The Concept of Value in services – 4

Have you noticed that a can of Coke/Pepsi or any similar drink, costs different in a store like Costco , different in a vending machine and different when you are watching a movie in a theatre (it could be the fountain version instead of the can). For all practical purposes its the absolute same thing, except that in case of the fountain drink, its freshly made. But the price difference that you pay could be more than 10 times for the same volume of drink.

How’s that possible. Its because of the value in the eyes of the customer. If you are at a subway / metro platform and you suddenly feel very thirsty, you can’t wait to take a trip to the Costco/Walmart store and pick a pack of 6 cans. You know, that for the cost of the can from the vending machine, you can buy 6 cans, but you still buy it. The key is convenience. You are getting a chilled can , where you are, when you are thirsty, so you can quench your thirst right there.

Now lets look at the cost of the drink when you buy it at the multiplex, whether its a can or from the fountain. Its even more expensive than the vending machine. How come?

Its because of two factors – first, you are in a closed environment where there’s no other vendor selling the drink – so there’s no competition, its a monopolistic situation for that location. You cannot come out of the multiplex to find a vending machine near the multiplex, take a can and go back in. Most movie theatres don’t allow outside food and drinks inside their premises.

Now the second point – when you go to the multiplex, you are with your family or with your boy/girl friend on a date. You don’t want to be seen as stingy. You want to enjoy your time, you want to also want to show-off. So you buy the popcorn and you take the large drink because the popcorn will make you thirsty, even though you know its way expensive.

Now there are all kinds of customers you will face for your services as well. One customer may prefer to carry a can, in her bag, so in case she feels thirsty, she can take it out of the bag and drink it. It may not be chilled, but she is saving money. These kind of customers will always want you, to give them the lowest price of the services and say they will take care of the rest.

Then there’s another set who is okay with paying for the convenience if there’s a definite benefit. This kind of customer will expect you to do the “whole” thing for her on a turnkey basis even if it costs more on the components but she does not take a chance of something failing. A lot of B2B customers fall in this category because they don’t want to have situation where something doesn’t work because one of the separate components doesn’t work. You can charge a substantial amount of money because the customer values the fact that you will ensure that things will work. This is the concept of System Integrator in B2B companies or a media house.

The highest value is being in a kind of a monopolistic situation – but it can cut both ways. So, as an example, if you are the only company which can provide services on a specific kind of a product, then you get to charge a price which is much higher than the market. So if you are in a niche which is large for you to make money but small or fragmented for your competitors, then you can make a lot of money.

On the other hand, and this is the downside, if that product on which you are selling services, stops selling, then your business comes to an end. A lot of movie theatres had to close shop because of the Covid restrictions as an example while the Costco/Walmart or vending machines continued working.

If you are making enough profit then you can survive and have the marketing stamina to get into other markets if one market starts collapsing. So as a practice try to create your services such they are more convenient for the buyer or where you can be in a monopolistic situation.

Till next time then.

Carpe Diem!!!

The best companies who could use my marketing advice

B2B, Business, Customers, ideal customer, lead generation, Marketing, Riding the elephant, single target market

I keep talking about a lot on the way you should identify the market, how you should target a segment and niche it . I talk about the challenges that come up when targeting the B2B space for a complex sale and how you can go about addressing them.

While most of whatever I talk about is overall good marketing practice, this is specially useful to people who own, run or work for companies who are less than $50 million in revenue, sell mid to high value products in the B2B space.

If you sell low dollar value items, then maybe a few things – especially about mapping different people in the organisation or structuring a value proposition or identifying the ecosystem may not completely be of value to you.

If you have already crossed the revenue of $50 million then chances are that you already are doing things and putting up systems which have helped you reach such a large turnover.

Its the companies, who are reaching about half a million dollars and want to break into the million dollar league and build processes which bring regular leads, who can benefit most from what I write. These would be my Ideal Customers.

All the concepts whether its the Single Target Market or the “Riding the Elephant” can provide immense leverage to companies who want to grow dramatically.

Till next time then.

Carpe Diem!!!

The concept of Value in Services – 3

B2B, Sales, services

I had written two posts earlier on this topic. I wanted to explore a couple of other things to get this topic to a logical end.

We are clear that the value is what the customer thinks it’s worth. But there are a couple of other components – one is the price and the other is your cost of providing the service. One thing that I have learnt with service projects, in B2B customers, is that, they always take longer than planned. And costing is always done on the plan.

Since most of us are under pressure to pick up the deal, we don’t like the idea of putting in buffers for the project going over time, because we are afraid that competition will pick up the order because of the increase in price.

The over runs generally happen in the final stages of the project. If you were to think of the full project as an elephant walking through a gate, then, generally all the components of the project – the trunk, the ears, the 4 legs, everything comes out but the the tail gets stuck in the gate for some reason or the other.

This is the time that the final User Acceptance is getting done and because the user feels that she should not miss anything, she tries to ensure that all the “t”s are crossed and all the “I”s are dotted.

This is where your costs go higher than you had budgeted. The resources that you had thought will get off the project, can’t leave the project to start on another one. That is the people. Then there are the pieces of equipment and tools that are getting used in the project. You will be paying for all this. Without realising, slowly the actual profit starts falling.

The customer doesn’t realise this. If you take the argument of cost over-run to the procurement person, he will find all kinds of reasons to put you on the back foot and in most cases never pay-up.

So you need to figure out a way to ensure that your “Costs” actually take this into account when you give the “Price” to the customer and you need to figure out a way to show the “Value” to the customer. You also need to be clear on the process of signing off the project from the customer end. What kind of tests will they get done, what kind of reports will be needed, the kind of dashboards that will be needed. List out all the points up front while closing the order.

Till next time then …. make more profits

Carpe Diem!!!

B2B small value sales

B2B, Sales

Generally whenever I write about the B2B customers, I write about the complexity, the inertia and the lack of interest in changing the incumbent. All these stem from the fact that I am talking of a mid to high value sale. I will define the mid to high value sale as anything more than $25000/- or greater than INR 10,00,000/-

B2B companies also buy small value items where the values could be very small and local managers have the authority to close the sale. If you are dealing in that kind of items, there’s no point in spending time tying to showcase the whole process of how you do a migration or a transition etc. It will only waste your time.

You need to manage the sales cycles depending on the value of the product or service that you are selling. If you are selling a low value deal then you cannot afford to spend time in building a proposal for each prospect. The cost of building a proposal in some cases would turnout to be higher than the revenue.

You need to therefore focus on building a volume of deals, where you take verbal confirmations and then just send them a mail confirming the discussion and asking for the order.

In case of small value orders a lot of big customers actually also enter into rate contracts so that they don’t have to negotiate these deals each time that they have to be done.

So choose your method of sales depending on the kind of values that you expect to pick up.

Till next time then.

Carpe Diem!!!