Using the Value-Price Seesaw to Make More Money

Price is what you pay, the value is what you get! – Warren Buffett

Are your prices too low? Are you not getting paid enough? Do your customers do not appreciate what you do for them?

Why is this? Whose fault is it? I can tell you the answer – and you probably won’t like it! If your prices are too low then it is your fault.  Yes, yours and no-one else’s. So, you need to do something about it!

I know this is not a “cool” thing to say, but let’s not waste time making excuses for ourselves or our lack of effective action.  You may be in a difficult and competitive market, but that does not mean you try to compete with everyone on price.  It is easy to find people who cave-in to external pressure, but there are plenty of companies out there who are doing a roaring trade in exactly the same environment. Don’t look for reasons not to act or to act half-heartedly, but look for reasons to act boldly and decisively.

The problems when you compete on price are multi-fold and include:

  1. You position yourself as a commodity – you become something that is easily replaced for something else or something similar. This just makes you part of the herd and you end up following the herd blindly.
  2. You lack leadership – if you are following others on their pricing then you are abdicating responsibility for your pricing, and you deserve everything you get. You may have competitors who price very low, but that does not mean that they are winning good business, that they are profitable or that the business is sustainable. Follow them and you could be one of the lemmings that follow them over the cliff!
  3. You are on a race to the bottom – as a commodity, all that distinguished you from your competition is your price. Everything else, in the perception of the customer (and that is what matters) is the same or irrelevant. Competing on price works in a downward spiral, and it is a race to the bottom where the bodies of all those who have not survived await you.

So how do you get over the problem of competing on price? The answer is don’t compete on price!

Creating Value

Value is what your customer will pay you for that they value (not what you think your customer will value). What customers value are those things that you do for them, not what you do. That is those things within your offering which address their pains and helps them achieve the gains they seek.

What you want to do is create lots and lots of value. In short, there is a clear relationship between the price you can realize and the value you create for your customer. This is shown in the Value-Price Seesaw DiagramTM

 

 

 

 

 

 

 

Figure 1: The Price-Value SeesawTM

From this diagram you can see there is a clear and simple relationship between price and value. Low value will result in your only being able to achieve a low price. To quote, “Price is only an issue when there is an absence of value”.

If you want to charge a high price then you need to stack on the value as much as you can to push the seesaw in the right direction. Stack it up with as much value as you can, and then add more. Remember, value is perceived by the customer. So, make sure what you do for your customer is addressing their needs in a strong manner and that they perceive you are doing this, this way you position yourself strongly and you also differentiate yourself.

Creating high value separates you from the herd and makes you more visible and attractive to existing and prospective customers. It makes it easier for them to choose you, and harder for your competitors to take customers from you.

What is of value for you from this article?  What is the one action you will take, today, as a result of this to address your pricing?

If you would be interested in a 15-minute Pricing Improvement Strategy Session to identify your 3 key actions to address then click here, or if you would like a copy of the free  Pricing Improvement Cheat Sheet then email me at andrew.cooke@business-gps.com.au with “Pricing Improvement Strategy Session” or “Pricing Improvement Cheat Sheet” in the subject line and I’ll send you the details by return.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

Using the Value-Price Seesaw to Make More Money

“Price is what you pay, value is what you get!” – Warren Buffett

Are your prices too low? Are you not getting paid enough? Do your customers do not appreciate what you do for them?

If so, then I have a suggestion to make – and you probably won’t like it.

If your prices are too low then it is your fault.  Yes, yours and no-one else’s. So do something about it!

I know this is not a “cool” thing to say, but let’s not waste time making excuses for ourselves or our lack of effective action.  You may be in a difficult and competitive market, but that does not mean you try to compete with everyone on price.  It is easy to find people who cave-in to external pressure, but there are plenty of companies out there who are doing a roaring trade in exactly the same environment. Don’t look for reasons not to act or to act half-heartedly, but look for reasons to act boldly and decisively.

The problems when you compete on price are multi-fold and include:

  1. You position yourself as a commodity – you become something that is easily replaced for something else or something similar. This just makes you part of the herd and you end up following the herd blindly.
  2. You lack leadership – if you are following others on their pricing then you are abdicating responsibility for your pricing, and you deserve everything you get. You may have competitors who price very low, but that does not mean that they are winning good business, that they are profitable or that the business is sustainable. Follow them and you could be one of the lemmings that follow them over the cliff!
  3. You are on a race to the bottom – as a commodity, all that distinguished you from your competition is your price. Everything else, in the perception of the customer (and that is what matters) is the same or irrelevant. Competing on price works in a downward spiral, and it is a race to the bottom where the bodies of all those who have not survived await you.

So how do you get over the problem of competing on price? The answer is don’t compete on price!

Creating Value

Value is what your customer will pay you for that which they value (not what you think your customer will value). What customers value are those things that you do for them, not what you do – it is the difference between buying a quarter-inch drill and a quarter-inch hole.  Your customers buy the outcomes and results (the hole) which you help them achieve which addresses their pains and helps them achieve the gains they seek.

