There are lessons to be learned from bankers…

…unfortunately, it’s from their failings.

In fairness to bankers, and you, I have to admit I’ve been a very vocal critic of the banks for decades. Now that I’ve admitted my bias let me share with you why. There are typically two comments that I hear when talking to bankers:

• Money is a commodity.
• Our customers don’t value a banking relationship.

Let’s deal with the commodity comment first. My experience has been that there are many commodity products out there, but very few commodity businesses. There are very few things to which we can’t add value through enhancements or service. Those bankers who feel that money is a commodity aren’t seeing those opportunities. If you’re one of those bankers, or you feel that you’re selling a commodity, bring someone in from the outside to help you add value to your offerings. You won’t be able to do it alone.

To those bankers who feel that their customers don’t value relationships I ask “What kind of relationship are you providing?” The reality is that most banks, at least most of the larger banks, have three operating units – the deposit group, the lending group and the wealth advisory group. Typically these are separate operations so that there is little, if any, collaboration among them. There is also little, if any, bundling of the three group’s offerings to tailor the offerings to the customers’ needs.

Finally, the compensation for those who generate sales in each of these areas is based on gaining new deposits, making new loans or managing new portfolios. Once the sale is made, the account is transferred to the back office for processing. There is little, if any, reason for the person making the sale to continue visiting the customer. Hence the question “What kind of relationship are you providing?”

It’s counter-intuitive, but organizational structure and compensation programs can enhance or diminish the customer’s experience and your ability to command higher prices for your products and services. If you’re not getting premium prices, determine whether or not you’re using a page from the bankers’ handbook – viewing your offering as a commodity or touting a non-existent relationship as a value proposition.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

You can get Pricing for Profit online from Borders.com, BarnesandNoble.com and Amazon.com.

If you want leverage in a sales call…

…quit selling and start assessing.

At some point in the sales call I’ll say “My experience has been that my clients and I enjoy our greatest success when…(I list the four criteria above).”  I can’t tell you how often I’ve had prospects ask “Do I qualify?”  Talk about changing the dynamics of the sales call!

The prospect learns that they aren’t the only ones who are involved in the decision.  That I am evaluating them as a prospective client as much as they are evaluating me.  That’s as it should be; it should be a joint decision.

It’s counter-intuitive, but the key to closing more sales quickly is letting buyers know that they aren’t in control of the decision-making process.

How do you decide what price to charge?

How well is that working?

Most of us know the shortcomings of our offerings and immediately ascribe higher value to our competitors’ offerings – even though we know that there are aspects of our offerings that outshine theirs.  A better alternative is to look at businesses who target the same market you do, but who don’t compete directly with you.

For example, if you’re selling mid-range bourbons like Seagram’s VO instead of its high-end Crown Royal or low-end Seagram’s 7, you might want to check the pricing at a J.C. Penney’s store to see how their prices compare to Nordstrom’s and Walmart.  You’ll quickly get a sense for the types of price premiums these organizations are getting and what premiums are available to you as well.

Don’t just choose one group though; you could get a distorted view of the market.  In our example, in addition to looking at J.C. Penney’s you might look at mid-range confectioners to see how their chocolates are priced versus the high and low-end chocolates.

You could look at the premiums that Toyota gets for its Camry versus the Avalon or Yaris.  While the premiums might be less for big-ticket items like these cars, this kind of comparison can help you establish a floor for the premiums you charge.

It’s counter-intuitive, but looking at non-competing companies who serve the same markets you do provides a more objective evaluation of the premiums available to you than you can get from your competitors’ pricing.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

What does aviation have to do…

…with your pricing strategy?

Imagine that you’re a seasoned pilot.  You’ve filed your flight plan when a massive snow storm hits. Visibility is zero and the winds are gusting up to 30 knots.  Are you going to take off?  Not unless you have a death wish. You know the dangers of flying blind.

