Jose Palomino

Which Cost Option are You Offering?

January 29, 2015

To get ready for my upcoming keynote talk at the MarketingSherpa’s Email Summit 2015 in Las Vegas, for the next five weeks I’ll be sharing a new tip with you to address one of five questions as a preview from my presentation on “The Value Prop Critical Path”. This week, we’ll talk about your product’s financial positioning.

cheap McDonalds burger cost option

Image Credit: pointnshoot on Flickr

Remember that for every large or complicated purchase, your buyer is always asking themselves five main questions. Your job is to provide the answers to overcome their unspoken objections and move from the default position of doubt to one of confidence. Your marketing platform should always address in the customer’s mind:

  1. Why should I deal with you?
  2. How will your offering affect us financially?
  3. How will we manage and absorb your offering?
  4. How does your offering compare to my alternatives?
  5. How can I safely “step into” your offering (without losing my shirt or my job)?

Today we’re going to focus on question number 2. Your customer wants to know the financial impact that your offering will have on their business– but don’t think you can just slap a price sticker on your product and call it a day. A price sticker, or even a thorough and well presented proposal, isn’t a conversation. This isn’t about the actual price itself, but about the buyer’s financial targets, thresholds and expectations for purchases. You need to talk to your buyer to understand those aspects of their position, and then work with them to get to the heart of why it is good business to select your offering. If we’re talking about cost, there are really only three positions that you can take. You can only ever approach your customer by presenting either the low cost option, product superiority, or customer intimacy. The key is to be clear in your own mind which market you are targeting.

The Low Cost Option

My favorite example of this position is McDonald’s. Ray Kroc’s genius was in the innovative ways he found to standardize the product and cut costs to the bare minimum. For example: who buses the tables at a McDonald’s restaurant? The customers themselves do. Kroc found a way to “re-train” his customers such that when they finish a meal, they load up their little plastic tray with all their paper wrappings, and dump them in the trash. It would be socially unacceptable not to. If you are presenting the low-cost option, your focus should be on efficiency and cost control. You should be aware of why your buyer is choosing to control their own costs in the area of your product or service, and you need to have a conversation with them to determine that your offering is the most fiscally responsible option.

Customer Intimacy

Of course, not every business succeeds by being the cheapest option. Starbucks certainly doesn’t try to be, and you’ll never see them trying to compete with Dunkin Donuts on cost. They aren’t even going after the same market. When you walk into a Dunkin Donuts, (or more likely sprint as you’re trying to catch a meeting, order a coffee, open your briefcase and dial your phone with your nose at the same time,) you want enough caffeine and calories to last you until lunch, and you want it in the next 30 seconds. The atmosphere in Starbucks is completely different. The barista taking your order smiles and takes time to greet you. If you’re local and regular, she might already know your coffee order. They write your name on your cup. They let you customize every drink on their menu to get a coffee exactly the way you want it, and they’ll make it again if they get it wrong. When’s the last time you even tried to ask for a substitution at a McDonald’s?

This isn’t even to say that Starbucks and Dunkin are going after different customers. If you drink coffee and commute to work, you know that sometimes it’s a Starbucks kind of day and sometimes it’s going to be Dunkin, and it could all depend on which train you caught that morning. The point is that Starbucks succeeds on their superior customer service, and the intimate attention that they give each person that walks in. Does your buyer need to get it done as cheaply and quickly as possible, or are they looking for a vendor who will partner with them and give them special attention as a coveted client? Business Insider writes about this, and cites data from a study that suggests that customers are willing to pay up to 12% more for the same product with superior customer service.

Product Superiority

Some sellers succeed not by pitching the lowest cost or giving the most customized service, but by offering the best product or experience. Look at an Apple billboard – often it’s literally just a high-res, zoomed-in, dynamic photo of their newest product. Where the Android platform is available for any hardware manufacturer and any software developer to experiment with, Apple fanatically controls every single app on its marketplace and every component used in its devices. Android lovers claim, and not without reason, that this leads to a lack of innovation. But it also results in a product that works. They’re popular with people in business because iPhones and iPads are reliable, quality machines. Consider the last time you walked into a small coffee shop that was using a card reader plugged into an iPad. Would businesses use them if they couldn’t be reasonably well assured that the devices wouldn’t go offline unexpectedly? Being unable to accept payments during a lunch rush could cost a small business owner hundreds or thousands of dollars. In this instance, the buyer would be willing to spend much more on a quality device in exchange for that assurance.

This principal still applies to services, as well. Think about how much conferences pay to secure famous keynote speakers. The value for someone putting on such an event may be in the higher volume and quality of attendees that a big-name speaker can draw in. The conversation between between a buyer and provider of a service or product with this focus should be centered on why it is a good business decision to pay extra for the high quality option. Why do they need the best? How will you demonstrate to them that your offering will fulfill that need?

 

Here’s a pop quiz. Off the top of your head, do you know which of these three categories your offering targets?

 

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