What you want to do is create lots and lots of value. In short, there is a clear relationship between the price you can realize and the value you create for your customer. This is shown in the Value-Price Seesaw DiagramTM

Figure 1: The Price-Value SeesawTM

From this diagram you can see there is a clear and simple relationship between price and value. Low value will result in your only being able to achieve a low price. To quote, “Price is only an issue when there is an absence of value”.

If you want to charge a high price then you need to stack on the value as much as you can to push the seesaw in the right direction. Stack it up with as much value as you can, and then add more. Remember, value is perceived by the customer. So, make sure what you do for your customer is addressing their needs in a strong manner, this way you position yourself strongly and you also differentiate yourself.

Creating high value takes you out of the herd and makes you more visible and attractive to existing and prospective customers. It makes it easier for them to choose you, and harder for your competitors to take customers from you.

So, what is of value for you from this article? What is your take-away?  What is the one action you will take, today, to address your pricing and grow your business?

If you would be interested in a free 15-minute Pricing Improvement Strategy Session to identify your 3 key actions to address this then email me at andrew.cooke@business-gps.com.au or click here with “Pricing Improvement Strategy Session” in the subject line and I’ll send you the details on how to book a convenient time by return.

To view or download a PDF version of this blog click here

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

The Only 2 Ways of Making Money

Is the whole greater than the sum of the parts anymore?

by Andrew Cooke, Growth & Profit Solutions

When we look at some of the changes brought about by changes in technology we find that it has effectively, and literally, taken products, institutions and industries apart. In essence it has unbundled them. Unbundling is the process of taking something and breaking it down to its constituent parts so they can be sold and acquired separately rather than just as part of the whole.

Music is a good example. It used to be that if you liked a band’s new song you could buy it on a 45 record. The song you wanted was on the ‘A’ side and on the ‘B’ side would be another song – usually not worth listening to. If you wanted the one song, you had to buy the other. When the band released its next album you would have to buy the LP record or CD, this effectively bundled all the tracks together whether you wanted them or not. More recently we had the development of companies such as Napster which enabled you to download individual songs – unbundling what was previously bundled together. This has gone further with streaming through Spotify and similar companies, where you can choose what you want and play it immediately.

This process of bundling and unbundling has affected every industry, and it is an on-going dynamic.

Low-cost airlines allow you to book your seat, and have unbundled all the other offerings allowing you to select what you want. So, if you want, you pay for seats with extra leg-room, for headsets, for in-flight entertainment, for food, for drinks, for luggage, for pillows, for blankets. Michael Leary, CEO of Ryanair based in Dublin, once joked (?) about charging people to use the toilet on flights.

Other companies have gone the other way, from having a series of different offerings that were purchasable independently of each other, to being bundled together. For example, Microsoft sells its desktop products as a bundle in Microsoft Office at a significant discount to the price if you bought the same set of products separately.

We tend to cycle through a time of bundling and unbundling our offerings depending on our product portfolio, the level of competition, and changes in customer needs, technology, the industry and the general business environment.

Look at your products and services and ask yourself are there other ways you can make them available to your customers?  Can you unbundle all these things and sell them separately successfully? Or can you bring all the things you sell separately and bundle them together and sell that successfully?

Aristotle said that the whole is greater than the sum of its parts, but he may not be right for much longer.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.

Price & Value

Why price and value must co-exist…

The most important thing in pricing is value. This is not the value as you determine it, or but rather the value as perceived by the customer.  The price a customer is willing to pay, and therefore the price you can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes.

There is a relationship between price and value which the Romans understood; in Latin the word “pretium” means both price and value. Literally speaking, price and value are one and the same. This is a good guideline for businesses to follow when they make their price decisions in that you need to:

  • Create value: how your product or service is designed, made and performs all drive the value that customers perceive. Innovation also plays an important role as it focuses on creating, unlocking or delivering customer value that was not previously available to them before.
  • Communicate value: This is how you influence your customers’ perception. It includes how you describe the product, your value proposition, and your brand. Value communication also covers packaging, product performance, and shelf or online placement.
  • Retain value: Your customers’ expectations as to how the value will last post-purchase will have a significant influence on a customer’s willingness to pay, for example, luxury goods, consumer durables and cars.

There are a couple of illustrative quotes regarding price and value. Firstly, the French have a saying, “le prix s’oublie, la qualité reste.” Loosely translated, that means that the quality you bought endures long after you have forgotten the price.

“That is the worst and yet easiest error. Better be cheated in the price than in the quality of goods.” (Baltasar Gracian, 1601-1658)

The point here is that price is quickly forgotten, while quality, good or bad, stays with us. So when you create a product or service is when you begin your planning on how and what to price it as. Make sure you create, communicate and retain value which is perceived by customer as valuable to encourage their willingness to pay.

To view or download a PDF version of this blog click here.

Share your thoughts and ideas here, or email me at andrew.cooke@business-gps.com.au

If you found this article of use or interest please don’t hesitate to share it with others.

Click here to find out more about Andrew Cooke and Growth & Profit Solutions.