Cutting prices is a strategy that does not deliver value in the long run. Not in terms of customer equity, shareholders or stakeholders. The post included describes another approach.
By Jim Barnes, Barnes Marketing Associates, Inc.
A company’s value proposition can’t be carved in stone; it must be flexible and adaptable. The value we offer to customers is constantly changing, whether we intend it to or not.
The challenge we face in business is ensuring that a large percentage of customers, and particularly those customers who are critical to our long-term success, view our value proposition consistently and as we intended, and that they see real value in it.
The customer’s perception of value is individualized and dependent on context and circumstances. What to one customer represents great value is to another a waste of money. What customers perceived to be great value in early 2008 may not represent the same value a year later.
What is Value Today?
In troubled economic times, many consumers will forgo a vacation or delay buying a new car, but they will retain a few items on which they are not prepared to skimp. Last week, while I was having my hair cut, Jennifer observed that her business was practically “recession proof.” Her salon has experienced an increase in business in recent months, as many people turn to a new hairstyle and manicure as one means of coping with the downturn in their investments. For some of the same reasons, sales of books are up, as are those of movie rentals and movie tickets. Suddenly, consumers perceive greater value in these purchases than they do in others.
And there are some consumers who have not been negatively impacted by the economic circumstances of the past year or who continue to see value in products that others might consider to be priced outside their range. In Canada, Mercedes-Benz and Audi have reported double-digit sales growth in the past 12 months.
Value perception is not always predictable.
Where consumers perceive value is a fascinating study. Businesses need to explore the concept of value more deeply so as to better understand what customers consider valuable to them.
Most customers have a much more complex definition of value then many marketers seem to give them credit for.
Now is no time to diminish the value that is inherent in what we offer customers. In fact, we need to find ways to add even further value to compensate for the fact that most consumers are today much more value conscious. Dropping prices is the easy option, as is the offering of deals or specials. The world is full of these right now. But hidden amongst the flyers and screaming TV ads from big box electronics retailers are dozens of independent retailers who haven’t dropped their prices and haven’t been drawn into the orgy of price cutting, who quietly continue to offer good prices, loads of advice and superb service.
These independents understand that their future depends on their ability to create customer connection by offering more than a great deal. They will go out of their way to accommodate customers with respect to delivery times; offer to consolidate their many TV/video remotes; continue to send technicians to customers’ homes rather than defer to manufacturers’ warranties. In short, they make it easy for customers to see their added value.
The reason why some retailers do not have to resort to price cutting is quite simple. Most customers have a much more complex definition of value then many marketers seem to give them credit for. Customers have a unique and personal view of value; they see value in more than product and price. Customers currently have less to spend, but they will spend their smaller discretionary budget where they feel they get the best total value. This doesn’t mean opting for the lowest price.
Delivering more value means getting creative and looking for ways to add what the customer will appreciate and will take his or her eye off price. For example, I was in a specialty food store last week and asked a clerk for a particular brand of olive oil that I had bought in the past and especially liked. They did not stock that brand, but the extra-helpful employee said he would contact their wholesaler and would have it in the store for me in a couple of days. He said they would call me when it arrived. Did I ask the price? Of course not!
So, what do examples like this tell us about what we should include in our value proposition? Certainly, it is always important to offer good value for money, but how do we create value in the customer’s mind that will allow us to earn the prices we want to charge?
Two Sides to Your Value Proposition
First, consider that there are two sides to your value proposition. The tangible, functional, “hard” side involves the efficient delivery of all that customers would expect of a reliable company — good product quality, attractive prices, timely delivery, convenient access, accurate billing, etc. This view of the value proposition results from a “left-brain” definition of what constitutes value, that is most often represented as “value for money.” This predictable view of value is what leads firms to offer a predictable array of cost-cutting deals, or two-for-one offers — not especially creative or effective in differentiating the company from the competition.
But, there is another side to the value proposition that is more important in producing a positive impression of your firm. The less tangible, more emotional, “softer” side of the value proposition involves how employees interact with and treat customers; how the company behaves toward its customers; what level of service is provided, how empathetic and caring employees are and whether they look for opportunities to impress customers. This side of the value proposition involves not only the level of service that is offered, how speedy and efficient it is, but the kind of customer experience that is created.
It is always the case, but especially so in times such as these, that we offer compensatory value; offer the customer something that will allow us to earn the prices we want to charge. This means that we must go above and beyond, creating new and different forms of value that will compensate for the pressure on customers to obtain more for less — that is, more physical product for less money. We have to create sufficient value to justify in the customer’s mind why he or she is continuing to pay more for what we offer, rather than opt for the bargains down the street.
This is where I look to an impressive and superior customer experience to create value. While the concept of the customer experience has received widespread attention in recent years, I suggest that many companies have not delved deeply enough into its potential to create differential value for the customer. When faced with a challenging marketplace, most will revert to price cutting and to reducing expenses by cutting back on precisely those resources that deliver the softer forms of value.
Four Softer Forms of Value
I suggest that companies should look at how well they are delivering four types of experiential value:
- Make it easier for them to deal with us. Reduce the effort that customers have to expend; get rid of rules that make them jump through hoops; reduce wait times; reduce the work they have to do. Customers don’t need any more frustration in their lives at the moment. Their collective fuse is shorter and they’ll leave at the drop of a hat if we put them through complex processes. So, answer the call more quickly, avoid handing them off to colleagues who will have them tell their story all over again, don’t make them answer 15 questions when five will do.
- Treat them better than ever before. Put your best foot forward, impress them with service. Now is the time for impressive service to occupy its rightful place in the value proposition. I see far too many companies cutting back on service to reduce costs. Despite widespread advice to the contrary, they opt for a short-term solution that serves to reduce the level of service at precisely the time when it is most needed.
- Help them get things done. Offer good advice; impress them with new ideas; deliver “I’ll-look-after-that-for-you” moments. This will require that we make a greater effort to identify what the customer is trying to accomplish, what he or she needs to get done, and then looking for ways to make it happen. Anything you can do to facilitate that will be appreciated. Create that “one-less-thing-I-have-to-worry-about” response.
- Surprise them occasionally. Now is the time to offer more, not less. But, this does not necessarily mean offering more product or giving away things that the customer may not even appreciate. Instead, offer to carry things to the car, drop that item off at your house so you don’t have to make a trip down here, or sew the hole in the pocket when the pants are in for dry cleaning. These may be viewed as little things, but they have the potential to make a big impression, especially when competitors aren’t offering them.
More Than Marketing
One last piece of advice; don’t leave responsibility for the value proposition to your marketing department. The marketing department in most firms is responsible for advertising campaigns, packaging, label design, special price offers, and the like. But, value delivery is everyone’s responsibility. Every department in the firm can create value and also has the potential to enhance or diminish the value that customers see in what you bring to the table.
Don’t leave responsibility for the value proposition to your marketing department.
Customers today are more likely to be willing to leave to get better value elsewhere; don’t give them a reason to take their business to a competitor. They are likely to be more edgy and anxious in the sense that they will leave for reasons that might not have been serious enough to have caused them to leave just a year or more ago. They are less forgiving today simply because they have less money to waste. They want better value and we have to deliver it if we are to persuade them to stay.
Everyone in the firm has the potential to cause customers to leave. The people who we put in front of them, the design of telephone and web systems, the time we leave them waiting on hold, the stupid rules that cause them to solve their own problems—all contribute to creating an experience that might just turn a customer into a former customer.
On the other hand, of course, turning these customer interactions into positive experiences will go a long way to creating a softer form of value that customers will notice and that will impress them in a climate where many of your competitors are cutting back.