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I received an email over the weekend from frustrated colleague in the book publishing industry.
“All we are hearing from our retailers is “price, price, price.” Yet we know 75 per cent of the consumers buying (our genre) are women. How can we help them see that price isn’t the issue? We’re all leaving precious margin on the table.”
I can sympathize with my friend’s situation having read recent stories about the flaming online price war between Wal-Mart, Amazon, and Target over upcoming releases like Stephen King’s new book.
When it comes to competition, I could wax on about the importance of retailers creating a remarkable customer experience – and that is becoming more and more important – but it would be preaching to the choir.
The most successful retailers have already instituted an excellent in-store experience. They’re probably also the retailers that have the strongest customer base and biggest profits.
Unfortunately, the rest of the retailer gang doesn’t necessarily “get it.”
The biggest error in retailer judgement today is focusing on PRICE.
There’s no doubt that there are consumers who consider price to be the deciding factor. But I believe it’s a smaller percentage than anyone is willing to admit.
The key is getting retailers to make a subtle shift in perspective.
Instead of price, focus on VALUE.
What is VALUE?
VALUE is simply “perceived price” vs. “actual price.”
If a customer looks at what a product has to offer, guesses a price in her head, then finds out it costs less than what she expected, that’s VALUE. And VALUE sells every time.
So, how do we talk about VALUE?
Well, VALUE wears different clothing, depending on the individual consumer.
For one shopper, VALUE might in fact mean “price.” And you know what to do there.
But for another shopper, VALUE means “extras” – what comes with the [product] that might enhance the personal – perhaps even spiritual – experience?
For another shopper, VALUE could mean portability. “I already have a [product] like this – it was my grandmother’s and I treasure it. But I want one to just throw in my bag and not worry about losing it.”
For yet another shopper, VALUE could mean “connection” – how might this [product] be the best one to give as gift? Or how can it strengthen a relationship?
Are you beginning to see why price alone is dangerous territory? There are too many individual needs and internal value systems to assume that people are solely driven by price.
The price-driven customer market is tiny and finite, and focusing on them does nothing to build customer relationships or loyalty.
They may have turned to you for the lowest price, but that also means they’ll turn away from you (and go to your competition) for the same reason.
Retailers get caught in the trap of short-term sales rather than long-term growth.
If you’re a retailer, take just one of your products and see how many different ways you can place a VALUE on the piece.
Or, if you have a product line, why not have a series of items that does indeed include a lower-priced option, but also offers higher-end items that satisfy other values that different shoppers might have?
If you’re a manufacturer or distributor, create a comprehensive marketing strategy and materials for retailers that would outline the VALUE that each of your product offers. It will increase retailer “buy in,” to such a program, AND will automatically differentiate your product, since you are serving the customer’s needs in ways your competition is not.
It won’t be an easy job, but done right with enough steam behind it, a VALUE plan rather than a PRICE plan will mean long-term growth in profit and customer loyalty.
Michele Miller is a writer, speaker, and consultant on ways to capture the heart of the female customer. The co-author of The Soccer Mom Myth, she consults with businesses of all sizes across North America
Thanks for the thought-provoking post, Michele.
This is a hot topic with the small business owners I’m talking with these days.
In today’s economy, the value discussion often defaults to “low price.”
My research brings me to the conclusion that there are three kinds of value propositions that consumers recognize: 1) lowest prices; 2) never-ending product innovation; 3) customized, unique customer service and experience.
Wal-Mart’s value proposition is lowest prices. They will never be known for product innovation or outstanding customer experience.
Apple never offers the lowest prices but they’re well known for never-ending innovation and product superiority. That’s their value.
Zappos and Nordstrom’s are known for their outstanding customer experience, not low prices or superior innovation.
I think the key issue here is choosing the right one for your business. If you’re up against a Wal-Mart type, you probably shouldn’t choose the “lowest price” value. They will kill you.
