Monday, May 16, 2005
Competing on Value
Competing on Value
© 1991 by Mack Hanan
You must price your value. And you must sell your value. Unless you know your value, you cannot sell it. If you do not know your value, all you can sell is your cost. If you cannot price your value, all you can price is your cost. Your customers and your competitors will drive you back to your cost every chance you give them.
If your customers do not know your value either, they cannot perceive it. They will end up taking it from you. You will end up giving it away. On the other hand, a customer who knows your value will have no trouble affording it because he knows it represents a good investment. He will always get back more then he pays out. He will not think in terms of affording your value. He will not be able to afford doing without it.
The best customers you can have are customers who cannot afford to do without your value. Your competition will appear to be unaffordable no matter how cheap their price may be because they will seem to be less reliable.
Sell on value:
1) What critical success factors do we affect in our customer's business?
2) How do we affect them most significantly: by displacing or constraining some of their costs or enhancing their revenues, earnings, or market shares?
1) What do you want to be compared against -- your competitor's prices or your customer's current values?
2) Where you want to attach your price: to your product or to the added values your represent to your customer?
3) Who you want to make your buying decisions: customer purchasing managers who buy on price or business managers who live or die on value?
Value is the added competitive advantage you bring to your customers. Quality is what goes into your products. Value is what your customers get out of them. This requires more than zero defects. It requires a dedication to help customers maximize their ability to derive value by training and education, information, application, and consultation.
You must prove how sure the customer will be of achieving the extra value and how soon they will start to receive it.
Add value to counteract a customer's most crucial costs. Add value to accelerate a customer's most crucial profit generators.
Is the business based on turnover volume or margin?
The more you know your customer's business, the more you can affect it, and the more readily you can measure your contribution. Then, the greater your value will be and the greater leverage you will have on price.
Three types of values:
Restorative: Correct problems in costs or productivity
Opportunistic: Seize sales opportunities
Preventive:
Partnering is based on value. To the extent that you add value, you add to your partnerability. "Making partner" means making the highest value impact on your customer's competitiveness.
The proper response to low-cost competition is better application, better implementation and installation, better education, and better information and consultation.
Value assessment requires: a set of benchmark measures, a series of milestone measurements, and a final measurement.
Measuring value: meantime between new product introductions, time and cost of product development lifecycle, forecasting accuracy, inventory costs, process scheduling accuracy, speed of order entry, meantime between billing and collections, receivables outstanding, reject and scrap rates, downtime rates, meantime between downtimes, product movement from warehouses, product movement at retail.
Hard-to-measure values: time saved, quality improved, productivity gained, capability enhanced, motivation increased, communication speeded, information learned.
Branding is the name of the process by which a product's value comes to justify its premium price. A brand is price-insensitive or, discount-resistant.
The secret of margin control is to brand your customers with competitive advantage in their own industries and markets.
Define the product in terms of its value.
Price is either a cost or an investment.
An investment leads to a return on that investment. This is found money. It is therefore, our money, mutually earned by and for the partnership of the two of you. By all rights, the partnership should have first call on the recycling of the returns from investments as long as it can propose fast reliable returns at competitive rates.
Concentrate on a single product line and know the customer's industry very well. Customize the product to fit the customer's critical success factors. Consult on application engineering of the products. Be an applier of technology rather than a supplier of products.
When you base your business on adding value to your customers, you "brand" it.
If product quality is superior to competition, it must be accompanied by superior applications services to make sure that your quality is fully realized by each customer.
Each time you succumb to the temptation to believe that "the value is in the box" and you make it faster, smaller, or more powerful just because you can, you will be a value-overadder. You customers will be unable to use your excess value. They will be unwilling to retrain their people to implement it and to connect it to their existing systems where it may interrupt or obsolete long-established procedures. As a result, they will not repay you for your overcosted investment with the super premium margins that would be required.
