“Price is only an issue in the absence of value”

At a recent business meeting, Stephen Giulietti (VP Wealth Management at Smith Barney, Boston),  dropped this business aphorism in the midst of a story,

“Price is only an issue in the absence of value.”

This pithy little sentence reminded me of the continuing importance of the concept of “value”. One tough part of understanding and leveraging “value” is to understand where it originates.

Most business people act as though, and believe, that value is something that they develop, design, promote, sell, and produce for customers. Every function in a company believes that they produce value for their customers. Marketing and product development invent, position, and promote customer value. Every other function along the way to the actual delivery of a product or service to the customer declares that they are producing value for customers. But, ask, “How do you know that you are producing value for customers?”  Very few can demonstrate that they systematically ask real customers to evaluate the value provided and actually act on the feedback they receive. So, this value is a self-defined and self-evaluated proposition.

The toughest point about “value” is to actually understand and embrace that customers define value. They define it as they make purchase decisions for products.  In the case of services, customers continuously evaluate value. This occurs through those Moments of Truth ((you can download a whitepaper on Moments of Truth – “Managing Moments of Truth  – Value Creation for Services Organizations” from our Resources page )) that happen every time a customer engages you for a service.  It is easy to say, “Customers define value”. It is enormously difficult to follow the logic of this statement and implement the processes to assure that value definitions flow from customers. This commonly starts at the very beginning of the product development and marketing processes. Then, other processes pick up and carry it throughout the life cycle of a customer relationship.

Start with some basic ideas and work to the more rigorous. For example, think through the implications of the age-old selling technique, FABing (Features, Advantages, and Benefits). Most of us are reflexive and exhaustive in listing the features of our services. But, discipline yourself to confirm what the benefits are. Here is the parallel with the principle that customers define value, customers only buy benefits. Start with benefit statements and work backwards to the supporting advantages and features. This simple tool, applied to the new product development process, for example, means that you actually ask customers to help you invent the product/service. They get to define the benefits they are seeking. Then, engineers and others can develop the features to supply the benefits. Always ask, “How does this feature deliver a benefit customers said they want?” This will help to prevent feature creep and gratuitous design.

Now back to our aphorism – “Price is only an issue in the absence of value.”

Now that we think that we might have a method for determining what a customer desires in a product or service, how do we attach a monetary value to it? Our aphorism suggests that if we can present some real value to customers, then the price we charge will always be OK. However, if you are involved in a commodity, or near commodity business, for example, pizza, automobiles, refrigerators, aspirin, and so on, you are stuck with the fact that the price is quite driven by direct comparison shopping. So, by and large price really is an issue.

Some of these commodity markets actually offer substantial price ranges based on perceived brand valuations. Think of the price of Bayer aspirin versus generic aspirin, for example.

But, for most small businesses the only brand available that can win the higher price is one supported by real values like proximity, friendliness, promptness, politeness, courtesy, responsiveness, reliability, thoroughness, and others. Note that these values can be produced reliably and repeatedly. Note that these values offer opportunities to build a sustainable advantage over competitors.

These values apply to professional services, retail, home services, medical, wholesale distribution, in fact anywhere where business is conducted between humans. Without much of a stretch these same values apply on the Web.

The key challenges for most small businesses, especially those involved in services, is to correctly understand the total value you are delivering to customers. And, you must present this to customers in a manner that upsets their mental framework, their points of view, that they approach the service with. For example, is a will just the 20 page document that costs $800 placed in your hand? Or, is a will really a series of services that encompass uncovering your real desires for passing things and values along to your heirs and ends after your death with the proper carrying out of your wishes?  An initial difficulty is to overcome the presumption by the customer that a will is just a document. How do you upset that framework and replace it with a new one that encompasses a larger, more valuable, cycle of services?

There is no cookie-cutter solution to this. But, the first necessary step is to envision the value, ask customers about this new vision, revise the vision based on what you learn, and then you will be positioned to answer the questions: (a) how do I reframe the value proposition, and (b), what monetary value do I attach to it?

I believe that if you do a thorough job of answering the first question then, in fact, assuming no craziness in the valuation, the aphorism will hold:

“Price is only an issue in the absence of value.”


