Tag Archive: profits

Value Based Pricing

October 21st, 2019

calm leadershipAn overarching theme from our pricing and profits presentation relates to value based pricing. It was unanimous – every CEO believed that value based pricing was the best direction to go.  Yet, it became muddier in figuring out how to move towards value based pricing in his/her particular situation.

Let’s start by defining value based pricing. Simply stated: prices are based on the value the customer receives.

Everyone wins. The customer gains more value and you gain a higher price. Of course, that higher price should carry a higher margin.  It isn’t set up so that you win at the expense of your customer. Instead, both parties win with extra value and margin. So, if everyone wins, why don’t more of us utilize value based pricing? According to the CEOs, it isn’t simple. Yet we all agreed it is worth it.

Perhaps we’ll be talking about this for months and years to come as it can do something far more important than increase margins. It enhances customer value which can lead to customer engagement and loyalty. There are lots of statistics.  Suffice it to say, we will be much happier and are willing to spend more to do business with companies that deliver excellent customer service. And, more engaged and happy customers are dramatically more profitable.

After all, it can be 2 to 25 times more expensive to acquire a new customer than to keep a current one.

Start by figuring out the value of your product or service. Don’t listen solely to your R&D department, sales resources or anyone else while trying to understand value. Don’t even listen to your customers. Instead, think about your target customers and probe the value to these customers. Ask. Listen. Observe. When you ask questions, listen to what else they say. What would improve your customers’ situation? The value will emerge.

 



Why Southwest Customers Wouldn’t Buy a Bentley

July 24th, 2019

After giving 10 speeches on pricing and profits to groups of CEOs, it is certainly top of mind. Yet, it should always be top of mind for executive teams. One unanimous finding from the informal research of executives is that pricing is a strategic topic.  So, we must find time! When is the last time you focused on pricing?

Whether you consider pricing a strategic topic or not, it will directly impact your business. Let’s start with three typical options from a branding point-of-view.

  1. Low price leader – Southwest and Walmart are great examples of this. No one flies Southwest to have a first class experience. Instead, they are accessible to the general public and fun to fly. Their prices have to match their brand, and low prices do NOT equate to lower profits. Southwest has been consistently profitable when the higher priced airlines weren’t!
  2. Luxury brands – Similar to the low price leader, a Bentley or Gucci denotes the luxury image. If you found a low price on a Bentley, you would definitely think it was a lemon. In the B2B world, the same holds true. We work with a high quality lawn and garden equipment and tools supplier.  Their prices have to remain higher than the low cost brands to maintain their image and customer base. Of course, they need to provide more education and value for their customers as it is what they expect.
  3. Customer focused – In this case, the brand is all about the customer.  These companies are known for going the extra mile and providing superior value for their target customers. If it is all about value in the eyes of your customer, don’t you think your price better align to this value? Of course! If not, it is the epitome of the opposite of the brand.

Have you thought about your strategy and whether it relates to your pricing? It is easy to get caught up in competitive pricing situations and start to lower your price.  However, it might be the time to take a step back and see whether what you are doing matches your branding and strategy.

For example, one CEO provided an example of when she was a VP of Sales at a significant company. They had a niche product with unique value and higher prices. The sales teams were starting to see competition and thought they had to reduce pricing slightly to maintain their position.  The CEO said ‘no’. They were the leader and had value their competitors didn’t. It was a really hard process for the sales team to go back and talk value instead of giving in on price but they managed it. Fast forward to the next year. They were successful in maintaining their prices and didn’t lose business. Instead of falling into price war thinking, they talked about value.

What Do We Need to Think About Related to Strategic Pricing?

