Heirloom Affiliation & belonging

Motivation

Rewards me

Wellness

Reduces anxiety

Fun/Entertainment

Attractiveness

Design / Aesthetics

Provides access

Therapeutic value

Nostalgia Badge value

ConnectsOrganizesMakes moneySimplifies IntegratesSaves time Reduces risk

Quality VarietyReduces costAvoids hassles InformsSensory appeal

Reduces effort


Examples of companies exhibiting Elements of Value


EMOTIONAL ELEMENTS

How does it feel?





FUNCTIONAL ELEMENTS

What does it do?

Self transcendence

TOMSSeventh Generation

Provides hope

GNCSolid Gold

Self actualizationHarley-Davidson

Leica

Heirloom

Patek PhilippeBentley

Affiliation & belongingSierra Club

Boston Red Sox

Motivation

Weight WatchersFitbit

Rewards me

American AirlinesStarwood

Wellness

WebMDCVS Health

Reduces anxiety

PayPalAAA

Fun/Entertainment

Busch GardensCelebrity Cruises

Attractiveness

Hugo BossVictoria's Secret

Design / Aesthetics

NikeLululemon

Provides access

Ancestry.comiTunes

Therapeutic value

L‘OccitaneDr. Scholl’s

Nostalgia

DisneyLego

Badge value

BMWPrada

Connects

FacebookVerizon

Organizes

The Container StoreTurboTax

Makes money

VanguardAmerican Funds

Simplifies

GoogleSamsung

Integrates

Microsoft OutlookApple

Saves time

E-Z PassZappos

Reduces risk

SymantecMetLife

Quality

TumiPatagonia

Variety

EtsyCarMax

Reduces cost

WalmartPrius

Avoids hassles

AmexUSAA

Informs

WikipediaConsumer Reports

Sensory appealStarbucksSephora

Reduces effort

CuisinartAmazon


Very strong value propositions deliver multiple Elements of Value. Amazon crushes functional elements


EMOTIONAL ELEMENTS

How does it feel?





FUNCTIONAL ELEMENTS

What does it do?

Self transcendence

Provides hope Self actualization

Heirloom Affiliation & belonging

Motivation

Rewards me

Wellness

Reduces anxiety

Fun/Entertainment

Attractiveness

Design / Aesthetics

Provides access

Therapeutic value

Nostalgia Badge value

ConnectsOrganizesMakes moneySimplifies IntegratesSaves time Reduces risk

Quality VarietyReduces costAvoids hassles InformsSensory appeal

Reduces effort

Source: Bain Elements of Value survey, Oct. 2015, N=8,014 tested 12 industries and 47 companiesSource: Bain Elements of Value survey, Oct. 2015, N=8,014 tested 12 industries and 47 companies


Companies can strengthen their value propositions—and differentiate—by adding new Elements of Value

• Red Bull sponsors extreme sports competitions and communities (e.g., skiing, mountain biking, car racing) that connect action sports enthusiasts from around the world

• In May 2015, Vanguard added a low-fee advice proposition to core investment services to better informits clients

• In 2007, Domino’s introduced industry-leading, easy and engaging mobile ordering and order tracking to reduce effort when ordering pizza

Note: Vanguard’s “low fee advice proposition” launched not long before Elements of Value survey, and effects are not reflected in the current studySource: Company websites, lit. search

• AMEX introduced novel programs to provide its cardholders with access to exclusive venues and events

• Since 2007, Google has expanded Google Maps to give users access to street views, restaurant menus/ reviews, business hours, and more

• In 2014, Nordstrom acquired Trunk Club, a personal shopping subscription service that simplifies the process of selecting stylish, well-fitted apparel


In Oct. 2015, we surveyed >8,000 current customers of 47 U.S. companies on value

BrandsCategory Tested Companies

Apparel

Athletic wear

Discount retailers

Online shopping

Grocery (excl. discount retailers)

