For the final blog in this series, I need to recap a bit more Economics theory.
One well known diagram is the 'Cobb Value Curve'. Don't worry, I won't attempt to reproduce it. I'll just describe it in the least detail sufficient to make my point.
This curve plots 'Relative value added' against 'Volume of work available'. Briefly, there aren't too many jobs available with the potential to add enormous value, but there are lots out there where you can add a small amount of value. Anyhow, this smooth curve has four key sections:
* 'Nuclear' event - Distinctive, high value - Averts a major catastrophe or
has a significant impact - Approximately 4% of a market
* 'Experiential' services - High risk and high impact - The Professional is
selected for their effectiveness - Approximately 16% of a market
* 'Brand Name' services - May be routine for the Provider but is important
for the customer - This work goes to Professionals with well established
reputations - Approximately 20% of a market
* 'Commodity' services - Stuff that customers expect any Professional
to be capable of - Approximately 60% of a market
Your customer's position on this curve is a clue to their price sensitivity. And their position can change! Most Professional Service Providers have some customers at least in the 'Experiential' bracket.
“Better to focus on the total package of value your customer
can derive”
The mistake is to treat all customers equally - which a universal hourly rate would do - no matter where they are on the curve. Once again, your goal must be to charge different prices for different value.
Another implication of the curve is that concentrating on raising the price of any one low value service will drag the prices of other low value services upwards with it, eroding differentiation. Trying to focus on premium value (and therefore price) work leaves you in a very narrow market.
Better instead to focus on the total package of value your customer can derive rather than itemising your services. Quoting a fixed fee for a 'bundle' that includes a range of services makes it easier to command higher prices for greater value.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Perfection for suppliers would be to ask for and get the maximum each customer is willing to pay, every time. In the real, imperfect world Service Providers need other ways to determine the value each customer places on their offerings, so they can then set their price accordingly.
In this world it is value, not cost, that drives price. It might seem like a paradox but cost and value are sometimes inversely related. It is not uncommon to make the premium product or service the most efficiently produced item and then to deliberately downgrade or delay the top models (and incur more cost) in order to create 'standard' products.
It always has been true, everywhere, that it's the ideas which are more valuable than the act of carrying them out. In a manufacturing context, the lowest value item in the 'production chain' is often the actual manufacturing of the product. So we probably shouldn't care if this is done in a low cost part of the world, as this stage is of least value to the customer.
“It's the ideas which are more valuable than the act of
carrying them out”
It's the 'concept' and the 'after service' which are the most valuable stages, and this notion can be extended to many industries. When thinking about Professional Services, 'concept' equates to 'diagnosis of value'. This is a hugely valuable stage in the overall selling process, for both parties.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
I hope you don't mind but today I'm going to briefly recap a bit of Economics theory to do with Professional Services and value.
Some people think that the law of supply and demand applies to Professional Services. It doesn't! Demand will never exceed supply! Who is booked solid every single day of the year?
No Professional Services Provider is going to keep supplying up to their full capacity in response to demand - A 40-hour week is less than 25% of full capacity! Professionals don't restrict supply of themselves in order to force up prices. They do it for their work-life balance, to retain their health, both physical and mental. In any case, nirvana is to work fewer hours for higher fees; to work smarter, not harder!
“Nirvana is to work fewer hours for higher fees; to work smarter,
not harder!”
Neither do they charge more in order to reduce demand. If they charge more it is because customers value their services and are willing to pay more. Ironically (if you still believe in supply and demand) charging higher fees often increases demand!
Agreed, to be on a demand curve, a customer has to be both willing and able to make a purchase. However, a demand curve does not reflect how much the customer values the product, only how much of it they want to buy. Because willingness depends on value, and because the maximum the customer is prepared to pay is unaffected by the cost of production, a supply curve does not cause prices to be paid. You can waste a lot of time and money producing things customers don't want.
Economists also talk about 'price elasticity' - How much demand or supply will change when prices change. The theory of elasticity lumps customers together. What is needed in Professional Services is segmentation by subjective value; segmentation into different value propositions.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Any time a customer comes into contact with your business and gets an impression of the service you offer, this is a 'Moment of Truth'. The Moment of Truth is the most effective way to distinguish your value proposition, so you need to ensure all your promotional material, as well as you and all your customer facing team, indeed every single way in which customers come into contact with your business, makes good use of the opportunity.
