Creating, Recognizing & Measuring Value
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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." 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.
Creating Recognizing Measuring Value - To learn more about this author, visit George Torok's Website.
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