Food and beverage

Smartphone providers

Mobile phone service providers

TV service/bundle

Consumer banking

Brokerage

Automotive insurance


Some categories have lower overall value scores, but there is variance within all categories

0

10

20

30

40

50%Total high value space (Percentage of scores ≥ 8)

App

leSam

sung LG

Sch

wab

Fide

lity

Van

guar

dAm

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eBay

USAA (

Aut

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arm

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rty

Mut

ual

Prog

ress

ive

Lulu

lem

onN

ike

Adi

das

TOM

SZap

pos

Mac

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Nor

dstr

omJC

Penn

eyU

SAA (

Ban

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ells

Far

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ital O

neBan

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Am

eric

aCiti

Am

azon

Cos

tco

Targ

etW

alm

art

T-M

obile

Ver

izon

(Cel

l)Spr

int

AT&

T (C

ell)

Kro

ger

Trad

er J

oe's

Who

le F

oods

Saf

eway

/Alb

erts

on's

Net

flix

Direc

TVAT&

T (T

V)

Com

cast

Sta

rbuc

ksD

unki

n' D

onut

sChi

potle

McD

onal

d's

Bur

ger

Kin

g

ApparelAthletic GroceryDiscount retailer Food & bev.

On-line

Broker-age

Auto insurance Banking

TV service/ bundle

Smart-phone

Mobile service

Industry average 38% 31% 31% 29% 28% 28% 27% 24% 23% 21% 17% 15%

std. dev. 3% 0% 0% 8% 2% 3% 4% 7% 2% 3% 5% 2%

Industryaverages

Overall average 25%

Note: High value space is the percentage of scores ≥ 8 across elements in each companySource: Bain Elements of Value survey, Oct. 2015, N=8,014 tested 12 industries and 47 companies


Companies that excel on multiple elements crush it on NPS and revenue growth

COMPANIES THAT DO WELL ON MULTIPLE ELEMENTS TEND TO HAVE HIGHER NPS… …AS WELL AS HIGHER REVENUE GROWTH

-5

0

5

10

15%

0

-1.9

1

2.7

2

5.9

3

8.7

4+

12.9

Average revenue CAGR

('12-'14)

0

20

40

60%

0

3

1

17

2

33

3

42

4+

58

NPS

Number of elements which consumers rate as strongly describing the company

Number of elements which consumers rate as strongly describing the company

Note: ‘High value elements’ are elements where >50% of respondents gave a score ≥ 8Source: Bain Elements of Value survey, Oct. 2015, N=8,014, tested 12 industries and 47 companies; Annual reports; Bloomberg; One Source


Across categories, digital competitors are delivering much more perceived value than traditional players

0

20

40

60

80%

Element high value

space (% scores ≥ 8)

Save

s tim

e

Avoid

s Has

sles

Redu

ces e

ffort

Prov

ides a

cces

s

Simpli

fies

0

20

40

60

80%

Element high value


Avoid

s Has

sles

Prov

ides a

cces

s

Redu

ces a

nxiet

y

Inform

s

Redu

ces r

isk0

10

20

30

40

50%

Element high value


Makes

mon

ey

Self tra

nsce

nden

ce

Nostalgi

a

Conn

ects

Affili

ation

& be

longin

g

0

20

40

60%

Element high value


Redu

ces c

ost

Ther

apy

Nostalgi

a

Sens

ory a

ppea

l

Affili

ation

& belo

nging

Zappos Apparel avg. Amazon Discount retailer avg. eBay Discount

retailer avg. Netflix TV service provider avg.

