This is the final instalment in a three-part series on price
competition. For other columns
in this series, visit
www.investmentexecutive.com

Today’s consumers take a very different approach to deciding where to take their business. No longer are historical relationships the driver; just because a consumer has done business with a firm or person in the past doesn’t mean he or she will do business with the same in the future.

Yet, as recently as the 1960s, car buyers defined themselves as Chevrolet, Ford or Chrysler customers and often carried these loyalties with them for life. That is no longer the case. For more and more consumers, the only thing that matters is the value they receive in the here and now; in many instances, consumers base that value on price.

So, the bigger and more important the decision — and the less the costs and risks of switching — the more likely people are to migrate toward new providers that offer the promise of better value. Even the banks aren’t immune to this. Look no further than the success of ING Bank or President’s Choice Financial to see this phenomenon in action.

As a result, the single factor that will drive advisors’ success in the future is the ability to deliver — both in perception and in reality — clear, distinct, compelling value.

There are three components of value. The first and most important component is the tangible results and benefits investors achieve by working with you. The second element is the experience clients encounter en route to achieving those results. The third is clients’ overall relationship with you. Do they trust you? Do they enjoy dealing with you? Do they feel valued and acknowledged?

To deliver value to clients, you have to begin with the results you deliver. This is where investors start when they talk about the value they get from their advisors.

Defining the results you will deliver is a critical decision. In Ted Levitt’s all-time best-selling Harvard Business Review article, “Marketing Myopia,” first published in 1960, he wrote that the single most important question that companies need to deal with is: what business are you really in?

Defining the business you’re in encapsulates the value you provide and establishes a framework from which everything you do follows. It’s not an “elevator speech” designed to crystallize the benefit you provide in seven to 10 words; rather, it is the essence of the reason that people choose to do business with you.

Successful companies almost always have sharp, clear definitions of the business they’re in. Think Toyota, which is “in the business of reliable, well-designed automobiles that provide superior value.” BMW is “in the business of stylish, high-performance automobiles that are fun to drive.”

For further evidence, run down today’s winning products and companies: Starbucks Corp., Tim Hortons, IKEA, Apple Inc.’s iPod, Procter and Gamble Inc.’s great brands such as Tide and Crest — the list goes on. You’ll generally find these companies have focused definitions of the businesses they’re in and the value they provide, which customers can articulate and relate to.

Companies that are struggling — General Motors Corp., Ford Motor Co., and Chrysler LLC are three examples — generally have blurred, poorly articulated definitions of their businesses and most of their products. Their customers struggle to identify what the companies stand for and the value they represent.

Also, remember one of the central rules of today’s value game: in the absence of a clear sense that strong value is being received, consumers end up making decisions on price.

So, what value do advisors represent? Depending on the advisor you ask, you’ll get a variety of answers. Sometimes, the answers will revolve around investment results in one form or another.

Variations on the investments results theme include “providing superior long-term returns” and “delivering the returns investors need to achieve long-term goals, while managing downside risk.” Other examples of investment results-driven business definitions are “developing portfolios tailored to the specific needs and risk tolerance of each client”; “developing tax-effective portfolios to help clients achieve their retirement goals”; and “helping clients achieve their long-term goals while sleeping soundly at night.”

Other advisors define their value in terms of planning (“working with investors to plan for and achieve the retirement they want”), tax savings (“using innovative strategies and long-term planning to lessen clients’ tax burden”) or an overall approach to wealth management (“providing integrated advice on investment, tax, insurance and estate planning for affluent Canadian families”).

@page_break@Still others define the business they’re in based on a commitment to client education (“helping clients become more knowledgeable investors”) or on insurance-driven results (“working with clients to ensure that their families and businesses are protected from any eventuality”).

There is no one “right” definition of the business you’re in as an advisor; only the definition that’s right for you. Whatever your definition of the business you’re in, results are at the foundation of your value proposition.

There are four criteria for an effective definition of the business you’re in:

> First, it has to be relevant to clients, addressing real needs and problems.

> Second, your claim has to be credible.

If, for example, you work for a mid-market firm and your office is located in a suburban shopping mall, saying that you focus on meeting the needs of Canada’s millionaires is going to strain belief. Similarly, if you’re in your mid-20s and you decide to focus on working with seniors, you’re going to have an uphill battle to be taken seriously.

> Third, you have to be able to provide concrete evidence of how you deliver on your value proposition.

Clients today are inundated with hollow promises and are understandably skeptical. Increasingly, we live in a “prove it to me” world. One simple way to check if you meet the test here is to add another sentence after you lay out your value proposition. That sentence begins: “I do this by….”

Whatever your definition of the business you’re in, whether it revolves around investment returns, putting in place long-term financial plans, providing clients with tax savings, client education or anything else, you have to be able to support your claim.

The more concrete the support, the better. In addition to describing the process you have in place to deliver on your value proposition, it helps to provide tangible evidence and proof. So, for example, you might show prospective clients a sample investment statement (with personal information blanked out), typical financial plan, an outline of tax savings actually generated for a client, and so on.

> Finally, your value proposition should provide some level of differentiation.

In today’s competitive world, it’s not realistic that your business definition will be absolutely unique — although that would be nice. On the other hand, if what you’re claiming to provide is seen to be absolutely generic and universal, the impact of your value proposition to existing and prospective clients will be much reduced. That’s one reason for the trend toward specialization, focusing on narrow target communities or on specific areas of expertise.

Earlier this year, I wrote several columns on how other professions — accountants, lawyers, management consultants, travel agents, real estate agents — have moved away from a generalized approach in which they do everything for everybody toward one in which they focus either on specific types of solutions (an accountant might focus on tax planning or on purchases and sales of businesses) or specific types of clients (another accountant might concentrate on business owners, owners of restaurants or dentists).

One of the lessons from other professions is that generalists do just fine if they’re only competing against other generalists. But as soon as a specialist arrives on the scene, generalists often find themselves struggling against someone who, in reality and in perception, provides better value.

Some advisors resist narrowing the focus of whom they serve, concerned that if they define their value proposition too narrowly they will limit their opportunities. Experience has proven just the opposite. You are far better off delivering clearly superior and concrete value to a narrow group than more generic, less differentiated value to a larger group.

By choosing to focus your value proposition on retirees, for example, you’ll be able to do a better job of delivering value to clients — and they are more likely to see you as delivering value.

By focusing your value proposition even more narrowly, say, on snowbird retirees who winter in the southern U.S., you can differentiate the value you provide even more clearly.

Some of the most successful advisors I talk to are successful precisely because they focus on serving a narrow group. One advi-sor concentrates on recently single women emerging from long marriages as the result of either a divorce or death. Another focuses on senior management at three large companies in his community. Still another orients his practice toward people who work in the real estate and construction industries.

That decision on the business you’re in drives every aspect of your practice — how you spend your time, the number and the kind of staff you hire, the processes you have in place, the educational programs you invest in, how you communicate to clients, the kinds of investments you make in your business.

Once you’ve firmed up a clear definition of the business you’re in, you need to give hard thought to the implications, including the areas in which you spend time and money. The time and money you spend on your business falls into two categories: “good costs” and “bad costs.”

Good costs are those that strongly support your value proposition and that clients see as providing clear benefit and value. Bad costs are time and money spent on things clients see as representing lacklustre or marginal value and are not central to the business you’re in.

How you define the business you’re in and the core value you provide to clients has huge implications for your business. Arguably, it’s the single most important decision you’ll make. IE



Dan Richards, president of Toronto-based Strategic Imperatives Ltd., can be reached at richards@getkeepclients.com. For Dan Richards’ other columns, visit www.investmentexecutive.com.