Yet business owners fly blind time and time again. How? Let’s say that your competitor comes out with an improvement to its offering.  Your sense that their enhancement will give them competitive advantage so you scramble to provide a similar enhancement.  You just took off in a blinding snow storm.

First, you don’t know whether their customers, or yours, will value this enhancement.  Unless your competitor raised its prices to reflect the additional value the enhancement provides and their customers are paying that price, you don’t know whether the enhancement has any value to the customer.

Second, many business owners give away these enhancements without ever asking for higher prices. Why? Their rationale is that they’ll gain “competitive advantage” and garner a “larger share of the market.” How often has that really happened in your industry? Isn’t it more likely that there was little, if any, shift in market share?

If that’s true, your competitor drove up its cost structure without gaining any additional revenue. That means its margins just dropped.  Worse yet, you followed them blindly.  Your costs are going up as well, without the benefit of additional revenues.  If that weren’t bad enough you just made additional investments to do so. Ouch!

It’s counter-intuitive, but following a competitor’s lead in enhancing their offerings without evaluating their approach and the impact it will have on their bottom line is the equivalent of abandoning your flight plan and taking off into a blizzard.  The results can be devastating.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

You can get my book, Pricing for Profit, by clicking on the book cover or by ordering online from Borders.com, BarnesandNoble.com and Amazon.com.

Enjoy!

Are you sure?

Are you really, really sure?

Here’s a test.  Can you tell me what these well-known businesses are selling?

• Mercedes Benz?
• JCPenney, Macy’s and Nordstrom?
• Anheuser-Busch?
• Gillette?
• Johnson & Johnson?

Based on my experience in working with business owners, here are the answers I usually get.

• Mercedes Benz – luxury cars
• JCPenney, Macy’s and Nordstrom – clothing
• Anheuser-Busch – beer
• Gillette – razors and razor blades
• Johnson & Johnson – healthcare products

Were these answers fairly close to yours?  If so, then I’m going to suggest that you don’t really know what you’re selling.  Here’s why.

While Mercedes does sell luxury cars, what their customers value is the image enhancement that the Mercedes name brings with it.  Certainly customers enjoy the luxury, comfort and safety their Mercedes provides, but the real value is that a Mercedes in the drive says “I am extraordinarily successful at what I do.  Here’s the proof.”

Even though JCPenney, Macy’s and Nordstrom all sell clothing their pricing varies dramatically.  How can that be if they’re all selling clothing?  The reality is that they, too, are selling image – albeit varying degrees of image. The JCPenney image offers current fashion trends at affordable prices.  Macy’s image is based on some designer names and more customer service than you get at JCPenney.  Nordstrom’s takes image to a whole new level with its store’s ambience, attentive sales force and, as with Mercedes, brands that say “I’ve arrived!”

The King of Beers” says it all.  Anheuser-Busch is in the business of selling the idea of a premium beer.  It doesn’t matter that people’s tastes in beer vary widely, Anheuser-Busch is selling that premium-beer concept and it serves them well.  In China, their products are gaining market share despite staggering price premiums over the Chinese beers.

Gillette does sell razors and razor blades, but that’s not the secret to their market domination.  They focus their attention on two value proposition for their customers – image (the best a man can get) and innovation.  Every few years Gillette comes out with something new to enhance the comfort and effectiveness of their razors.  A far cry from razors and razor blades, isn’t it?

Johnson & Johnson is a household name that breeds confidence despite its recent Tylenol recall.  J&J has a long history of quality and quick, effective action to remedy problems that arise.  The reason many buyers choose J&J products over competitors’ offerings is the confidence they have in J&J – in other words, its image. This image allows buyers to save time while shopping.   What J&J is really selling is image and time savings.  Their products are simply the media through which their image and time savings are sold.

With these examples in mind, what are you selling?  Is it the same thing you thought at the beginning of the article?  In reality there are only three things that any business sells – image, innovation and time-savings. Identify which of the three (or which combination of the three) you’re selling and you’ll be able to command and get higher prices for your offerings.

