Creating, Recognizing & Measuring Value
Price is what you pay - value is what you get.
Warren Buffett, Chairman of Berkshire Securities
Deliver value that your customers recognize, appreciate and
reward. If you want your customers to value what you offer -
you must demonstrate that you value them and their money, risk,
time, staff, business, and needs.
Value implies trust so start by building trust. Always
underpromise and overdeliver.
Promise
"I'll get it to you within one week."
"It will cost about $1,000."
"I will need thirty minutes of your time." |
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Deliver
Have it delivered in three days.
It costs $950.
You use twenty minutes. |
Be known for keeping your promise and then some. Be honest.
Never promise what you cannot deliver.
Don't confuse value with cost. In fact, a product's value is
almost never equal to its cost. For example, your product might
cost you $2 and you sell it for $10. The value to you is $10.
The value to the customer will usually be more than the selling
price. If it was only worth $10 to the customer then they have
no motivation to buy. But if the value to them is greater than
the selling price, they are motivated to trade their money for
something of greater value. It may be worth $25 to the
customer. Then they will gladly give up $10 of their money for
the product. The more that value exceeds the cost of the
purchase, the more the customer will want to buy from you.
Always offer value that is greater than the price they pay.
The Value Formula
How can value be so different from cost? Examine the following
formula, then discover where you can concentrate your efforts
to enhance value.
Total value = real value + perceived value
Let's take it apart to understand it. Real value comprises the
tangibles. It is relatively easy to measure. Real value can be
expressed in this manner:
Real value = function/cost
Function is what the product or service does in mechanical or
analytical terms. Imagine you are buying a new car. If you are
shopping for the best real value, you would get the most
function efficient ground transportation for the lowest cost.
You could measure the car's function factor by comparing it
with the cost of your practical alternatives; public transit,
car pooling, taxi, bicycle, limousine, various car models. You
might wish to consider the costs of these alternatives in terms
of time and inconvenience. What does your new car give you that
these other modes of transportation don't?
Having determined the new car's function factor, you can divide
it by its cost. Is its function worth more to you than its
cost? If so, the new car has real value. At the end of your
analysis you would buy the cheapest car. Right? Not
necessarily. Remember that what you are willing to pay for your
car is based on the total value to you, which is a factor of
both real and perceived value. So, sometimes without realizing
it, you assign value to less quantifiable benefits and buy
something that you like. Liking is not part of real value, it
is part of a product's perceived value.
Perceived Value = belief x emotion
Compared with real value, perceived value is more difficult to
measure directly. Yet it can have greater impact on total
value. Perceived value is the product of belief times emotion.
It is influenced by many intangibles such as image,
credibility, beauty and feelings - all the benefits you should
emphasize in your marketing efforts. Emphasizing your perceived
value is the surest way to differentiate yourself from the
competition - and gain you more profit. Perceived value is what
makes a brand name more valuable than a no-name. Nike is one
example of a company that built a fortune on perceived value.
As individuals we think differently, perceive differently, and
place different values on things. Beware of that. Use it to
your advantage. When your prospect wants to negotiate price,
remember to build up your product's perceived value.
By the way, always deliver real value too.
Adding Value: Here are a few
ways to add value
How do you provide more value to your customers? Customers buy
both real and perceived value, and often they don't know the
difference. You might point that difference out when your
competitor is perceived to be superior. When you are perceived
to be better, enhance that image.
Cost
Notice that in the Total Value equation cost is a factor - but
only one. In a commodity market cost becomes the dominant
factor because function of competitive products is similar and
perceived value is ignored. If you compete on price then be
aware of the market you will attract.
Quality
What is quality? Buyers of Honda Civic, Ford Taurus, and
Rolls-Royce all claim to buy quality. And they are all right.
The secret of quality is to deliver what you promise. To
delight your customers, meet their expectations, and deliver a
little bit more. When we speak of quality, we often confuse
reality and perception. At one time buying IBM products was the
smart decision to make, even if they were not the best. The
name implied quality. Was that quality real or perceived?
Time
The competitive advantage of the new millennium is time. This
means respecting your customers' time. How long does it take
for your customer to get through to you? How long do you take
to respond? How long does it take them to fill out your silly
paperwork? How long does it take to receive the product? How
long does it take for you to upgrade and develop new products?
Identify and emphasize at least one area in which you can beat
your competition on time.
Image
Your personal and company image can add to or detract from the
perceived value of your product. Do you reach into your pocket
for a cheap pen or a Mont Blanc? Do you arrive in a limo or a
cab? Image is a strange thing. We might say it is not
important, yet we find ourselves judging others on their image.
Watch it! Your prospects are judging you. Does your 'client
list' improve your image? Do you project an image of success?
We prefer to deal with successful companies. Think of image as
the packaging of you, your product and your business.
Service
This is another term that is hard to define. Do you smile when
you greet your customers, even on the phone? Are you easy to
reach with a problem? How quickly do you respond and satisfy
the customer? Do you make your customers feel inadequate when
they complain, or do you welcome the feedback? Today many
companies stress customer service yet some still have room to
improve. Discover what your industry does to annoy its
customers then eliminate that annoyance from your business.
You should notice that each of these five factors can impact
both perceived and real value. Find ways to increase value to
your customers by working with both sides of the total value
formula. The total value you add will be measured by the growth
in your sales.
George Torok brings practical insights to business. He is
co-author of Secrets of Power Marketing, the first guide to
personal marketing for the non-marketer. As host of Business in
Motion he has interviewed over 400 business leaders. He is
available to deliver keynote speeches and business seminars.
Contact him at 905-355-1997 or info@torok.com
© 2000-08 George Torok All Rights Reserved
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