Scarce Customers – Part III

In the previous two segments we learned how why industry overcapacity, a dying industry and a perception that our competitors’ offerings are superior cause us to believe that customers are a more scarce resource than they really are.  Today we’re going to discover how our inability to communicate value can create that same impression.

Ineffective at Communicating Value
An all too familiar refrain from business owners is “They (prospects) get excited about my product/service, but seem to lose interest when they hear the price.”  The only solution these sellers see is lowering the price.  Why?  Because they don’t know how to quantify and communicate their value effectively.

Unfortunately our education system doesn’t teach business people how to quantify value.  Absent this ability, it’s difficult for business owners/leaders to identify who their ideal customers are.

Let’s say that I’m a JCPenney’s type buyer.  When I create offerings for my customers I’m going to do so with that value proposition in mind.  Often this decision is made subconsciously; I’m not even aware that I’m doing it.  Let’s see what implications that has for the success of my business.

If I’m unaware that I’ve created my offerings with a JCPenney mentality, what’s the likelihood that I’m going to market to everyone who might possibly buy my offerings including Walmart, Target, Macy’s and Nordstrom buyers?  Based on over 20 years experience working with businesses in a variety of industries, it’s inevitable.

I’m also going to direct my sales force to target all of these potential customers.  Unfortunately, my salespeople are going to get a lot of rejections from the Walmart and Target buyers because those buyers think my offerings are too expensive.  The Macy’s and Nordstrom customers are also going to reject our offerings.  Why?  Because they don’t believe the quality or image value are there.  Yet, their most likely reason for not buying is “Your price is too high.”

Quantifying the value of your offering is the key to communicating your value effectively.  Creating the formulae to quantify that value require more space than what’s available in a blog post.  The topic required a significant amount of one chapter to communicate in the book.  There is another approach that won’t be as precise, but will help you quantify that value.

First, look at what buyers are willing to pay for your value proposition – image, innovation or time savings.  Buyers pay more than 7 times the lowest price alternative on large ticket items to get the image they desire; 12 to 14 times as much for small ticket items.  Innovation buyers pay 3 to 4 times as much as the mass market and 10 to 12 times as much as late adopters.  Consumers pay at least 3 to 4 times their hourly rate of compensation to save time.  The value of time savings for business is the gross margin it’ll gain on additional sales.

Next, determine where on the spectrum your value and, consequently, your ideal customers’ value lie.  With image you have a spectrum that includes Walmart, Target, JCPenney’s, Macy’s and Nordstrom.  At each point on the spectrum you have a sense for how much buyers value image.  Target buyers typically pay 20% to 50% more for a sweater than a Walmart buyer.  JCPenney’s buyers typically pay 3 to 5 times as much as a Walmart buyer.  Macy’s – 6 to 8 times; Nordstrom’s 12 to 14 times.

In essence, by pricing according to the multiples that your ideal customer has demonstrated a willingness to pay you communicate your value in a way to assure the buyer that the quality, service, etc. are there.

Throughout the series you’ve had a chance to see that our perception of a scarcity of customers is more a perception than a reality.  Don’t allow your perceptions to become self-fulfilling prophecies, use the simple tools outlined in this series to open the door to countless customers at the price you so richly deserve.

If you would like to command higher prices, grow your profits and grow your customer base, give Dale a call at 314-707-3771.

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