Have you ever wondered why your customers keep on buying your products or requesting your services? Why they are willing to pay more for some of the products and services and less for the others? Could it because you are the only supplier in the area? If so, suppose a new company in the same line of business as you opens up a shop in the area, would your existing customers still continue to buy from you or they would defect?
There are various reasons why your customers keep on coming back to do business with you but one of the most significant one is driven by the value that you are offering them. Value is the core driving force underlying every business decision.
Although managers talk of value when determining pricing strategies, unfortunately, very few understand the true meaning of value, what it is, why it is so important, how it should be communicated and its critical role in pricing products and services.
To many of us, value means different things. As a test, ask your colleagues what it is that they refer to when they talk of value? Chances are high that you will hear different definitions. For example:
Some people equate value to expectations. To them, value is getting more than what they paid for, be it for an item or service delivery. In today’s information and social media age, perception alone is driving purchases.
Prior acquiring certain products or services, customers are communicating with each other on various platforms about the organization’s product and service offerings. By the time the customer makes a purchase, he or she in his or her mind has already built up expectations on what the offering will be able to actually deliver.
Only at a later stage after completing the transaction is the customer able to reflect and conclude that his or her expectations have been met.
Other people view value as a fair transaction. They look at the limited resources at their disposal and how best they can use them to meet their expectations. When purchasing an item, a lot of sacrifice has to happen.
One has to set aside time to search for the right item and choose from among options, evaluate the cost of money to purchase, the price itself and any associated psychological risk factors.
This sacrifice goes beyond looking at the monetary costs and also reflects on the time and efforts invested in seeking out the good in question.
In this instance, value is therefore viewed as the worth of the item purchased at least being equal to and certainly not less than the sum of the sacrifices made in acquiring it.
While others view value as expectations and fair transactions, others see value as an improvement of the current situation. Customers are looking for investments that are capable of improving their lives significantly.
Likewise, business managers are not keen on throwing money and resources at investments that will deliver a poor return and put the business in dire situations. Instead, they are looking for investments that enhance the business’s competitive advantage.
If any investment derives a return that surpasses expectations and genuinely improves the current situation, then value is said to have been delivered.
The challenge on business managers is to look beyond pricing and make sure that their products and services are delivering value to the customer or to the end-user consumer. Making pricing decisions based on cost and competitors’ prices alone will not cut it through in today’s business environment.
Customers possess the buying power and can easily defect to new suppliers if they are not happy with the current offering. Businesses therefore need to keep on reinventing themselves, re-examine the reality of the value they are offering to their customers and find ways to enhance the value they deliver.
Focusing on value helps business managers to understand the actual needs of its customers and find unique and differentiated ways of meeting those needs effectively and efficiently. When we talk about differentiation, it is not just about doing something different. It is about doing something different in a way that really matters to your customer and not just offering price cuts.
So many at times, when confronted with a customer challenge on price, the sales response is often to discount which often leads to early product commoditization. Of course, your product may be heading toward commoditization.
If this is the case, a thorough assessment and evaluation of the product and its relevance in the market is necessary. This will help you craft a strategy to reposition the product in the mind of your customers and prolong its lifespan.
Focusing too much on price prevents useful discussion of the real value of the offer. As a result, the buyer fails to distinguish the merit of what he or she has acquired and fails to gain, through lack of awareness, the full benefits from the products and services purchased. You need to challenge any claim that your product or service is just like everyone else’s.
How are your products or services positively changing the customer’s overall product or service experience? Communicating your differentiated solution in a clear, compelling and persuasive manner is vital to persuading the customer do business with you.
Differentiating the organization’s total customer offer from competition means that this difference delivers real value that the customer can identify, understand, acknowledge and be willing to invest in.
Unfortunately, this is not the case for many businesses. What these organizations are referring to differentiation are merely differences in specification and nothing more. There are no critical differences between their offering and those of the competitors.
For instance, many are making changes that are resulting in easier production of the product or easier delivery of the service just because they have the technology or know-how to do so but not a differentiation from the customer’s perspective. What impact is the change you are making on your product or service having on the customer’s business, in terms of both economic and emotional considerations?
In today’s copy-cat environment, it is easier for competitors to emulate your products and services and surprise you. Despite this, many organizations are still of the assumption that their differentiation will make the competition irrelevant.
Never underestimate your competitors’ abilities to shock you. You need to find unique ways of influencing the relative value the customer perceives, make the customer choose your product and service and remain with you.
How good are you when it comes to listening and fully understanding the customer’s context, value-adding processes and pain and pleasure points? Are you able to consolidate this information and create a product or service that offers real differential advantage from that customer’s perspectives?
Gone are the days of pushing products and services to the market. To do well, the business has to be a good listener of its customers. You need to possess intelligent consumer and product insights that are capable of leading you to new ways of differentiation.
You can differentiate your service by ensuring that your customers receive consistently great service. Consistency is key to having dependable and reliable customers.
Convenience and customization are also key to successful differentiation. By improving the convenience to your customers of using your product or service through using methods that are difficult for your competitors to imitate, you may be able to lock them in.
With regards to customization, you need to deeply understand your customer’s value adding processes or production operations. Having this deep understanding will enable you to identify where your company’s unique skills can be applied for the benefit of both the client and the service provider.
By fully understanding the real needs and motivations of your customers and timely responding to them, you can differentiate your total customer offer and reap great benefits.
Although there are various ways the organization can choose to differentiate itself from competition, regardless of how it decides to do so, learning and understanding as much possible about the customer, her company and market is vital.
Where are the sources of pain and problems he or she is experiencing that no one else seems to be addressing? As a business, how can we leverage our unique capabilities, contacts, technologies or other resources to address the customer’s problems in a way that is difficult for our competitors to copy but at the same time make it easy for the customer to buy and remain with us?
You need to deeply know and understand your customer in order to build a powerful, persuasive and compelling value proposition. In this day and age of plenty information, you can never know too much about your customer.
Every single piece of information you collect goes a long way in helping you understand your customer’s business, context, strategy or desires. Value is different for every customer and even for the same customer under different circumstances. This value comes from knowing all the critical details about your customer.
Learn everything about their value drivers. In addition to understanding your customer, know your differentiation – how and why you are different from your competitors. This will help you identify your competitive advantages and disadvantages, develop effective business and pricing strategies and enhance customer value.
If you are unable to justify totally the value-adding elements of your product or service proposition, your total customer offer is highly likely to be rejected by your target market.