When I look at the promotional efforts of various businesses, I largely see that they are trying to differentiate themselves from their competitors in order to give customers a good reason for choosing to do business with them rather than an alternative supplier.
Obviously there are some that don't, such as the bland "Please like my Facebook page," but thankfully these are in the minority.
However, they don't all make a great job of differentiating themselves! Some will talk a load of bull and some will provide facts about themselves which are not immediately appealing. But one of the biggest failures I come across is using as supposed differentiators, things that your customers actually expected to be able to take for granted!
“Customers take it for granted that their problems will be solved.
Solving problems is neither a strong benefit nor a differentiator.”
My simple test for this sort of thing is to ask yourself, how many of my competitors would promote the fact that they do the opposite? Thus 'top-class service' and 'high quality' are not differentiators because no-one will be competing on second-class or poor service, or on low quality! Your customers expect to be able to take top-class service and high quality for granted.
Customers also take it for granted that their problems will be solved - Just think of visiting a doctor or dentist. Solving problems is neither a strong benefit nor a differentiator. You need to spend some time articulating what it is about you and your business that customers value highly, and that really does set you apart.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to 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
Charging different prices for different value is not only highly sensible, it's a highly effective way of increasing profits.
But because value cannot be defined absolutely with surgical precision, different customers with a similar perceived value of what you are offering will have different degrees of price sensitivity. In other words, just like value, an 'acceptable' price cannot be precisely defined either. Your various customers will have a 'price band' in mind and if your price falls anywhere within this band, they will be able to agree to purchase, all other things being satisfactory.
“Just like value, an 'acceptable' price cannot be precisely
defined either”
This band in its turn is not fixed and inflexible either, but will be determined in large part by their current perception of value. A price not outrageously beyond the band may enable the customer to re-evaluate your proposition, but of course a price significantly below it can have the same impetus, causing the customer to wonder if they have over estimated the value.
If you are serving a market where people spend someone else's money on themselves, recognise their minimal incentive to economise and seize the opportunity to charge higher prices.
When you tailor your various value propositions to different customer groups, you are in a position to reserve capacity for your best customers. Your goal must be to maximise your profits, not necessarily to fill your capacity.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to 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
"We sell time" is not just bad pricing strategy; it's a flawed business model. If it was true, you'd be paid for just turning up. What you sell is the value of the results of the effort you put in during that time, and this value won't have any general, 'one size fits all' mathematical equation relationship to time, let alone be in direct proportion to it.
A business exists to make profit for its customers, to create results and value outside of itself. The concept of 'profit centre' is flawed, as admitted by the man who coined the term, the late Peter Drucker.
Despite having other faults, even Adam Smith recognised that both purchaser and seller need to gain - to make a profit - from a transaction.
“The only purpose of a business is to create a customer”
In consequence, the default purpose of Marketing is not to increase revenue - It is to increase profits!
Peter Drucker went on to draw this to its logical conclusion when he said, "The only purpose of a business is to create a customer. A business has only two functions - Marketing and innovation. All else is cost."
The simplest way for your Marketing function to increase profit is to concentrate on customers who will derive greater value from their purchases and who are therefore more willing and more able to pay more. Utilising the innovative juices of the entire organisation to create and deliver more appealing products, services, payment plans and the rest for this section of your market is an excellent use of your resources. The way I have often put it to my clients is, "Look for bigger problems."
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to 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
If you work on the basis of Revenue = People x Efficiency x Hourly Rate x Hours then you have only two ways to drive profit :- More people or more hours.
Most services firms choose to make their people work more hours! The thought being that they can't afford more people until they have more revenue and profits.
Just look again at the inescapable logic of this. If your services firm charges by the hour, the incentive will be to get current staff working more hours! Paid overtime will reduce profit margins, and in any case your staff will only be willing to do so much. Unpaid overtime is not an infinite resource either and again there will be a limit to people's willingness to do it.
“Adding capacity after revenue is generated is not repeated in other
industries outside services”
Presuming you already have good people and are managing them well, is it going to be possible to significantly improve efficiency without paying them more? And if you increase your hourly rate to your customers, won't your staff expect to get a share of the extra profit they are helping to create?
This process of adding capacity after revenue is generated is not repeated in other industries outside services. Manufacturing companies, for example, start by investing in machinery in order to make things, in order to make revenue - Not the other way about.
If you agree with these thoughts and would like to find out more about structuring your business in a better way, selling properly, how to 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
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