While you have to keep at least one eye on all three, the key to success is choosing and becoming known for the right value proposition, and that choice depends on your market and the business environment you’re in.
Where’s the “Value Void” in your market?
I think the answer to that question will help small business owners define their winning value proposition.
Great post! When will the health club industry leverage the opportunity to increase value via member experiences, connections and personal health without cutting prices in hopes to compete with a commodity like Planet Fitness?
Thanks Michelle for awakening my brain with your post.
In about 6 months we are going to release a brand new beer, so I wonder.
Does anyone have suggestions for value propositions with regards to canned beer?
The best value propositions reside in the brains of our consumers.
Does your new product solve a problem that beer drinkers (or maybe non-beer drinkers) have? Are they willing to spend money to buy your product to solve that problem? How much? And what’s the total cost for them to change…not only in dollars but in non-financial dimensions? Will they pay all the costs required to enjoy your new product?
I think too often we rely on our perceptions as owners and managers as to what the customer needs and/or wants and will pay money to have.
Do you have a group of “consumer advisers” or can you do research to find out their needs? That will lead you to the best value propositions.
For 20+ years I battled in the retail arena.
My expertise is home furnishings. Over 80% of the purchasing decisions are made by women.
Price has been, is, and will always be a real concern in the purchase cycle. It’s dead wrong to think otherwise.
Company wide training focusing on PE (personal experience) is a way to change the value equation.
Here is how it works, the factors:
PE- personal experience
P- price
V- value
PE-P=V or PE>P=V or V=PE-P
This formula is explained easily to retail employees throughout any organization.
Simply stated, when the personal experience exceeds the price you are asking value is created.
When value is created MONEY MOVES.
Unfortunately many retails believe the only way to create VALUE is to lower the PRICE.
They often forget increasing the PERSONAL EXPERIENCE will have the same effect and create larger profits.
As I tell clients, “Compete on price – you die on price.” And, even when it doesn’t make any sense – your competitor may well undercut you in an all-out drive to get market share (you may both go out of business though.) “They’d never do that.” has been the downfall of many a competitive positioning strategy. (Big company, big technology example from my career – AT&T and Nortel got into a price war in the PBX market…and now where are they?)
And, as you’ve pointed out – we’re different types of customers at different times for different things. For example, I buy my reading glasses at the dollar store – since I leave a trail of them everywhere (and no “value” statement is going to change that.) On the other hand, I just spent a large sum of money on tires for my Jeep – the value is that: they’re the “best” (rated by Consumer Reports) and will serve me well for years. I DIDN’T make my buy decision on price.
As for the books – The big boxes are doing that to attract people to buy other things. A hardcover (these days) is a luxury item; those buyers are far more likely to buy something else while they’re there.
Dennis,
In the ancient days (until 1960) our town had a local brewery.
Our beer will have its outspring from local history, and will, when released, be the only local beer in town. And that’s a value proposition in itself, isn’t it. Although the beer is not brewed in our town.
The beer will not be a low priced beer. It will be priced in the middle class.
Price is a sticky-wickett all the time. How much are my services worth? the consultant wonders. If my competitor is selling these items at X, how can I charge XX, a retailer laments.
To the women buying the services or the product, price is relevant because she is likely on a budget. But, women of substance (find them, they exist, they are all powerful) consider quality and price and they opt for quality most of the time. If I had a nickel for all the times I rushed through a store and bought on price (not taking time to consider quality or value, as you say Michele) and then…a month later, had nothing to show for my purchase, I’d not be rich, but I’d have enough for a really nice weekend in NYC!
I have been working with specialty toy retailers on this simple Value/Price equation for the last two years.
One thing many people overlook is the psychology of Price and how different pricing structures say different things.
I have a free eBook called Pricing for Profit at
http://www.philsforum.com/pdf/Pricing%20for%20Profit%20Freebie.pdf
Feel free to download it, share it, use it. We have been using these techniques profitably for years.