There’s a shake out coming.
Historians will call this a period of consolidation, in which businesses are eliminated, or acquired through competition. They will have had the benefit of time.
You and I will remember this as a time of small businesses going out of business.
If your company presently competes with 9 others, and there’s only enough business for six, three will close their doors, or sell out to a competitor.
Of the six remaining, two will barely keep the doors open, three will settle into a comfortable status quo, and one will thrive.
That one will understand how to deliver customer value.
Customers who grew up in times of plenty, loose credit, and purchases on a whim have mentally shifted to a time of considered purchases. They seem to be asking “Do we need it? What must we give up to get it? How good will it be?”
Changing consumer attitudes
Sales are off. However, goods and services are still being purchased. Automobiles break down regardless of the economy. Kids still outgrow shoes. Appliances still need repair.
But now every purchase gets considerably more deliberation.
This does not mean you need the lowest price. I promise, price is one of the less important factors in a buying decision.
Need proof? The Hyundai Accent, at $10,705, has the lowest MSRP in the country. Do you drive one? You don’t? Humm. There must be reasons other than price on which you based your purchase.
In fact, a 2010 J.D. Power study indicated that only 38 percent of buyers chose their car due to price, while 52 percent said their choice was due to the way they were treated on the lot.
And those 38 percent who focused on price? You can understand why they said it was important. When a shopper can’t see any difference between our offerings and those of our competitors it only makes sense to buy the less expensive of apparent equals. Plus, out of all the factors which influence her decision, price is the easiest to understand.
But don’t believe she’s looking for cheap. She’s not. She’s looking for value. Simply stated, value is what the customer gets for what she pays.
Let’s illustrate with a couple of examples from the Great Depression.
Blue Plate Special
Running a neighborhood diner is an exercise in timing. Run out of banana cream pie before people stop asking for it, and you lose sales. Prepare too many, and they spoil. Few things are as depressing to an owner as calculating lost profitability awhile watching six slices go bad. During the depression, before refrigeration became cheap, the “use by” dates were much more critical.
And cooking up all of those things which might spoil if we don’t use them will only create more servings of foot to join those unsold pie slices. Unless… Unless…
Unless we can increase demand for that particular dish.
Here’s an idea: let’s offer a good sized portion of wholesome food at a reduced price. Customers won’t cares that the offer is for our own benefit. Most won’t care what we select for the entree, as long as its a genuine value to folks aware of every penny they’re spending.
The blue plate special was a strong value-based strategy which worked well 80 years ago. Could it work again today? I suspect, yes.
The Two Pants Suit
This one is pure genius. A jacket and trousers (and sometimes vest) don’t make a suit of clothes. Making them all from the same fabric does. Wearing mismatched fabrics only draws attention to the fact that the wearer doesn’t have a suit.
The useful lifetime of a suit of clothes is usually limited by the trousers. They wear out, or are otherwise damaged, far before the jacket shows normal signs of wear.
The solution? Make a second pair of pants from the same fabric, and double the useful life of the garment investment.
Will people pay more for that extra fabric and tailoring? Yes. Yes, they will. Ask them to pay 20 to 30 percent more for twice the usage, and see how quickly they line up to buy.
And that’s why we stress value, rather than price. Sometimes to be considered value, one does reduce price. Other times real value requires paying more.
2. Higher Quality
3. For a Longer Time
4. A Reduced Price
Pick one. Better yet, pick two. Survive the shake out by making your choices those which your competitors do not, can not, or will not offer.
Price always comes last. Location, brand familiarity, and business reputation can all be more important than minor price differences – an in a competitive selling situation, those differences will tend to be minor.
And a bit of imagination can certainly help to showcase what’s important to a shopper.
Five Guys Bounteous French fries
Is there a more competitive niche of the restaurant business than burgers and fries? And yet, one of the hottest players in this industry is Five Guys, who’s French fry servings are legendary.
They put your fries in a large styrofoam cup, filled to overflowing. The cup goes in a paper bag, and they pour in more fries, until the already generous serving size has more than doubled.
It’s value. Is it inexpensive? No, the average ticket for a burger, fries, and beverage at Five Guys is about $11 – roughly double that of McDonalds. Customers not only pay it, they brag about the place to their friends.
While other fast food restaurants package their meals in disposable paper or styrofoam containers, Kentucky Fried Chicken is now sending side dishes home in Tupperware® or Gladware® styled re-usable containers.
Serve from them. Re-seal leftovers in them. Wash them. Use them for other leftover items.
They probably cost KFC a few pennies more. The company gets points for customer value, and bonus points for being environmentally conscious.
Gallery Furniture Delivers
If a customer lives within 100 miles of Houston’s Gallery Furniture, they can expect same day delivery and set up by store employees.
Buy it today, have it in your home tonight.
They even call 30 minutes ahead to let you know when they’ll arrive.
Sometimes value has nothing to do with price.
Rexel Electric Becomes Destination
When my friend and colleague Mike Dandridge took over the Rexel electrical wholesale store in Midland, Texas, he installed a Senseo® Coffee Brewer and a cross section of gourmet coffees. Dandridge baked chocolate chip cookies throughout the day in a convection oven.
He piped comedy albums into the background music system, installed plantscapes throughout the store and Christmas lights around the counter. Dandridge placed Mr. Potato Head and Etch A Sketch, along with other toys at the counter.
And, of course, he focused on excellent customer service. Over the next three years Rexel sales more than quadrupled.
Did Rexel try to undercut Lowes or Home Depot on the price of electrical supplies? No. They understood the value in the shopping experience.
Exceptional value, as perceived by shoppers, is rare, which is what makes these such great examples.
We assume the differences in our offerings are significant to our shoppers. We assume the “value added” we stack on top of our products and services are appreciated by shoppers. All too often, we’re wrong. What happens when the “extras” we draw their attention to aren’t even on their radar?
If they want bells, don’t give them whistles
Value is the price she expects, compared to the price she pays. Stack on more and more things she doesn’t care about and wouldn’t pay for, and instead of adding value, we merely clutter the dialog with irrelevancies. We risk becoming irrelevant if we don’t understand to what our shopper pays attention.
Do we know what she values? How sure are we that we know?
I’d suggest we ask.
List the attributes you suspect are important, and ask your customer to rank them from most to least important. She can’t rank those attributes equally, and you can put this information to immediate use.
Ask her about delivery and set up, documentation, portion size. Ask about entertainment, speed of service, problem resolution, free refills, courtesy of staff. Maybe even ask about price.
But limit the choices to five or six in order to get her to complete the survey. How many customers need to complete it to be useful? It doesn’t take that many, actually. We only need a basic understanding, not statistical predictability.
25 to 40 completed surveys will provide a solid insight into what shoppers consider important. Knowing which bait works best is important when you’re fishing for customers.
Your Fishing for Customers guide, Chuck McKay, gets people to buy more of what you sell.
Got questions about articulating your value, and making sure your customers appreciate it? Drop Chuck a note at ChuckMcKay@ChuckMcKayOnLine.com. Or call him at 304-523-0163.