It’s counter-intuitive, but the key to commanding higher prices is understanding that it isn’t the product or service itself that attracts buyers.  It’s the intangibles associated with the buying experience.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

You can get my book, Pricing for Profit, by clicking on the book cover or by ordering online from Borders.com, BarnesandNoble.com and Amazon.com.

Enjoy!

How do your organization’s values…

…align with your customers’ values?

I recently attended a meeting which highlighted an organization that took great pride in its culture, it’s values, how it treated it’s employees and the clarity of its expectations of its employees.  Indeed, they had good reason to be proud.  The clarity was greater than I see in many companies.

At the end of the presentation I asked “How do your values align with those of your customers?  Do you find that those customers who share your values are more profitable than those who don’t?”

To the CEO’s credit he admitted that many of his customers were at the opposite end of the spectrum in terms of the values that drive their organizations.  He didn’t indicate that any of his customers were closely aligned with his company’s values.  Nor did he address the question “Do you find that those customers who share your values are more profitable than those who don’t?”  I suspect that he didn’t have experience with customers who shared his company’s values which would explain the lack of a response to that final question.

My experience in working with clients and their customers, and in my own business, is that when you and your customers share the same values, you enjoy higher prices and profits.  Let’s take a look at a simple example.

Often I get involved in helping clients negotiate deals or defining the strategy for a negotiation.  Whenever a client or prospect approaches me to provide this service I tell them that my goal in negotiation is get a fair deal. That I believe that the greatest value lies in long-term relationships which can’t be created when one party is looking for the “best” deal for themselves. Then I tell them that if they’re looking for the best deal they can get, I’m not the right guy for the job.

Using this simple approach I make sure that my client’s values and mine are aligned.  If they’re not, we don’t move forward.  Why?  Because we aren’t going to be successful in the negotiation if either of us is going against our natures.  Let’s be clear, I’m not suggesting that I’m right and the prospect is wrong or vice versa. I’m simply saying that we’re not going to enjoy much, if any, success with divergent views on the right approach.

You can apply that same concept to any product or service you offer.  If the customer wants you to alter your offering in a way that violates your value system, neither of you is going to enjoy much success.  Limited success translates into lower prices.  The lower the value that a customer can expect to receive, the less they’re willing to spend.

It’s counter-intuitive, but one of the easiest ways to command higher prices and generate higher margins is to set define your values and use those values to decide whether or not a prospective customer/client meets those criteria.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

It’s been said in many ways…

…but our world is a reflection of us.

Over the years we’ve heard sage advice like “You can’t love others until you love yourself” or “You can’t take care of others if you don’t first take care of yourself.” I’m going to put a little twist on these themes.  You can’t be valued by others unless you value yourself.

Buyers’ confidence in the value of what we’re offering depends heavily on our belief that what we’re offering is truly valuable – valuable enough to withhold the offering if we don’t get our price.  Of course we have to be able to quantify and communicate that value. But as long as the value is there, our responsibility to our buyers and ourselves is to communicate that value by asking a fair price and holding firm on that price.

If we don’t, if we cave into the buyers’ requests for lower prices, we tell them “We were just kidding, there really isn’t as much value as we said.”  At that moment we and our customers experience a sense of loss.

We lose:

• self-esteem – we feel devalued, needy, desperate
• revenues – from the lower price or from buyers walking away without buying
• confidence – we’ll find it more difficult to resist future discount requests
• enthusiasm – it’s hard to remain excited about what we do when it isn’t profitable

Buyers lose:

• a solution – often, in the face of conflicting messages, inertia sets in
• satisfaction – even if they do buy, they’re likely to question the value they received
• confidence – confidence in our integrity and/or capability
• enthusiasm – for ever doing business with us again

It’s counter-intuitive, but when you value yourself and your offerings, others, even those who don’t want what you offer, are going to perceive you and your offerings as having great value because you are willing to hold firm on your price.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

At least once a year review your customer list…

…and refer the 20% least profitable to your competitors.