From an 80/20 perspective:

  • Who is your target customer? Think about your answer. Hopefully, it isn’t anyone willing to pay for your product or service! Yet that is an easy trap to fall into. Instead, take a step back and think about your target customer. What is their profile? How many current customers are target customers?
  • What do your target customers value? Although we tend to spend 80% of our time on 20% of our customers, the key question is whether these are the target customers. Do we know what our target customers value? Don’t think about your customer base and your daily interactions to answer this question. Instead, think only about your target customers. If you don’t know, find out! Being clear on this alone will yield dramatic results.
  • Is your pricing aligned with your target customers and their expectations of value? This is a tricky one. In our experience, 80%+ of our clients have room for improvement when we get to this point. It also changes over time.  If you last put thought into this even a year or two ago, you are acting on old information!

There is vast opportunity to keep pricing top of mind as it relates to your strategy. Why do this? It is a top strategy to ensure customer value (to grow your business) and increase bottom line profits simultaneously. If you are interested in a pricing & profits assessment, contact us.

Did you like this article?  Continue reading on this topic:
Pricing & Profits: It’s Not All About Revenue
Gaining New Ideas to Increase Business Value



How Customer Service & Retention Directly Impact Profits & Performance

July 12th, 2019

Since I’ve been speaking to CEOs about “Pricing & Profits”, the true impact of customer service and retention is arising as a game changer. Can you create a situation where you make a “forever promise” to your customers? It certainly will directly impact your customers’ perceptions of your value and your bottom line!

The statistics are staggering:

  • According to Bain & Company, increasing customer retention rates by 5% increases profits by 25-95%
  • According to Harvard Business Review, it is anywhere from 5 to 25 times more expensive to acquire a new customer than to keep a current one.
  • According to Salesforce, 74% of people are likely to switch brands if they find the purchasing process too difficult.
  • U.S. consumers are willing to spend 17% more to do business with companies that deliver excellence customer service
  • According to Newvoicemedia.com, after one negative experience, 51% of customers will never do business again with that company.

Do you know how your company is doing?

 

What Should We Consider and/or What Impacts Could Arise?
Clearly, in reviewing the statistics, we should all be ultra vigilant about customer service and the customer experience.

Where do we start? In our experience, our best clients understand their target customers and what is meaningful to them. The customer experience has to start there. It is easy to get carried away with measuring on-time delivery, customer complaints and other metrics but what does that really tell us? Do our customers simply want a reliable delivery estimate and someone to pay attention to ensure success or do they want a tailored, customized customer experience? Are we getting complaints from our unprofitable customers and silence from our best customers, and therefore focusing in on the”20″ of the 80/20 equation? It happens more frequently than you’d think!

Once you know what is meaningful to your key customers, define a way to measure your success in achieving your objective. Perhaps use the net promoter score as it is one simple question that speaks volumes: How likely is it that you would recommend [brand] to a friend or colleague? As you explore why, you’ll find ways to increase the value of your customer experience to your key customers. Certainly, customer service is a critical topic in creating a resilient supply chain. You’ll find more information on these types of topics on our resilient supply chain series.

 

 



What IS the Supply Chain?

March 16th, 2018

Certainly, we are well-known in supply chain circles; however, what does that mean?  This topic has come up somewhat frequently lately – should we call this position an Operations Manager or a Supply Chain Manager?  Which will get us the best fit talent?

Because we are known as supply chain experts, we continue to talk about the supply chain even though LOTS of people – including potential clients – are unsure what in the world that means.  

For a while we talked about operations but that definitely didn’t provide the appropriate vision since our passion surrounds providing bold customer promises and profits. Nowhere does operations convey customers and growth.  

We also talk about manufacturing since it is our sweet spot within the supply chain! As the slogan touted at the Manufacturing Summit‘s reception on Valentine’s Day, “We love Manufacturing”. The bottom line is the “what to call what so many companies desperately need” dilemma has proven frustrating!  

