Last time I spoke in general terms about the value equation – the idea (well, reality, really) that customers measure value when making buying decisions.
And value is effectively the difference between benefits and price – what they get less what it costs.
I think a mental hurdle many business owners fail to get over is that value is not the “what it costs” bit – it’s not the same as price. Price is just one part of the value equation:
Value = Benefits/Price
Yes, you could give customers greater value by reducing prices, but that is a one-way ticket to Insolvency City for small businesses. If you compete on price alone, you have to be a big volume trader (pile it high, sell it cheap) to make any sort of profit.
Inevitably your competitors will follow you and it just becomes a race to the bottom.
A far better strategy for any small business is work the value equation the other way – increase the benefits to the customer so that prices can increase (or at least not go down) but the value to customer is maintained (or better still, increased).
So what are the benefits we’re talking about? Service-type things; things that broadly fit into the “how we do what we do” category rather than the actual product or service itself.
It could be delivery times; complaint handling; a no quibble returns system; speed of returning calls; politeness of staff; cleanliness of vans; guarantees; little gifts with deliveries; follow up calls from a director; extra little services that are cheap to provide; birthday cards and so on.
The list is endless and depends on your business and your customers. But – don’t assume you know what your customers value. You have to bite the bullet and ask. I can guarantee there will be things that customers value that you wouldn’t have considered. And things you think are great but which customers don’t care about.
For example, imagine you’re a roofer. You’d like to charge a bit more, but it’s a competitive market so you need to up your game in terms of what you’re offering. A roof’s a roof after all.
You could signwrite your van with an unbeatable offer – Free Estimates. Given that no-one has paid for the privilege of an estimate for 75 years that has limited value I suspect.
Alternatively, perhaps you could take your phone up on the roof and video the work that needs doing, so the house owner can see for themselves without having to climb a ladder. Add a few more simple touches like that and I would think you’ve got the makings of a premium service there.
A great way to make this work is to package service items into different bundles – Gold, Silver, Bronze or whatever, and charge different amounts for each. If you think the 5-star car wash is significantly more expensive to perform than the 3-star version – think again. I’ll explore this in more depth later.
Chris Martin is a chartered accountant and business advisor and has been helping franchisees create and grow wonderful businesses for over 20 years. He is a published author and has written extensively on franchisee tax issues. He passionately believes that whilst franchising is a deservedly successful business format, franchisees are often let down by their franchisors’ failure to offer support and guidance regarding the financial side of running the business. This leaves franchisees frustrated, overwhelmed and unable to grow their businesses to the extent they should. Chris has developed simple systems, support and guidance to ensure franchisees create businesses that provide them and their families the lives they so richly deserve.