YBC Academy : Do You Trade On Price Or Value?
The Value Proposition
Do you trade on price or on Value?
I have often been described as the consummate networker. Over the years I have connected with hundreds, no thousands of business owners and I find that a very large percentage of them share a common flaw: They do not understand the difference between trading on price and trading on value.
I want to explain the difference and explain how I charged over £11,000 to produce 5 x 3-page documents resulting in my client warmly thanking me and shaking my hand, exclaiming that he could not thank me enough.
When you trade on price you make yourself a commodity and if you are always trading on price, there will always be somebody who is prepared to do it cheaper. There comes a point where the price becomes so cheap you might as well cease trading. There are very few businesses that are successful trading on price (I suppose the £1 Shop is the exception).
In the days when it used to be popular to blame the Poles and other East Europeans for stealing English jobs by under-cutting, I remember a self-employed plumber, on national radio, bemoaning the fact that, after running his own business for a number of years, he was being constantly under-cut by the East Europeans, that he couldn’t compete and now he has to go back to being employed in order to earn a living.
Let’s think about this more carefully. You say you can’t compete because they keep under-cutting you, so you work for an employer who not only has to cover the cost of paying your wages but make a profit as well. Clearly the employer is charging much more than you were? So, how comes they can be more successful, being more expensive and can compete with those who are trading on price but you could not? You were trading on price and your employer is trading on value:
“We are well established, having traded for many years. We work to the highest standards and provide genuine guarantees that provide the peace of mind that the job is going to be done professionally and you will have years of trouble-free plumbing, etc., etc. But when something does go wrong, you know you are in safe hands and that you have the backing of a well-established company that will always be there to put matters right.”
If you went to a graphic designer wanting a new logo how much would you expect to pay? If you are a graphic designer and you were asked how much it would cost to provide a logo, how much would you charge? How do you work it out? Would you say £200, £500, £1000, £5000, £1,000,000? How much would it cost?
What if your client were to ask you what your hourly rate is, how would you respond?
If I were a true master at what I do and therefore, I can do the work you require to a high standard and quicker than somebody who is just very good at what they do, I would be penalised for being so good. That’s not fair, is it?
Conversely, if the job took longer than anticipated, would you be prepared to pay more? There has to be a better way.
BT wanted to change its logo in order to bring all the services they offered under one marketing umbrella. They paid a seven-figure sum to end up with 2 letters inside a circle and they thought they received great value for money. British Airways spent a similar amount of money to change its logo,only to be told that the logo they already had was perfect and should remain unchanged. They, too, felt they got great value for money.
If you saw an item branded with a tick, you would immediately recognise that as a Nike product. Now, as it happens, Nike paid next to nothing for that logo (how they did that is a different story) but if they went on the open-marketfor that logo, they would also have paid millions and regarded it as good value. So, how is it the everyday graphic designer can only charge a few hundred or a few thousand pounds for a logo but another can charge millions for a logo?
It’s all about the elegant and eloquent questions that you ask:
“So Nike, am I right in thinking that this logo is going to appear on all your merchandise, in all your marketing and in all your stationery? And am I right in thinking this is going to be used globally? So, it’s really important that we get it right because to get it wrong could jeopardise potentially £billionsof business around the world, right?” (I wouldn’t actually phrase it this way because these are leading questions. Better to get them to tell you what the risk is)
It’s all about the risk. Would you spend £1,000,000 to protect £1 billion of business? Are you beginning to see how you are now trading on value and not on price. Now, I am not saying that with this new-found understanding you can now take on the big boys. No, there is a lot more you need like history, infrastructure etc., before you can approach these guys but this extreme example illustrates how it is possible to trade on value rather than price.
I seemingly have an impossible business model. One of my businesses is debt management or as I prefer to call it, debt resolution, an FCA regulated activity. In other words, I have clients who, by definition, have very little money or no money whatsoever!
The first thing I say after breaking the proverbial ice is:
“Before I start, I want you to know there are other people, other bodies, other organisations who seemingly do what I do and don’t charge fees. You can go to Stepchange, National Debtline, Christians Against Poverty and Citizens Advice Bureau, amongst others and they all seem to do what I do and they don’t charge fees. I do charge fees and there are good reasons why people choose to pay my fee but what I am saying is you have choices; you don’t have to use me.”
And do you know what? The one thing that absolutely never comes up is any objection about the fees I charge. I make sure I ask the right questions so people understand the value I offer. Instructing me becomes a no-brainer.
An accountant referred me to a client who had a particular need. The accountant explained that the client had been talking to a chartered planner but realised, because of the conversation we had, that my remedy might be suitable for this client. What the chartered planner was advising was correct but having asked the right questions, I could see a far less complicated way of achieving the same objectives. The end result was that I produced 5 x 3-page documents and charged over £11,000. The client was delighted because he really understood the value of what I produced and the peace of mind it provided. In fact, if I had charged a few hundred pounds, as most people in my position would have done, the client would be concerned that it was too cheap, it wouldn’t do the job and he would not have instructed me.
In summary, ask elegant and eloquent questions that leads the prospective customer or client to identify his real buying motives, his objectives. Then do the same thing to get the customer or client to take ownership of the risks or costs if we get this wrong. Illustrate how your offering achieves the objectives and negates the risks and buying from you becomes a no-brainer.
Trade on value, not on price.If you would like to know more about this subject or any other YBC Academy information, please enter your details below and we will make contact as soon as possible.