Note: Apparel avg.. includes Macy’s, Nordstrom; Discount retailer avg.. includes Walmart, Target, and Costco; TV service provider avg.. includes Comcast, AT&T, and DirecTV. Top 5 elements with the largest % difference in high value space. High value space is the percentage of scores ≥ 8 across elements in each companySource: Bain Elements of Value survey, Oct. 2015, N=8,014, tested 12 industries and 47 companies


0

20

40

60

80%

Element high value space (Percentage

of scores ≥ 8)

Save

s tim

e

Avoid

s has

sles

Redu

ces c

ost

Prov

ides a

cces

s

Redu

ces e

ffort

Simpli

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0

25

50%

Element high value space (Percentage of

scores ≥ 8)

Badg

e valu

e

Attra

ctive

ness

Sens

ory a

ppea

l

Well

ness

Self tra

nsce

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Affili

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& be

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Online-only retailers win on functional elements; omnichannel websites win on emotional elements

ONLINE-ONLY RETAILERS HAVE HIGH FUNCTIONAL VALUE

OMNICHANNEL WEBSITES HAVE HIGH EMOTIONAL VALUE

Traditional (Online)

Online-onlyTraditional (Online)

Online-only

Note: Element high value space of brands in Retail (Macy’s, Nordstrom, JCPenney, Zappos, TOMs, Nike, Adidas, Lululemon Walmart, CostCo, Target, Amazon, eBay). Excludes customers who shopped both Online and In Store. Online-only are Zappos, Amazon, and eBay. Traditional (Online) includes the online sales of Macy’s, Nordstrom, JCPenney, TOMs, Nike, Adidas, Lululemon, Walmart, Costco, Target.Source: Bain Elements of Value survey, Oct. 2015, N=8,014, tested 12 industries and 47 companies

Functional elements Emotional elements


The Hunt for Value: Using the Elements of Value to improve business performance

IMPROVE PERFORMANCE CHANGE THE GAME1 2

Deliver more value on elements that drive NPS within your category

Add new Elements of Value to your category

Benchmark on the Elements of Value versus key competitors

Identify and capitalize on relative strengths to widen leads within the category on elements that matter

Attack market leader on its core Elements of Value—and close the gaps

Explore consumer needs and compromises using the Elements

Identify “white space” in the category where you may be able to drive value and differentiate

Innovate to break through in emotional elements to drive NPS and differentiate further

For value leaders like Amazon, this is a continuous process: Prime and Flex are great examples of new Elements of Value


The Elements of Value framework is relevant for many business applications

• Develop ideas about where to improve products/services and how to target different customer segmentsValue proposition

development

Innovation

Competitive differentiation

Consumer Journey

Brand strategy

• Provide a guide to interpretation of what might be important to customers and how that varies among different customer segments (highly complementary to NPS programs)

• Focus of BothBrainstorming sessions and other innovation applications

• Help clients understand where they are differentiated and how they are doing on their core elements of differentiation vs. their competitors

• Provide direction on content (e.g., could our brand be extended to deliver “access”?) since brand laddering is generally devoid of “value” content


B2B is very different from B2C and requires adjustments to the Elements of Value

B2B buying is done by people in a business context, using a variety of formal and informal processes

TABLE STAKES

Basic ‘table stakes’ in B2B are often higher than in B2C

B2B buyers are often spending large amounts of money and purchases impact many others—risks abound

FEAR OF FAILURE

B2B markets leave less room for error and force competitors to perform at a minimum threshold

B2B purchases are often complex on many dimensions – product, service, supply chain, support, integration

PURCHASE COMPLEXITY

Customer experiences are more complex and enduring and therefore harder to deliver consistently

Buying decisions encompass multiple stakeholders who each have personal and corporate-level considerations

DECISION COMPLEXITY

Sellers must appeal to the right decision makers at both levels in selling and serving

DIFFERENTIATOR CONTEXT IMPLICATION


Multiple stakeholders within an enterprise have competing interests and complicate B2B situations

B2B DECISION MAKING IS COMPLEX – ROLES AND AUTHORITY ARE OFTEN FLUID, UNCLEAR, AND “POLITICAL”

“I want a visionary product!”

“This needs to work with our IT stack.”

“This needs to cost less than $XM.”