“It helps to map out what each Moment of Truth will be like for the
customer, before it ever happens”
Each Moment of Truth may be a minor event but they all add up. There are three basic types:
* Neutral - A rarity
* Positive - Moments of magic
* Negative - Moments of misery
It helps to map out what each Moment of Truth will be like for the customer, before it ever happens, and be as inclusive as possible. Even with the most mundane things, for example the width of the parking bays in your customer car park, no Moment of Truth should go unmanaged.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
A value proposition is the entire set of resulting experiences from which your customer derives value from what you do. A good value proposition will have an enormous number of elements, or individual value outcomes. The more you have, the easier it is to promote your offering in a compelling way.
It is not unreasonable to suggest you need to identify at least 50, and likely up to 100 different things that your customers will find of great comfort and value if they buy from you. Some elements of what you do may be inferior to similar elements in other suppliers' offerings, but it is the overall package that wins.
Beware of the tendency to focus on internal stuff that's of no consequence to the customer. Customer experiences generally revolve around Quality, Price, Service and 'Intellectual Capital'. Social Capital - the value in your customers, suppliers, vendors, networks, referral sources, alumni groups, joint ventures, alliance partners, professional bodies, reputation and so on - is the least exploited form of Intellectual Capital, yet is the most highly valued by customers.
“Customers actually aren't price sensitive - They're value conscious!”
By emphasising total quality service and transformation, you offer a superior value proposition. But please, don't use the language of bul***it, or so blooming what. Don't kid yourself that things your customers expect to be able to take for granted will be compelling differentiators. No one expects 'poor' quality or 'lousy' service!
Communicate value outcomes with numbers, free information, rapid results, and exclusive viewpoints all served up in easily digestible bite-size chunks.
Customers actually aren't price sensitive - They're value conscious!
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Just as there are 4 Ps of Marketing, so there are 5 Cs of Value:
* Comprehend - The value to the customer
* Create - Value for the customer
* Communicate - Value with the customer
* Convince - The customer that the value is worth paying for
* Capture - Your share of the value using a value-based price; not one based on cost
or effort
Most customers have no incentive to capture data on the value your work will deliver, largely because they buy what you do infrequently. But you sell frequently, so you need to develop the skill and competence to comprehend, create and communicate value.
And it must be a core competency right across your company, the ability to help the customer understand value for themselves. This is another of the most important points in the Concept of Value!
“The ability to help your customers understand value for themselves
must be a company-wide core competency”
When we make a purchase, we consider value, not the product itself. We deliberate on what the product will do for us. Mostly this is anything but obvious. Consider what marketing impact you would make if you made this obvious to your customers! Don't complain that they don't understand what you do. It's your job to make it clear to them, so they do!
You have to help them understand value, and as part of doing this, you must understand why they chose you and choose to stay with you.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Years ago in their research labs in California, Xerox effectively created the design of a personal computer. Unfortunately the Xerox mindset was so fixated on cents per page that they couldn't see any value or financial potential in their invention, so they didn't exploit it. Eventually, up popped a marketing savvy chap called Steve Jobs who created Apple and still makes a fortune out of personal computers!
When Napster first started enabling the easy download of music over the internet, the music industry thought it had a crime-wave problem. The industry was wrong! It had a marketing problem. It didn't understand the perceived value of recorded music stripped bare. Eventually, up popped a marketing savvy Steve Jobs who created iTunes and still makes a fortune out of downloadable music!
Now for someone who got it right over 130 years before Steve Jobs. In Britain before 1840, if you wanted to send a letter or parcel to someone in another city, you took it to the stagecoach office or the coaching inn, and it went on the next coach to the city you wanted. The recipient either had to be psychic or had to check regularly at all the stagecoach offices and coaching inns in town to see if there was anything for them. If there was, they could pay a carriage fee based precisely on the weight of the letter or parcel and the distance it had travelled, and then take their item away. Or they could decide not to pay and not to even see or collect their item.
“Up popped a marketing savvy chap called Steve Jobs who still
makes a fortune out of it!”