How costly is the wrong customer?  The cost is much greater than the lower margins you get from these customers. It’s not unusual your staff to spend 20% or more of their time trying to appease customers who really don’t value what you have to offer.  So besides suffering lower profit margins, you’re spending an additional $20,000 out of every $100,000 of salary to try to please people who can’t be satisfied.

If your staff’s time were spent finding new ways to serve customers who value what you offer, you’d have the opportunity to increase both revenues and margins.  These additional revenues and margins fall directly to the bottom line because they’re achieved without adding staff.

The profits you gain by ridding yourself of the wrong customers and replacing them with ideal customers can be used to attract and retain top talent.  A McKinsey study, The War for Talent, showed that an “A” player costs 20% more than a “B” player, but produces two to three times more.  That’s a heck of a return on investment.  You can’t get this return if you’re wasting profit dollars on customers who don’t value what you offer.

It’s counter-intuitive, but referring business to your competitors can be a great way to strengthen your business and position your company for a brighter future.

Discover how easy it is to command higher prices for your products and services, call me at 314-707-3771.

If you want a better understanding of the market share dilemma…

…watch the Verizon and AT&T ads.

For years Verizon has been hammering AT&T with its coverage map, almost with impunity.  Finally, AT&T is fighting back.  Why the delay?  AT&T didn’t understand what market it was serving.

Verizon has been touting the reliability of its phone service over that of AT&T. Indeed, from it’s ads it appears that Verizon created its network with the intent to minimize dropped calls and assure connections in the most remote locations, something that AT&T’s network is not designed to do.

It’s Verizon’s success in its mission, not to mention its reputation for superior customer service, that caused me to wonder why Steve Jobs chose AT&T over Verizon when he introduced the iPhone.

AT&T’s recent ads may be answering, at least in part, that question for me. AT&T’s ads indicate that it built its infrastructure in highly populated areas.  That’s how they can claim to reach the vast majority of users, roughly 300 million people with a smaller network.

AT&T has also been touting its faster download speeds.  That could be what Steve Jobs was looking at – reaching the majority of the users with a network that made his apps programs run faster.  Faster speeds encourage greater usage of those apps.

Based on their ads, Verizon and AT&T seem to be pursuing two different strategies. Yet they seem to be viewing market share as if all cellphone/PDA users were equally valuable.  Obviously that’s not the case. What can we learn from this example?

It’s counter-intuitive, but understanding what your customers really value can help you avoid competing for customers who don’t value what you offer.  This knowledge will save you huge investments in marketing dollars, infrastructure costs, heavy discounts to attract customers who don’t value what you offer and investments in ill-conceived future strategic initiatives.

All of these benefits are available by simply avoiding the market share trap – defining market share by number of customers or percentage of industry revenue dollars.  If your organization has fallen into this trap and you’d like to climb back out, but aren’t sure where the ladder is, give me a call at 314-707-3771.

How we  got here…

…and it’s implications for the future

We’ve been in a discount economy for several decades. There are a number of factors contributing to this reality:

• Market saturation in developed countries requiring the creation of higher paying jobs in developing countries.
• Six Sigma and Lean Manufacturing practices for removing fat from processes.
• Walmart’s low-price strategy.

The intent of these efforts is laudable.  Creating new jobs, and consequently, new markets in developing countries produces long-term benefits for all of us. Removing waste from inefficient processes improves resource utilization and, typically, creates a healthier economy.  Walmart’s low-prices are designed to increase its customers’ buying power.  As I said, all laudable goals.

In pursuing these goals, Walmart and companies engaged in Six Sigma and Lean Manufacturing cost-reduction strategies placed a great deal of pressure on their suppliers to lower their prices.  During this process we, as a society, became obsessed with low prices.  So much so that we’ve lost sight of value. What are the implications of this loss?