“I need this to be easy to learn and use.”

CEO IT DIRECTOR PROCUREMENT END USER

Additional business stakeholders can further complicate the decision-making process as the offering may need to serve very different business requirements, beyond the useful tension around price, quality, interoperability, aspirations, etc.

“I need this to address our market in Asia.”

BUSINESS MANAGERS


The 36 Elements of Value: these lift B2B propositions above commodity status

EASE OF DOING BUSINESS VALUE

INDIVIDUAL VALUE

INSPIRATIONAL VALUE

TABLE STAKES

PRODUCTIVITYSaves time

Reduces effortAvoids hassles

InformsProvides transparency

RELATIONSHIPResponsiveExpertiseCommittedStableCultural fit

PURPOSEVisionary

Provides hopeSocially responsible

ACCESSAvailableVarietyConfigurable

OPERATIONALOrganizesSimplifiesConnects

Integrates

ECONOMICImproves top line

Reduces cost

PERFORMANCEProduct qualityScalesInnovative

PERSONALDesign &

aestheticsGrowth &

developmentReduces anxiety

Fun & perks

CAREER

ExpandsnetworkEnhancesmarketabilityReputationalassurance

CompliesMeets specifications EthicalAcceptable price

FUNCTIONALVALUE

STRATEGICReduces risk

ReachFlexible

Component quality

© Bain & Company 2017


The more elements you deliver on, the higher your NPS and repeat revenue (“relationship stickiness”)

0

10

20

30

40

50%

NPS

0

6

1-5

21

6+

34

2 4 4

Number of high value elements

Company

countNote: High value elements are those in which >65% of respondents rated the company ≥ 8; “high likelihood” refers to respondents giving a 5 to vendor for likelihood of repeat purchase (scale of 1 to 5)Source: Bain Elements of Value B2B IT infrastructure survey, March 2017, N=1,050

0

10

20

30

40

50%

Percent of respondents indicating

high likelihood of repeat purchase

0

21

1-5

36

6+

43

2 4 4Company

count

Number of high value elements

NPS INCREASES SHARPLY WITH HIGH-VALUE ELEMENT COUNT

INCREASE IN REPEAT REVENUE IS ALSO APPARENT

IT infrastructure


0

10

20

30

40

50%

40 50 60 70 80%

R² = 0.83

There is high correlation between B2B element performance and overall NPS

Note: Percent of high value ratings refers to the percentage of ratings ≥ 8Source: Bain Elements of Value B2B IT infrastructure survey, March 2017, N=1,050

PERCENT OF HIGH VALUE RATINGS

NP

S

IT infrastructure


Case study: Microsoft Azure performs well on 20 Elements of Value

EASE OF DOING BUSINESS VALUE

INDIVIDUAL VALUE

INSPIRATIONAL VALUE

TABLE STAKES

PRODUCTIVITYSaves time

Reduces effortAvoids hassles

InformsProvides transparency

RELATIONSHIPResponsiveExpertiseCommittedStableCultural fit

PURPOSEVisionary

Provides hopeSocially responsible

ACCESSAvailableVarietyConfigurable

OPERATIONALOrganizesSimplifiesConnects

Integrates

ECONOMICImproves top line

Reduces cost

PERFORMANCEProduct qualityScalesInnovative

PERSONALDesign &

aestheticsGrowth &

developmentReduces anxiety

Fun & perks

CAREER

ExpandsnetworkEnhancesmarketabilityReputationalassurance

CompliesMeets specifications EthicalAcceptable price

FUNCTIONALVALUE

STRATEGICReduces risk

ReachFlexible

Component quality

2017 Core block

2017 Core element

Expertise

AvailableVariety

Product quality

Innovative

Stable

Saves timeReduces effort

Configurable

Scales

Avoids hasslesInforms

Provides hope

Reduces anxiety

Responsive

Cultural fit

ConnectsIntegrates

Reduces riskReach

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