The term "price" specifically refers to the true cost and value to your customer. Value is what a customer gains from the experience of purchasing your product or service - a combination of a superior product provided by superior people, who create a place that is engaging and deliver a seamless process. World-class organizations follow the Six Ps Customer Formula: Promise < people + place + process + product > price.
You've heard the expression, "Well worth the price"? That's what this formula means - that the price is less than or at least equal to the entire experience, which includes the product as well as the people, place, and process. Keep in mind that, to create or maintain a competitive edge, "equal" isn't acceptable; the value must exceed the price paid.
On the basis of their ability, people are willing to pay the price, depending on how they value the quality of the people, place, process, and product. Or vice versa, the poorer the people, place, process, and product, the less customers are willing to pay. To address a common misunderstanding, let's explore what customers really pay for the services they receive. The true cost isn't measured in just dollars and cents; it's broken down into two categories - tangible and intangible.
The tangible price customers pay
The tangible price is a more quantifiable cost. It's reflected in money, time, effort, and resources.
Money. The most obvious tangible cost to the customer is in the amount of currency he pays to receive the goods and services you are delivering. Clearly this is an important arena to consider, but it isn't the only one.
Time. They say time is money. How long does it take to get to the hospital? How long does it take to wait for treatment or help in the emergency room? Processing these waits, and having beds available along with needed staff, are major investments, but they are part of the price patients must pay if their lives are at stake.
The same could be said for shopping online. How long does it take to make that online purchase? How long must the customer wait for the product to be delivered? All these are tangible to the customer in terms of their personal time. Zappos explains that it takes up to four days to receive a pair of shoes purchased online. But their location, next to FedEx in Memphis, means that the shoes often show up the next day. People appreciate the value from the time saved waiting for their shoes.
Effort. How much effort do customers have to expend to make the purchase? Did they have to give up their lunch hour to make it? Did they lose a night's sleep to get that bargain sale item the day after Thanksgiving? That notable retail day, known as Black Friday, is a favorite for those ready for a great deal. Wal-Mart has negated the hassle of needing to go from store to store to find the best deal by matching any Black Friday ad. In fact, rather than being forced to wait until the actual sale day, more and more stores are offering their sales earlier and for longer periods of time to lure customers to buy. Moreover, others such as Amazon, Target, and Best Buy offer big discounts a few days later on Cyber Monday, when it will be even easier for shoppers to make their purchases. Even online retailers are extending their sales strategies to better exceed the expectations of the customer's sense of price.
Resources. Other resources required to complete the experience of the purchase include a wide variety of possible investments, such as
- the favor your customer asked of friends to drive them to your store
- an unfortunate incident that occurs on the way to the store
- the additional components they had to purchase to utilize your product or service.
The intangible price customers pay
"Intangible" simply means things that can't be measured. Examples of intangible costs include missed purchases, how it makes you feel, how it helps others, and how it appears to others.
Missed purchases. What opportunities did the customer miss out on to purchase the product or service? The sacrifice made when deciding to go on vacation may be postponing a mortgage payment, or eating peanut butter and jelly sandwiches the remainder of the year to afford the trip. Because money is limited for most people, customers pay a price for not being able to purchase other things.
How it makes you feel. Returning to the essential customer needs: Does it require your customers to lose control? Does it require them to sacrifice stability? Does it result in them feeling less significant? These are serious costs that affect the decision as to whether your customers pay the price. Related feelings can be positive or negative. Many motorcycle enthusiasts are willing to pay a higher price to ride a "hog." That's why they shop at Harley-Davidson - it's about the status, the way they feel as they hear the distinctive growl of the motor and see the Harley logo on the side of the gas tank.
How it helps others. Customers are often willing to pay the price for the sake of others. In its simplest form, you find this on birthdays or holidays when someone purchases a gift for a loved one. They are willing to pay a price to be connected with others. In charitable terms, many people today are willing to pay a price that might return help to others less fortunate. In environmental terms, people also pay a premium price for goods and services that help the environment.
How it appears to others. The reason many pay the price is for status and acceptance. Many pay a premium price to look stylish, hip, or cool. There is also a price paid for not looking stylish, hip, or cool.
Pay attention to price - it confirms the value of your customer's experience. You'll find customers are willing to invest themselves as necessary, if the complete experience creates sufficient value for them.
Note: This article was excerpted from Lead with Your Customer by Mark David Jones and J. Jeff Kober.
Mark David Jones has been transforming organizations for two decades and is in high demand as a speaker and transformation expert for clients such as General Electric, Johnson & Johnson, BMW, Coca-Cola, and The Mayo Clinic. He is currently chief operating officer at World Class Benchmarking, a consultancy firm helping organizations who want to achieve industry-leading excellence. Jones' background includes a variety of leadership roles over 26 years at the Walt Disney Company, as well as other leading private and public sector organizations. He has held teaching positions at the University of Florida, and Florida State University, where he earned his master's in organization development.
J. Jeff Kober has focused on training and development initiatives for over 25 years in both the private and public sectors. Currently, he is CEO of World Class Benchmarking, and thought leader for best-in-business-practices of the Walt Disney Company. Kober's past experience includes leadership development training for GE executives, transforming federal student aid for The Department of Education, and serving as a consultant with The Disney Institute. Clients have included Federal Express, Bank of America, Office Depot, MetLife, New York City Department of Finance, and Volkswagen of North America. Kober holds a master's from Brigham Young University.
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