One of the nicest examples of how thinking more about customer needs is pushing profits onto the bottom line for both the buyer and seller in business-to-business marketing is Rolls Royce Aero Engines. In discussion with their customers they found out that what they were really buying was not a clever engine but cost-predictable flying miles. This is today widely called “power by the hour”. A friend of mine, Dr Iain Davies of the University if Bath, has jointly written the case study on this aspect of Rolls Royce. He makes the point that nowadays all products clearly include goods plus services and increasingly the service part is a big opportunity for competitive advantage as goods become more and more similar.

When Rolls Royce decided to respond to a request from American Airlines for a service package covering everything ‘under the pylon’ they branded their offer TotalCare and soon began to realise this really meant shared objectives in the smooth running of the planes. The division between producer and consumer, which so often characterises business selling, has to be removed. In this situation it was most frequently seen in post purchase “safety” upgrades at huge cost. Just before the TotalCare deal was done the major overhaul of two AA engines had come in at $8.5 million against an indicative cost of $6 million not the best way to make friends.

Moving from a confrontational way of doing business to a collaborative one is not easy. It clearly demonstrates that a shift towards services thinking makes us more customer focused. Equally important from a leather point of view it starts to shift pricing away from value in exchange to value in use. With leather we are entering a prolonged battle with ever improving synthetics. And under the old fashioned marketing rules synthetics are starting to win, but how about when we consider leather in use? While well-made leather wears well over time, synthetics fail the jungle test and start pealing or wear down to a woven base. The synthetic price might look right at first but its value over time is usually poor – as long as the leather is well made.

There is a shift going on towards the marketing of experiences – that is why we pay a multiple of the utility price for a coffee in Starbucks. They offer an experience that involves the senses: taste, smell and sound – with feel managed via the furniture and the way customers interact with the barista. The whole environment of the cafe is designed to play on the emotions and make the customers feel good about themselves. Experience is the value we get as a result of consumption and that is where leather should always win over oil-based competitors. It means that the value of leather is co-created with the final consumer as the product is used. That handbag that you fall in love with, the brief case that you will never give up. The healed scratch on the leather is a characteristic not a blemish and the coffee stain on the pocket book is a memory and not a problem.

When we develop new leathers we need to consider this. Who, outside of the automobile leather tanners, develops new leathers with some serious consideration on smell and sound as well as look and feel? Who is really thinking about how the final article will look after 1,3,5 and more years?

All products involve goods that perform services to provide consumption experiences. The product becomes the embodiment of the service and the service can become the unit of exchange rather than just the product. So instead of being traded like a commodity the price of the leather becomes negotiated with an understanding of the value in use being taken into account. Once tanners start achieving this, through a focus on the consumer needs and benefits the landscape begins to look more favourable. 

Mike Redwood

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