Customer Value Analysis – both your position on the Customer Value Map and the comparison but your business and your closest competitors in the Customer Value Attribute Matrix -will help you to identify your strategic issues.
The next stage is to think about your strategic options.
Bowman’s Strategy Clock was introduced in my favourite book on strategy – Competitive and Corporate Strategy by Cliff Bowman and David Faulkner, a lost classic text.
What is Bowman’s Strategy Clock?
Bowman’s Strategy Clock is a generic diagram represent the strategic options a business has to move in the customer value map. This is the relationship between the price a customer is willing to pay and the perceived customer value available from the product or service.
1 – The Importance Of The Customer Value Map In Bowman’s Strategy Clock
The customer value map shows the respective positioning of competitors competing in a market. Here is an extreme example in the car industry which shows that more expensive products must deliver more customer perceived value to compensate for the higher price.
Markets create a fair value for money line with competitors scattered along the line from low value-low price to high value-high price and around the line as well as some combinations of customer value attributes provide more perceived value for specific customers and segments of customers. For a more detailed understanding of the individual elements of customer value, read my article on Customer Value Attribute Maps.
2 – Bowman’s Strategy Clock
Imagine that your business lies on the value for money line and you are thinking about how you can strengthen your competitive position.
There are eight potential moves you can move which are covered by Bowman’s strategy clock:
- Move west – by reducing your price. This potentially puts your product in a strong position since it is above the old value for money line and gives you an advantage over your competitors. Unfortunately it’s likely to be short-lived since the price reduction may trigger a price war as competitors who lose share respond with their own price reductions. Sometimes price is a proxy measure for value, where value is difficult to assess so a price reduction may also reduce the customer’s perception of value offered by the product.
- Move north – by adding customer value or increasing perceptions of customer value through more effective signalling and market communications. This again puts you above the old value for money line and should make your product particularly appealing. Since adding customer value takes longer to imitate, you could retain your competitive advantage although competitors could cut their prices in response to return to the value for money line.
- Move east – by increasing your prices. This moves puts you at a competitive disadvantage unless your competitors follow your pricing lead and allow industry prices to move up. This is possible if customers are receiving much more use value than the price they are paying – it’s what economists call the consumer surplus.
- Move south – by reducing your customer value. Again this move puts you at a competitive disadvantage as you move away from the value for money line and may be more by accident than design. Plenty of businesses have needed to cut costs and have done it in ways that badly affect customers, creating a vicious circle of lower value needing lower prices to make the product look competitive.
- Move south west – by reducing prices and value. This is a move along the value for money line to a discount product position. If the market becomes price constrained through external pressures (e.g. the recession) then a policy of deliberating value to take costs out of the product to meet a lower price may be effective. At least it doesn’t have the kamikaze impact on margins that a move west has.
- Move north east – by increasing prices and value. This is a move along the value for money line to a premium price position where there may be a gap in the market. The downside is that as you move along the value for money line, you move into different customer segments where the underlying customer value attributes change. The car market is a good example where brand name prestige is a major factor. One of the big reasons why a BMW offers more value than a Ford is because of the brand image and what it says about the owner.
- Move south east – by reducing value and increasing prices. This should be commercial suicide since it will rapidly make the product uncompetitive. It could be used where you intend to withdraw from a product-market and you want to harvest what profits and cash you can get. However some products benefit from customer inertia and I’ve seen financial service products offer less and charge more but it’s not good for long term customer relationships since the supplier is abusing the implied trust to be treated fairly.
- Move north west – by increasing value and reducing prices. According to Cliff Bowman, this is the only move that is guaranteed to deliver increased market share. It is however an aggressive competitive move and competitors will be forced to react quickly so the company needs to have the lowest cost position and potentially deep pockets to retain its market share gains over the long term.
What I particularly like about Bowman’s Strategy Clock is that by thinking about how your business could move, it prompts you to consider the competitive response. Too often I’ve seen strategic plans with aggressive growth planned into the forecasts without considering competitors and how they can be expected to react.
3 – The Adapted Bowman’s Strategy Clock
My reading of Cliff Bowman’s books tend to see the Strategy Clock options as based from the fair value line.
In my experience, this may not be true which is why I have adapted Bowman’s Strategy Clock.
Many of the potential moves in the adapted Strategy Clock are the same but I want to focus on the situations at position D and position E.
