What is this Value Equation we’re talking about? Let us explain.
Put simply, it’s how consumers decide what to buy. In a recent article “The Math Behind Increasing Your Prices” we touched on the notion that price is only one part of the value equation. What can you do to enhance the value proposition? Let’s dive into that with Neil Parker, BridgePoint Group MD.
Let’s look at what a value equation looks like
There are many definitions out there but one thing we all agree on is that value is determined by the customer. For all the benefits he or she received, and for what it cost to obtain those benefits, did the product/service and/or experience meet expectations?
So by definition, value can be enhanced by improving the product, reducing the price per unit of product relative to those benefits and to the extent it’s possible, by managing expectations. Or some combination of those factors.
In the context of pricing, it’s certainly possible to increase prices without reducing value if you address the other parts of the value equation. For example, a rechargeable battery might cost more than a single-use battery, but because you can use it for longer, the customer still perceives greater value.
Real value or perceived value
Value comes in a couple of different forms – it can be real value or perceived value. Real value relates to the quality of the product/service and/or experience (think restaurants and theme parks) your business provides. The perceived value is how your brand connects with the customer. This can be pre or post purchase. It relates to what the customer feels about the interaction with your company. What was the emotional outcome? Was it positive? Will they advocate, be impartial or be detractors for future customers? Customers perceive value every step of the way in the buying cycle.
Are you genuine in your delivery?
One of the key aspects of your brand value is being consistent and genuine in your offering. If your messaging says “customer service is our priority” then make sure it is. Is everyone in your business clear and trained on what that means? If not, you could lose a lot of customers at the first interaction. Interestingly, note the link to the expectation you have created! We have all experienced the joy of ‘only’ spending 35 minutes on a call with our telco. Now, why is that a joy? Because we know it could have taken 2 hours and ended up going nowhere!
Conversely companies providing a consistent, relevant and communicated set of values, can charge a premium. Customers feel they get more from the experience and are happy to pay a higher price. It could be due to the box opening experience or the attention to detail given to when they interacted with the organisation. It could be as simple as providing shipping updates or the manner in which your service was delivered. Most important is consistency. Deliver what you promise. Every time with every customer.
The Hassle Factor
Price premiums can be directly correlated to a what’s known as the hassle factor. Or, put another way, convenience. How much of a hassle is it for customers to do business with you? Is your website easy to navigate? Are your policies on warranty, refunds or disputes biased against your customer? Is it easy for customers to talk to your company? If you provide a really good experience, people will pay a premium. People value their time highly so if you offer a customer experience that makes doing business with you easier (than the next guy), the hassle factor becomes redundant.
Value can also be beyond the product. Consider these three examples.
- Time and Place
If you had just flopped into that servo on a 40-degree day, after being stuck in traffic with no air-con, you would have willingly paid $4 for that chilled bottle of water! In these circumstances, the exact same product is more valuable to you because it’s right there when you need it most!
- Community Spirit
A business that sponsors a local sporting club. The company name is front and centre to all the club members and it is apparent that the company is supporting the club. That can influence a customer’s decision to buy from that company over a rival. A consumer may consciously or subconsciously feel something for your brand. It may be no more than the comfortable feeling of familiarity. Or it may be a case of “you scratch my back and I’ll scratch yours”.
- Give me a Purpose!
What about the “Thank You” company? Its premise was to plant a tree for every bottle of water sold. The water was not promoted as filtered, organic or sourced from a spring deep in Kosciuszko high country. It was a social movement, that as a customer, you were doing a good deed. (They have since stopped selling bottled water due to the environmental impact of single use plastics – sticking to their ethos) but the company has 55 other products in their range. They have built a company around a social movement and with product ranged in Coles and Woolworths.
Their point of difference has nothing to do with what they physically sell. It’s all about relatability – that company believes in the same things as me. It’s tapping into customer sentiment.
Value-Based Decision Making
How you treat suppliers, how you treat customers, how you treat your staff. The values that you live and breathe by, all go into your business value equation. As a business owner/business leader you have to make sure of your own value-based decision making. For more on developing your own value-based decision making, this article from Forbes is well worth a read. If you are clear on the values that you base your decisions on, then it will naturally flow into the business value equation. You need to display clarity, integrity and enforce those values. There are no grey areas as ultimately you are defined by your decisions.
BridgePoint Group helps businesses grow. Our professional service is wrapped up in genuine support. If you would like more information on growing your business or developing your business value equation, contact us on 1300 656 141 or email us firstname.lastname@example.org.