Improve your value proposition - it's about more than just price
The UK on-trade is a very tough market right now. A few weeks ago I stood outside three pubs on the corners of Warwick Street, Glasshouse Street and Brewer Street, near London’s Piccadilly.
Two were very similar, quite traditional, had extensive discount messages outside, and were largely empty. The third had an up-market party feel and a champagne bar, and was packed.
By understanding their customers better, and pulling the levers that those groups valued most, one business thrives whilst those around it flounder.
Customers want value for money, and it isn’t always about price. In fact, there are several factors that influence a customer’s view of what represents value for money. Some are more important than others in certain circumstances, and for certain customer groups. Understanding how these factors stack up for you, against your competitors, is essential for a sustainable business, and will help improve both loyalty and profitability.
There are the four basic factors that make up the customer’s “value equation” (adapted from Cram, 2006):
Functional Benefits may be product features and quality, service quality, specification etc. These are often easy to communicate (e.g. PC specifications in showrooms) but can be difficult to make sense of if they don’t explain the benefits. Retailers who help customers make simple, personal comparisons improve their perceived value.
Emotional Benefits include brand associations and store environment, as well as considerations like scarcity, guarantees and how good the customer feels about having made the choice. In fashion, Nike charges a huge premium for emotional benefits. With golf clubs, where customers value performance and independent reviews far more highly, Nike’s pricing is much more mainstream.
Convenience Benefits may be delivered through elements such as service, layout or location (hence metro and airport stores command higher prices). Increasingly technology, like “one-click” buying (Amazon), and iPhone Apps (Hilton), also has a part to play.
Price is a powerful factor in the value equation. It is the simplest comparison in commoditised markets, but is also a de-facto cue to quality. Despite many product quality awards, and new store environments, Aldi still struggles to overcome the expectation of low quality that arises from their ultra-low prices. However for an established brand like Subway, a change in price can have dramatic effects on value perception and customer behaviour.
The turnaround Robert Siegel made at Lacoste is a dramatic example (sales grew over 800% in his first four years) of what happens when you deliberately and concertedly move the different parts of the value equation. Here are three simple steps to get you started:
1. Target customer groups: identify which groups, on which occasions, represent the biggest opportunity, and the best fit with where you want to take your business
2. Understand their equation: when making their decisions, which elements of the equation do your key groups value most? Do you know this? Or do you just think you know this?
3. Decide where to excel: Amazon targets Price and Convenience. Apple targets Function and Emotion. Nobody can be good at everything. Can you be fanatical about the things your customers most value?
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