One of the simplest rules of business is this: You have 2 options for your business strategy, but you have to choose one:
1) Be the lowest cost provider
The largest retailer in the world, Walmart, uses this strategy very successfully. Their single-minded goal is to be the lowest price leader in every community they serve, negating the need for special sales…thus their tagline, “every day low prices”. Many businesses scoff at the competitor who consistently beats them on pricing. But please keep in mind that being the lowest cost provider is a solid strategy (just chew on this recent research published on Marketingprofs called ‘Consumer Frugality is Here to Stay‘) . If you are not the lowest priced in your category you only have one other choice…
2) Have a value differentiator
If you don’t have the lowest prices in your market, you better darn well have a really good reason why people should do business with you. Unfortunately, a lot of companies simply exist and don’t think through this challenge. Put yourself in your customers’ shoes. Why would they want to stop doing business with their incumbent and do business with you?
Value differentiation requires you to be unique in the marketplace and meaningful to your target. Just take a look at the values these infamous brands provide:
- Volvo is not simply a car. Volvo = safety.
- Disney is not simply a theme park. Disney = magical family entertainment.
- Harley Davidson is not simply a motorcycle. Harley Davidson = freedom & rebellion.
To define your value proposition, ask yourself:
- What are your target market’s drivers for purchase? We have many different reasons why we buy: convenience, trust, style, respect or reputation (just to name a few). Knowing the answer to this question can help you understand what you have to do to be relevant.
- What are your customers’ wants, needs and desires (and how will you deliver against them)? Many people buy a Harley when they hit middle age. A time when they have some disposable income. When their kids have likely grown up and moved out of the house. A time when these empty nesters have a newfound freedom and a desire to reconnect with their inner rebel. Harley Davidson gives these people a ‘statement of freedom’ and a community of like-minded people to connect with.
- What do you do better than anyone else? Simply being meaningful is good, but being meaningful AND different is exceptional.
So which option did you choose?
[New Post] Business Strategy: you have 2 options . pick one – http://www.ready2spark.com/2010/03/busin… #eventprofs
RT @ready2spark: [New Post] Business Strategy: you have 2 options . pick one – http://www.ready2spark.com/2010/03/busin… #eventprofs
Nice post and you did a good job of breaking down what may seem obvious but is often missed by many companies. And to answer you question, we are definitely in the value differentiator camp, providing great service alongside great products. As the saying goes; you get what you pay for. Appreciate the blog and tweets – keep it up!
Thank you @SmartSource! So glad you enjoyed the post.
Great tips. Thank you
Actually, you don't have to choose between high value to customers and low cost. You can do both. Look at Cirque du Soleil – they eliminated lots of costs that customers didn't value (expensive animals, goofy humor, “star” clowns and lion tamer) and substituted with far more artistic, original shows. And now, to your point, they have a brand of their own.
Now Cirque did charge more per ticket, but the leap in value, especially for customers who had never considered traditional circus, attracted an entirely new audience.
Before making the value/cost tradeoff, consider the customer experience and eliminate what customers don't care about (or hate). Figure out new value that customers have never seen from competitors and alternatives.
If one plays by traditional industry rules, then sure, you may have to cut price, especially when you do not look different than your competitors. Most companies would do well to add offers to their portfolio of products and services that allow them to break with the usual rhythm. Good news: right now, customers are more willing to explore alternatives than ever!
Greg,
Thank you for weighing in and your comments!
Cirque de Soleil is a fantastic example of a Value Differentiated brand. They revolutionized an industry and for all the comments you mention below, created a valuable experience that people could not get anywhere else. The fact that they were unique and meaningful meant that they could charge more per ticket…and that many people were happy to pay for it. However, they are not an example of a 'Lowest Cost Provider'. A lowest cost provider does just that – supplies a product or service at the lowest cost.
There are many people who will never attend a Cirque de Soleil show. Some might simply want the feel of a traditional circus and don't want to pay a higher ticket price. People buy for very different reasons – the key things that businesses need to understand is who their target market is and what their market values / why they buy.
Right – Cirque is not THE low cost provider, though their cost structure is considerably more lean than traditional circus.
I think your comment also points out another strategic choice that business need to think through: do we want to outcompete our rivals for known customers? Or do we want to attract non-customers, people who refused to do business with the industry either because they experienced something that kept them away or because the industry as a whole was not providing enough value.