In our case, we have decided to convey our vision of the supply chain in pictures – who doesn’t like a good picture?  (Note our updated homepage)

 

 

I brainstormed this topic a while back with my global consulting strategy group (and so I want to give them a shout out and thank you), and we had fun creating concepts to visualize the supply chain:

  1.  From cradle to grave –  It certainly does go from beginning to end -and beyond with reverse logistics and after sales support.  It is a bit dreary but nicely descriptive -and there are plenty of clients who should put some items, customers and poor performers ‘in the grave’ sooner than they do.  Have you noticed this too?
  2.  From inception to reception –  This appeals to me as it spans the inception of an idea for a product or service to the reception by the customer or client.
  3.  Coal to car – A manufacturing metaphor related to the same theme so, of course, I appreciate it.  Henry Ford owned the coal mines that made the steel that made the car.
  4.  From concept to cash –  This also appeals to me because it conveys the result of the supply chain – translating concepts into cash.
  5.  Creation to application or creation to customer– Appealing from a creative and technology point-of-view.  I have to say – many clients have issues in ‘application’. And, many people who know me will say, “how did you come up with 2 more C’s with creation to customer?!”
  6.  Significance to service – Since I have a passion for the customer side and wholeheartedly believe that you won’t have happy customers without happy employees; thus, significance to service hits the nail on the head as well.

Do these provide a picture of the supply chain?  Which do you like best? I hope to hear from you!  

One last thought on supply chain.  You’ll notice that purchasing is only one aspect of supply chain; logistics is only one aspect of supply chain; and so on.  In fact, isn’t the supply chain never-ending? It doesn’t really end but feeds the next loop within the supply chain?



5P Accelerator to Fast-Track Growth and Profits

April 26th, 2016
5P Accelerator for growth and profits

Energy spent on focus, speed and relationships can help companies chart a course for growth and increase revenue.

Our most successful clients are constantly thinking about where they are headed. They think about why they are going there — how does it fit with their vision? How does it have meaning for their customers? Employees? Supply chain partners?

They also think about emerging trends — what is most likely to impact their business? What do they have control over? What opportunities can they leverage? Can they turn lemons into lemonade? How?

Our role is to stay ahead of the curve so that I can help my clients achieve dramatic results. Thus, we’ve incorporated the following best practices and thinking into the development of our proprietary processes:

  • Best practices across industries (ranging from aerospace to building products to food & beverage to distribution) and company-sizes (from small, family-owned businesses to facilities and divisions of multi-billion dollar, global enterprises)
  • Expert advice from our collaborations and alliances of clients and colleagues inclusive of top-notch trusted advisors, communities of executives and business owners, and trade association experts and professionals.
  • And, most importantly, we’ve bounced these against “what works” and is immediately pragmatic.

5P Accelerator(SM) is our proprietary process that fast-tracks growth and profits.

Our 5P Accelerator(SM) focuses on the core factors of success:

  • People – success begins and ends with people. Do you consider your people assets or costs? Give me a strong leader with a mediocre strategy any day over a weak leader with a strong strategy!
  • Processes – the foundation of success; similar to a house, if you don’t have a solid foundation, fancy curtains will not be sufficient to withstand a storm.
  • Plan – too many executives jump to action and skip the planning step. A plan is not only a part of your foundation (imagine a football team without a playbook) but it also provides an important collaboration vehicle.
  • Priorities – if I only had a dollar for every executive who wasted time on non-essential priorities, I’d be rich! What seems like a priority because your boss or customer happens to be yelling over the phone or a respected boss, peer or Board member is asking about isn’t necessarily so…..
  • Profit drivers – considering what is essential to your strategy, key customers and potential customers, profitability, cash flow or other critical factors should be of utmost importance.

Unfortunately, getting the 5Ps “right” can be challenging enough; however, it might not be sufficient for success. Add in focus, speed and relationships to tip the scales in your favor to fast-track growth and profits.

Please refer to our webpage to learn more and contact us if you are interested in leveraging 5P Accelerator(SM) at your organization. 

Did you like this article? Continue reading on how to Profit Through People:

The Systems View 

Empower Your People to GROW