Customer-Centered Business – Peter Drucker and Web Marketing

Drucker

Recently I have been returning to Peter Drucker‘s work, specifically The Practice of Management (originally published in 1954, the current edition is HarperBusiness, 1993). On page 50, Drucker says the following:

“What is our business is not determined by the producer but by the consumer. It is not defined by the company’s name, statutes, or articles of incorporation but by the want the consumer satisfies when he buys a product or service. The question can therefore be answered only by looking at the business from the outside, from the point of view of the customer and the market what the consumer sees, thinks, believes and wants at any given time must be accepted by management is an objective fact deserving to be taken as seriously as the reports of a salesman, the tests of the engineer or the figures of the accountant — something few managements find it easy to do. In management must make a conscious effort to get honest answers from the consumer himself rather than attempt to read his mind.”

Customer -Centered Business

So here we are reading something written in 1954 that is still very difficult to do. Almost everyone in business speaks the words, the rhetoric,  of the customer centric business. But it still seems incredibly difficult to overcome the centripetal forces of day-to-day business and really engage customers directly and frankly.

Web-Marketing

A recent social web marketing seminar (Social Media Club Boston) reminded me again of this very same problem. One of the presenter’s, Greg Jarboe, SEO-PR, told a wonderful story of  how Southwest Airlines learned that though they might forbid the use of the word “cheap” internally, customers on the web are searching for “cheap airfares” not “inexpensive” or “frugal” or “cost-effective”. Even on the web, or perhaps even more so, the customer defines the terms and values of the game. All the more reason to put effort into finding out what they customer really wants.

Must Read Web Marketing Book: D. M. Scott’s “The New Rules of Marketing & PR”

Michael Volpe, VP Marketing at Hubspot, the web marketing software company, pointed me to this book in one of his presentations. I have been sufficiently impressed by the quality of HubSpot’s work that I ran over to my local library and signed it out.

newrules_dmscott.jpg

The New Rules of Marketing & PR is a breakthrough book for me about the new world of web-marketing. Here is Scott’s list of the new rules of marketing and PR (I added the numbers to the list for reference later):

  1. Marketing is more than just advertising.
  2. PR is for more than just a mainstream media audience.
  3. You are what you publish.
  4. People want authenticity, not spin.
  5. People want participation, not propaganda.
  6. Instead of causing one-way interruption, marketing is about delivering content at just the precise moment your audience needs it.
  7. Marketers must shift their thinking from mainstream marketing to the masses to a strategy of reaching vast numbers of under-served audiences via the Web.
  8. PR is not about your boss seeing your company on TV. It’s about your buyerts seeing your company on the Web.
  9. Marketing is not about your agency winning awards. Its about your organization winning business.
  10. The Internet has made public relations public again, after years of almost exclsuive focus on media.
  11. Companies must drive people into the purchasing process with great online content.
  12. Blogs, podcasts, e-books, news releases, and other forms of online content let organizations communicate directly with buyers in a form they appreciate
  13. On the Web, the lines between marketing and PR have blurred.

Numbers 3, 4, 5, 6, 11, & 12 are the core of the message. And I might add a couple of more notes here. First, all of this is hard work. You don’t hire some outside ad firm to handle this. People intimate with your company’s core values need to be involved. But, then, this means that with a bit of good focus and time management, you also do not need to spend a lot of money to utilize these tools. Second, the role of truth seems central to how you communicate, listen to, converse with, and engage your audience, your clients and customers.

Scott’s book is very well written and clearly organized. This is a must read for those of us still trying to figure out how to leverage the new web-marketing world. It provides a great introduction to seeing an overall strategy for web-marketing.

If Content Is King on the Web? – What Are the Best Modes of Communication?

If you are trying to build traffic and adhesion for your business on the web, “content” is central to any strategy. But, what is this “content”? How do you decide what the content should be?

The answer to this question probably lies in some basic thinking about who your target customers are.

Jaffe Customer RolesIn addition it would be useful to think of the many ways in which you might communicate with your customers. On the web you have a lot of modes in which to play. As suggested by the excerpt ( shown to the left) from Joseph Jaffe’s Join the Conversation, a consumer can play a range of roles. So, in thinking about content, it may prove most productive to engage a parent of middle school children (in the Participant and Community faces a la Jaffe) in a conversation about barriers to better school performance in web community using blogging, bulletin board, or wiki techniques. Here your content expertise in middle school eduction can shine through in the discussion. And, you might even learn something about how parents view these issues.

A future departure for thinking about how to target and communicate with customers on the web is to lay Jaffe’s contribution of the Six Cs mentioned in an earlier blog article (opens new window) on top of his “Many Faces” idea show here.