Proving the point that marketing is about far more than just promotion, a marketing savvy man called Rowland Hill thought hard about this and came up with an alternative. He realised that the recipients didn't like paying just to find out whether or not they had been sent junk mail. He concluded that the sender should pay, and that there should be a very simple charging system that didn't charge by the page or penalise people for having friends a long way away.
In Hill's scheme you would take your letter to his coach company's office and pay a standard fee, almost regardless of weight and distance. It still required the recipient to check regularly, but at just one local office, and at least they didn't have to pay to receive a letter. In order to let everybody know that the fee had been paid, Hill came up with an adhesive receipt which could be attached to the letter or parcel. This receipt wasn't personalised - It was the same for everyone. In fact you could even buy these 'receipts' from your local office in advance of writing your letters! Hill called it a "Postage Stamp".
So successful was this idea that it soon caught on around the globe, and because it was so valuable and popular, Hill gained Royal approval for his Mail system. Eventually he could afford to add the extra service of placing a collecting box on every street corner and employing people to empty these boxes and deliver the letters and parcels right to people's houses, which the recipients valued highly too.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
Why are diamonds more valuable than water? Nothing is more useful than water, yet it will buy almost nothing. On the other hand, diamonds have little value in use but a lot of other goods have to be sold in order to buy one. There's far more water on this planet than diamonds, but scarcity doesn't always equal value!
Value is not an intrinsic property of a good or a service. Value only exists in the perceptions of people. Value only exists in the eye of the beholder.
And why would we pay more for a bottle of water at midday in the middle of the Arabian desert than on a wet Saturday afternoon in Manchester?
Value is not only subjective, it is contextual. This is one of the most important points in the concept of value!
“Value is not an intrinsic property of a good or a service. Value only
exists in the perceptions of people.”
Cause and effect are often confused when it comes to value. Some people dive for pearls because other people are prepared to pay a high price for pearls, not vice versa. Costs do not create value. Value causes customers to be willing to repay costs!
This doesn't mean that businesses cannot create demand for their products. Availability (especially of innovative products) can create demand, but there is no guarantee of customer acceptance just because development and production costs were incurred. Production will only continue if people value the product/service and its price covers the cost of production.
Whereas when it comes to commodities, their market price is determined by the value of the last unit consumed.
If you agree with these thoughts and would like to find out more about pricing your services on the value your customers get out of them so you can make sales without selling and get paid what you're worth, visit www.sws3.co.uk to download 30 more free practical ideas you can implement straight away in your business.
Service providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.sws3.co.uk
I hope I have persuaded those of you who provide services of a professional nature, and whose goal is to create valuable transformations for your customers, that charging on a cost-plus basis or for your time is seriously harming the profit both you and the customers will get out of working together.
I also hope I have demonstrated the folly of setting your prices somewhere in the middle of your competitors' prices, plus the profit limiting results of charging the same price for the same service to all customers, with no heed to the value each individual will get out of that work.
But the question remains, how to price your services? In case you have missed the point so far, don't price your services! Price your customers!
“In case you have missed the point so far, don't price your
services! Price your customers!”
How? Well here are ten things to consider when it comes to 'pricing your customers'
* Perceived substitute solutions - How many other ways do they have available to fix
the problem
* Unique value - What do you bring to the party that is so valuable, no equivalent exists
* Cost of switching supplier a later date - What would it cost the customer to start again
with someone new
* Difficulty of making comparisons - Can anyone else put together a value package that
allows any sort of comparison
* High price equates to perceived high quality - Do you come across as a Rolls-Royce
where the odd few hundred pounds is neither here nor there?
* Absolute and relative expenditure - Is your proposal different enough when examined
in both ways?
* Ultimate benefit or value outcome - How large a chunk of the customer's overall value
goal is your work going to deliver?
* Whose money being spent on whom - Is the customer spending someone else's money
on a third party, or their own money on themselves?
* Fairness of pricing - Do you continually come up with chargeable extras or are there
reductions available for larger bundles?
* Storage capacity - Has the customer got the ability to take advantage of your bulk
purchase offers?
All of these need exploring by great questioning in the sales conversation.
Professional Service Providers who charge for their time or their materials, or whose prices are influenced by their competitors can find out how to get paid what they're really worth at www.davidwinch.co.uk/sws_emp.htm
