Six Sigma Marketing: It’s All About Value Performance Gaps

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Reg Goeke

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 answers to these questions will bring a specific focus to Six Sigma projects that will lead to the creation and delivery of superior competitive value. In this column, we’ll begin with the analysis of your existing competitive value proposition.

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.)

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
The relative importance of these CTQs is identified on the model. The next step is to identify the actual competitive performance gaps (Figure 3) on the CTQs. (Click on diagrams to enlarge.)

Figure 2

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?