Amazon: http://www.amazon.com/exec/obidos/ASIN/0814450369
© 1991 by Mack Hanan
You must price your value. And you must sell your value. Unless you know your value, you cannot sell it. If you do not know your value, all you can sell is your cost. If you cannot price your value, all you can price is your cost. Your customers and your competitors will drive you back to your cost every chance you give them.
If your customers do not know your value either, they cannot perceive it. They will end up taking it from you. You will end up giving it away. On the other hand, a customer who knows your value will have no trouble affording it because he knows it represents a good investment. He will always get back more then he pays out. He will not think in terms of affording your value. He will not be able to afford doing without it.
The best customers you can have are customers who cannot afford to do without your value. Your competition will appear to be unaffordable no matter how cheap their price may be because they will seem to be less reliable.
Sell on value:
1) What critical success factors do we affect in our customer's business?
2) How do we affect them most significantly: by displacing or constraining some of their costs or enhancing their revenues, earnings, or market shares?
1) What do you want to be compared against -- your competitor's prices or your customer's current values?
2) Where you want to attach your price: to your product or to the added values your represent to your customer?
3) Who you want to make your buying decisions: customer purchasing managers who buy on price or business managers who live or die on value?
Value is the added competitive advantage you bring to your customers. Quality is what goes into your products. Value is what your customers get out of them. This requires more than zero defects. It requires a dedication to help customers maximize their ability to derive value by training and education, information, application, and consultation.
You must prove how sure the customer will be of achieving the extra value and how soon they will start to receive it.
Add value to counteract a customer's most crucial costs. Add value to accelerate a customer's most crucial profit generators.
Is the business based on turnover volume or margin?
The more you know your customer's business, the more you can affect it, and the more readily you can measure your contribution. Then, the greater your value will be and the greater leverage you will have on price.
Three types of values:
Restorative: Correct problems in costs or productivity
Opportunistic: Seize sales opportunities
Preventive:
Partnering is based on value. To the extent that you add value, you add to your partnerability. "Making partner" means making the highest value impact on your customer's competitiveness.
The proper response to low-cost competition is better application, better implementation and installation, better education, and better information and consultation.
Value assessment requires: a set of benchmark measures, a series of milestone measurements, and a final measurement.
Measuring value: meantime between new product introductions, time and cost of product development lifecycle, forecasting accuracy, inventory costs, process scheduling accuracy, speed of order entry, meantime between billing and collections, receivables outstanding, reject and scrap rates, downtime rates, meantime between downtimes, product movement from warehouses, product movement at retail.
Hard-to-measure values: time saved, quality improved, productivity gained, capability enhanced, motivation increased, communication speeded, information learned.
Branding is the name of the process by which a product's value comes to justify its premium price. A brand is price-insensitive or, discount-resistant.
The secret of margin control is to brand your customers with competitive advantage in their own industries and markets.
Define the product in terms of its value.
Price is either a cost or an investment.
An investment leads to a return on that investment. This is found money. It is therefore, our money, mutually earned by and for the partnership of the two of you. By all rights, the partnership should have first call on the recycling of the returns from investments as long as it can propose fast reliable returns at competitive rates.
Concentrate on a single product line and know the customer's industry very well. Customize the product to fit the customer's critical success factors. Consult on application engineering of the products. Be an applier of technology rather than a supplier of products.
When you base your business on adding value to your customers, you "brand" it.
If product quality is superior to competition, it must be accompanied by superior applications services to make sure that your quality is fully realized by each customer.
Each time you succumb to the temptation to believe that "the value is in the box" and you make it faster, smaller, or more powerful just because you can, you will be a value-overadder. You customers will be unable to use your excess value. They will be unwilling to retrain their people to implement it and to connect it to their existing systems where it may interrupt or obsolete long-established procedures. As a result, they will not repay you for your overcosted investment with the super premium margins that would be required.
Amazon: http://www.amazon.com/exec/obidos/ASIN/0814450369
