Customers have always bought products and services based on their interpretation of value. Customers used to apply basic math when selecting which company they purchased from based on some combination of price and quality.

They’d ask themselves, “Is it expensive?” “Will it last?” And, “What intersection of affordability and outcome is most important to me?”

Today’s customers apply calculus when determining value. They weigh the purchase’s convenience, delivery, follow-up and maintenance, customer specifications, integration, leasing or purchasing terms, experience, returns and upgrades, payment options, ecological impact, brand trustworthiness, and more.

With so much competition, you can understand why a business owner would assume they would have to satisfy all possible customer requirements to gain market share. But that’s not the case. And let’s be realistic — you can’t be everything to everybody. Nor should you try. The key to gaining market share isn’t trying to provide to all markets but focusing on the discipline that delivers the most value to your total addressable market.

According to the Value Discipline Model, businesses can deliver the most customer value by focusing on one — and just one — of three value disciplines: operational excellence, customer intimacy, and product leadership. You cannot neglect the other two, but you can still succeed as a business while only maintaining industry standards in them. Once you have excelled in one discipline, it’s hard for your competition to catch up. When choosing your value discipline, the decision can be a bit chicken-and-eggish when selecting the category of patrons to target.

Operational Excellence

Customers of companies who follow the discipline model of operational excellence define value with an emphasis on price but also require convenience. They could hardly care less about brand loyalty or premium quality. These shoppers might frequent membership warehouse stores like BJ’s Wholesale Club and click on Amazon’s website for overnight home delivery. They might drive a Ford Explorer (like me) but raise an eyebrow at the cost of a Range Rover (also like me).

Companies that focus on operational excellence are constantly cutting overhead costs so that they can lead their industry in price. They also eliminate production and workflow steps from beginning to end to make purchase and delivery convenient for the customer.

Customer Intimacy

When businesses don’t have a clear value discipline, they fall into the trap of saying that they lead with customer service. Ugh. Almost every business owner I meet believes their customer service is the best and differentiates them from their competition. As I reminded readers in the column “’My customers love me,’ and other lies business owners tell themselves,” unless your company is truly outstanding, it is prudent to remember that, “we live in a world where excellent customer service is a de minimis, not a differentiator.”

Customers in this group expect a customized product or service. The Ritz-Carlton pursues this value discipline. Some people won’t spend $200,000 on a Range Rover, but they will pay a couple grand more per night for basic lodging that feels personalized. At its base level, the Ritz doesn’t offer anything more than the Holiday Inn Express. Perhaps the locations are typically closer to downtown experiences, but it’s still just a place to lay your head and eat room service in a bathrobe.

However, the Ritz-Carlton’s valet welcomes you with a “great to see you again, Mrs. Smith!” before walking you to registration to sip on your choice of beverage as the concierge prepares your tailor-made itinerary. If there’s something you need, or if something went wrong, here’s a secret you’ll find intriguing — the Ritz-Carlton empowers its employees to spend up to $2,000 to help guests resolve issues. It’s not to make up for things the hotel did wrong — it rarely makes mistakes. The $2,000 is a tool for employees to enhance any guest’s experience, even those already enjoying themselves.

It can be used to help over-compensate in problem-solving, but it’s mostly a way to find opportunities to delight.

If your company wishes to employ customer intimacy as a value discipline, it needs to define its target market precisely and tailor offerings to those niches. This model requires a lot of customer knowledge and operational flexibility for customization. Employees must be efficient but take their time. The strategy isn’t to sell but to serve. The “sales force” is typically educated and experienced and often works directly with the customer after the sale.

Companies focusing on customer intimacy understand that an initial transaction can result in an initial loss. That is acceptable because the clients tend to be sticky. These leaders consider their customer’s lifetime value and ensure that each customer gets a customized experience with little regard to cost. My company, Berkshire Money Management, prioritizes product leadership. However, something about BMM might help you understand this value discipline model.

According to a 2020 survey by Kitces Research, the average cost for a financial adviser to acquire a new client is $3,119.

Berkshire Money Management’s new client acquisition cost is nearly seven times that. Part of that higher cost is providing services required by the type of clients we want to work with. For example, business owners who have someone to file their taxes but could benefit from planning to reduce future taxes.

Because BMM knows who we want to work with, we can focus on segmented marketing. That also raises the acquisition cost. However, these clients have more sophisticated needs, maintain lengthier relationships with my firm, and have larger investment portfolios, which leads to increased revenue. This is true of other companies that follow the value discipline model.