In position D, the business has probably been losing market share and by doing the customer value analysis, the reasons why it is not competitive become clear.
It has two choices to restore competitiveness.
It can increase value offered by the product, not to establish a competitive advantage but to neutralise a competitive disadvantage. This will either involve changing the product or changing the internal capabilities in the business to deliver more customer value through faster lead times, more reliability and better quality.
Or it can accept that its product/service offering can’t be fixed quickly and cut its prices and return to the value for money line as a discount product. Although this may retain or improve market share, the impact on profit is likely to be very damaging unless unnecessary costs are ruthlessly stripped out.
In position E, the firm has been operating above the fair value line and probably been gaining market share unless few customers have seen its powerful offer. Competitors may not have reacted if it is seen as non-threatening or the cost of reaction is more than the lost share.
What should the strategy of the business at position E be?
It could promote its high value for money position much more but that’s likely to attract attention from competitors and could provoke a reaction.
It could increase customer value even more and strengthen its differentiation advantage.
Or it could increase prices and increase profit by moving closer to the fair value line. It may want to retain some advantage but if capacity is full and it doesn’t want to grow – many private businesses are happy to stay at a certain size – then a price increase can be highly profitable.
Criticism of Bowman’s Strategy Clock
I really like Bowman’s Strategy Clock and all his work on the Customer Matrix and Producer Matrix because of the clarity it brings to competitive strategy and the options available to a business.
Bowman is challenging Michael Porter’s ideas on generic strategies and suggests that a differentiated, low cost hybrid position may be an achievable position. Porter himself admits this is the case under certain conditions but Bowman’s Strategy Clock doesn’t make these conditions clear.
For more details of the generic vs hybrid strategy debate
The strategy clock can also lead to negative thinking and almost justify doing nothing. Its strength is considering competitive reactions to possible moves in the clock but you can argue that all of them could be damaging to profit. Sometimes you have to be ready to take a risk and make a decisive move because if you don’t, another competitor will and then you’re left playing catch-up.
The strategy clock is a tool that has a bias towards helping to direct competitive strategy to increase market share. Positions above the fair value line should increase share, positions below will probably cause market share to fall. Its prescriptions are not so clear on the profit impact of moves around the customer matrix.
The strategy clock works through segmenting customers into groups. This is a nice, tidy simplifying assumption but I find the intellectual appeal of Shiv Mathur and Alfred Kenyon ideas on private markets compelling although difficult to work with.
If you’re using Bowman’s Strategy Clock for your business, you’ll be looking at competitors in a circle around you. Your customers aren’t starting in the same place you are in their buying decisions. Instead they have their needs and customer value attributes and you may squeeze it at one extreme or another. Your moves may not have the expected consequences.
In my experience people are often constrained in their consideration of options. Sometimes on price and sometimes on value.
While it would be simple to assume that people are constrained by a maximum price rather than a minimum price i.e. they won’t pay more than X but they’ll happily pay less than Y, this isn’t true. A look at your own purchasing behaviour will show a bias towards high, medium or low.
It’s the same with value.
This link between price and value where price is a proxy for perceived value can be very strong and it makes accurate predictions of moves around Bowman’s Strategy Clock unpredictable.
It’s very logical but we often base our purchasing decisions on emotion and then try to put some kind of rationalised argument together to justify what’s happened.
That’s why in practice, pricing moves should be tested.
For More Details About Bowman’s Strategy Clock
I’ve seen the Strategy Clock covered in a number of strategy books I’ve read including
Competitive & Corporate Strategy by Cliff Bowman & David Faulkner
Strategy In Practice by Cliff Bowman
Exploring Corporate Strategy by Gerry Johnson, Kevan Scholes and Richard Whitington (I haven’t checked the latest edition)
There are a few other UK strategy books I’ve seen cover it as well.
The Strategy Clock And The Six Step Profit Formula
To help keep your strategic thinking grounded in what can help your business to increase profit over the short and long term, I use the Six Step Profit Formula.
Bowman’s Strategy Clock is particularly helpful in thinking through your options to create your Irresistible Promise which persuades potential customers to buy and how competitors may react to changes in your value for money offer.
What Do You Think About Bowman’s Strategy Clock
I’m very interested to hear what you think about Bowman’s Strategy Clock.
Do you find the insights it gives – either in practice or when looking at strategy cases – powerful?