by Robert Urban

One of my favorite commercials is where a barber shop sees a competitor across the street offering five dollar haircuts. Many customers are enticed by the lower price and begin to go to the new barber only to find out that the service provided was not even close to being good. They walk out of the new barbershop with the worst haircuts imaginable. The original barber responds by hanging a sign that says we fix five dollar haircuts. In these uncertain economic times I can appreciate everyone looking for the most cost effective service or products, however I think it is important to remember the difference between cost and value. If your business has become a Whoever has the lowest bid or price, then here are some things to consider to remind your customers of your value.

Without getting too technical lets first define what cost, values, and prices are.

* The cost of your product or service is the amount you spend to produce it

* The price is your financial reward for providing the product or service

* The value is what your customer believes the product or service is worth to them

For example, we had a major plumbing emergency at our house a few months ago. A pipe burst behind our kid’s upstairs shower and we had water coming through our bathroom wall. I estimate the real cost for the plumber to come over and fix our burst pipe was probably 10 bucks for travel, materials around 20 and an hour’s worth of work at 25 an hour. However, the value of the service to us (who could have had a flooded house in a very short time) was far greater than the 55 cost, so we felt the plumber was justified in charging 150 for the whole job. We had the peace of mind knowing that our problems were solved by an experienced professional, that imminent damage and perceived cost of repair to the house was avoided, and that he was responsive to our needs.

Pricing should be in line with the value of the benefits that your business provides for its customers, while also bearing in mind the prices your competitors charge.

To maximize your profitability, find out:

* What benefits your customers gain from using your product or service?

* What criteria do your customers use for buying decisions? — for example, speed of delivery, convenience or reliability

* What value your customers place on receiving the benefits you provide?

Wherever possible, set prices that reflect the value you provide — not just the cost.

A good way to do this is to focus on outcomes. In marketing I believe that a person should make more than they spend for most campaigns. (I write most because some campaigns are crafted to build awareness, enhance reputation, or generate goodwill and these are not tied to fiscal return on investment). Understanding and focusing on high priority outcomes maximizes time, value, and impact for both you and the customer. This strengthens your customers correlation between your partnership, advice, and expertise & their progress toward business objectives, goals, and successes.

I also believe that the way you treat your customer goes into your perceived value. If you are in a business where there really isnt a differentiators or unique selling point then you have to express the difference is you-the way you treat your customers and your commitment to solving their problem. For example, there are two dry cleaners by my house, about the same price and distance. Every time I walk into one the owner asks about my family and my day, and they have even rushed something overnight although that isnt in their service description. The other has done my clothes, did a good job on it, however they were impersonal in my interaction. One guess to whom I always drop my clothes off to? The reason for this is the value perception that I have of the one who talks to me and has built a relationship with me is much higher than the other one although the service is nearly identical.

In closing remember to clearly define and express your benefits that give an advantage over your competitors; your price point should be related to the value you offer customers.

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