We’ve hampered economic growth, not just in the U.S., but in all developed countries.  In order to offer lower prices companies have to reduce costs.  Since the largest cost for most companies is labor, it means that, in the past decade, salaries have actually declined leaving employees with less discretionary income to spend. The lack of discretionary funds limits economic growth by limiting spending to essentials. In terms of Maslow’s Hierarchy of Needs, the discount economy is driving ever-increasing numbers of people in developed countries toward the physiological (survival) needs and away from the self-actualization peak we desire.

One side effect of this discount economy is that we’re devaluing education. For a dozen years or so I’ve worked with juniors and seniors in a local high school to help them gain an understanding of how business works.  In the past two years I’ve repeatedly been asked “Is it worthwhile to get an MBA?”  That doesn’t bode well for the United States’ ability to compete in the future.  I can’t help but wonder whether students in other developed countries are asking the same question.

Combine the question of whether there is sufficient ROI on education with declining salaries, less discretionary income and lower profit margins and we are poised to experience:

• A paucity of talent.
• Lower R&D investments.
• Less innovation.
• Difficulty in competing globally in the future.
• A diminished lifestyle.

I doubt that this is the future any of us wants for ourselves much less for our children.  There is a remedy. Companies need to refocus their and their buyers’ attention on value.  Specifically they need to:

• Quantify the value they’re providing.
• Create sales scripts that educate buyers’ on value.
• Hold their prices in the face of buyer pressure to lower them.
• Avoid the market-share trap.
• Develop marketing messages to attract the buyers who value what they offer.
• Invest profits in finding new ways to serve the customers who value what they offer.

One of the reasons most of my clients feel trapped by industry pricing is that they don’t know how to quantify value.  So the first step in the process is to discover how to do those calculations.    Those formulae appear in my book, Pricing for Profit.  The second mistake they make is to look at their competitors when determining what pricing is available to them.  A better approach is to look at the price premiums that non-competing businesses are getting for their offerings.

The sales scripts that are used by most salespeople talk about a broad array of benefits, each of which is difficult for both the seller and buyer to quantify.  In reality there are only three things that any organization sells – image, innovation or time-savings.  Once sellers understand what they’re selling it’s much easier to quantify and communicate their value to their customers which helps their customers make better buying decisions.

Holding prices in the face of buyer pressure requires a clear understanding of what your most profitable customers value and the ability to say “No” to buyers who don’t fit that profile.  There are simple scripts that allow sellers to exit gracefully from prospects who don’t fit the profile while retaining a good relationship and positive impression with that person – an impression that often translates into quality referrals.

Unfortunately many companies get caught in the “market share” trap – they get so caught up in who has the most customers that they lose sight of who their ideal customers are.  This trap causes them to lower prices to increase customer head count.  In essence, they’re reducing their revenues from their ideal customers to garner lower revenues and profit margins from customers who don’t really value what they offer and they increase their infrastructure cost to handle the additional volume – nasty one-two punch that we inflict upon ourselves.

Because companies lose sight of their ideal customers, their marketing messages become less effective, their marketing costs rise and their ROI on marketing declines.

Finally, companies invest in expansions that don’t make sense because they can’t identify new ways to serve their existing customer base.  We need look no farther than Walmart’s, and now Target’s, entry into the grocery business.  Both companies are or have moved into an industry that sports 5% lower gross margins and low to mid single digit operating margins.

Expansion should be designed to enhance profit margins, not cut into them.  Companies that have money to invest need to find new and innovative ways to serve their existing ideal customer base.  They shouldn’t invest in offerings that don’t add at least as much value as they’re currently offering.  That value is evidenced by profit margins.

We have two choices available to us as we move forward in the current recovery.  We can wait for the recovery to progress at its naturally slow pace or we can accelerate the recovery through modest price increase and utilization of the higher profits to invest in new and exciting ways to serve our ideal customers while accelerating job creation.

To discover how you can break the bonds of industry pricing, call Dale at 314-707-3771.