Why Do Your Customers Pay You for Your Knowledge?

Last week, I focused on how your company gets paid for its knowledge. Today, I’d like to focus on why your customers are willing to pay you.

This question is all the more acute given my post on Friday about the need to give away knowledge. This fact means that focusing exclusively on how you get paid will force you to miss some of the critical knowledge that distinguishes your organization.

In most cases, your customer is “buying” the whole package whether they pay for it or not, just as Google’s advertising are buying access to the users of the free service. So to understand Google’s search business or your own, you have to understand more than just the knowledge for which they get paid.

To identify the full picture of your critical knowledge, it is helpful then to move beyond the concept of products and services and ask three questions.

1- What Are Your Core Competencies?

To understand why your customers do business with you, it is helpful to first look deeper inside the organization. Competencies are a good place to start. Competencies are families of knowledge that are shared and captured within your organization. They represent knowledge that helps you do what you do.

Some competencies are common across all the players in an industry. Airlines, for example, need to have competencies in managing fleets of planes, reservation and routing systems. But not all airlines share Southwest’s competence at developing an empowered workforce focused on the customer—a factor that has helped Southwest compete on both price and service. You will see in future postings that all companies have a unique set of competencies that distinguish them.

2-What Is the Problem You Solve?

Next, you want to move outside your organization and shift to a (maybe the) critical perspective for any strategic business decision—that of your current and prospective customers. Seeing yourself in their eyes is an important reality check and keeps the exercise connected with your everyday business. We recommend doing this with a good cross-section of your team.

This is unique to each situation. You may provide a product or service that is a component of your customer’s value creation process. They may be outsourcing a function that they used to perform themselves and think that the cost or the quality would be improved by using a firm more expert in that function. It may just be a question of focus or interest—they may not want to bother with creating an internal equivalent to the solution you provide.

Most of the time, companies answer this question too narrowly, defining the problem as the product or service they provide rather than looking at the problem from the customer’s perspective. A classic example is railroads that thought they were in the railroad business rather than the transportation business. A great recent example we heard on the radio was the growing sales of milk shakes by fast food restaurants. The reason wasn’t because Americans suddenly developed a taste for milk shakes but, rather, that more and more people commuting in their cars were discovering milk shakes as a neat way to eat breakfast in their cars on the way to work. The problem from the customers’ perspective wasn’t finding the ideal milk shake, it was finding a breakfast that wouldn’t spill on their work clothes in a moving car.

3-Why Do They Choose You?

Of course, the obvious next question is how well you solve the problem for your customer. This may address how you stack up against the competition but it also gets to the second set of questions about how you do what you do. This is more of an internal question. What makes your organization different? This speaks to specific areas of expertise that help you not only solve today’s problems but continue to innovate new solutions to tomorrow’s problems.

Sun’s CEO, Jonathan Schwartz, told a story in an entry on his blog on March 11, 2009, about how he closed a deal with a client for a million dollar contract for support on free software. He teased the customer at the closing, reminding him that the software was free. But the customer was willing to pay because it meant that he could call Sun’s people, including Schwartz, if there was a problem with his implementation. His problems cost much more than the million dollar price tag. Sun’s knowledge was a great insurance policy.

Make sure you know why your customers buy from you.

From Intangible Capital: Putting Knowledge to Work in the 21st Century Organization