Achieving Business Excellence with John Spence

Do You Truly Add Value?

When times were good and money was flowing fast it was easy to generate business without a high level of differentiation or an incredibly strong value proposition. But now that the economic times have gotten tougher and every business and personal consumer is carefully considering how to spend their dwindling resources, unless you can clearly show that your business adds real value to the customer… you’re going to have a really hard time finding any customers!

Let me give you a very quick example. About four years ago my wife and I asked a good friend of ours to build a custom home for us. When it was time to choose the lighting for the new house we went to a local “lighting gallery” to sit down with the owner and pick out all of the various lighting fixtures and fans we would be putting throughout our new home. We spent about two hours going over catalogs with him, as he suggested specific fixtures that would go nicely in our craftsman-style home and match the rest of our decor. We had made it clear that our budget for purchasing all of the lighting fixtures and fans was between $9,000 and $11,000. Twelve days after we met with him we received an estimate for $21,000! We quickly realized three important things:

1. Obviously “budget” did not mean a darn thing to this vendor. Actually, we ran into this time and time again when building our home, we would tell people exactly what we wanted to spend and then they would come back with a price that was often 60% to 120% higher than what we had stipulated. When we would comment to them that this was far out of the budget we had established, the common refrain was, “Well, then just add some more money in your budget!” Folks, the days of being able to give your customer that sort of response are absolutely gone. Even back then with a roaring economy (just four short years ago) I felt this was an awfully arrogant thing to say, today it would be downright stupid.

2. If you’re going to send me a proposal that is twice what I asked for, it shouldn’t take twelve days to get around to offending me. At the very least I would expect extremely fast and courteous service if I was being asked to spend double the amount of money I had intended to. Slow service and outrageous prices… not exactly a winning business formula.

3. After we got the estimate, and picked our eyeballs back up off the floor, one of my first thoughts was, “Why did he let us pick out fixtures that were so far out of the price range we wanted to spend?” I felt that as our “lighting consultant” it would have been his job to help steer us toward the fixtures that were within our budget. However, when my wife decided to Google a few of the products we had picked (using the exact SKU numbers off of the estimate) we discovered that everything on the list had been marked up by 80 to 150% or more. The next day we took a trip down to our local Home Depot where we looked at the exact same fan we had picked out at the lighting gallery. It was priced at $480 on our estimate, and was now sitting in front of us at Home Depot for $245. We promptly went home and ordered everything off the Internet. Total bill for all the lighting fixtures (the exact same ones we had chosen out of the catalog at the lighting gallery) was $7,300… which included shipping and tax!

The reason I dragged you through this entire story was to make this point: even though the nice people at the lighting gallery had been in business for 22 years, in the new Internet-enabled “watch-every-penny-economy” it only took them about three years to go out of business. That’s right, I drove past their building the other day and there’s a “For Sale” sign out front.

They did not go out of business because they sold a bad product; their lights, fans and fixtures were all of the highest quality. What drove them out of business was the fact that their old way of doing business is obsolete. They added no real value to the equation. I could go online and find every single thing I wanted, at half the price or less and have it all delivered to me with absolutely no hassle. Their building, their displays, their catalogs and even their consultation certainly did not add up to enough value to make me want to spend twice what I could get everything for from the comfort of my home.

Unfortunately, I am seeing the same scenario playing out in company after company. For years they have motored along picking all the low hanging fruit, delivering good (but not truly fantastic) products and services and enjoying high profit margins for basically low-value offerings. Now that the economy has made selling even the best products and services challenging, these companies are having an incredibly hard time demonstrating the real value-add they bring to the equation that justifies their high profit margins. The old equation used to be “high-quality… fast… or cheap… pick any two you want.” Today customers demand the best quality, delivered immediately, at the lowest possible price, with superior customer service throughout the entire buying and owning process! If you cannot clearly differentiate yourself on all of these aspects… combined… you’ll find it very tough to convince customers to buy from you (or at least to buy from you without totally beating you up on price).

So here are my questions for this blog: How do you truly add real value to your customers? What is everything that is unique and different about the way you add value to the buying equation that would make your customers be willing to pay a premium price to do business with you and feel absolutely great about the transaction?

Two things to keep in mind as you try to answer these questions:

a) Remember, value is from the customer’s point of view, not what you think. As Mark Twain once said, “The only critic whose opinion counts is the customer.”

b) If you cannot answer these questions in a clear, honest and very compelling way… you have some serious work to do.

I hope you found this post of value. I look forward to your feedback and questions.

Take good care — John Spence

Comments

  1. John,

    I’m reminded of Warren Buffett’s comment: “When the tide goes out, you can see who’s been swimming naked.”

    The good news is that in these challenging times there is no margin for error. It’s good news because the ones who’ve been able to get by through faking it are going to fall by the wayside, leaving the field open to those who are not willing to compromise the fundamentals of understanding customers and working harder than anyone else to meet them. In the long run, those individuals and companies will emerge even stronger than before.

  2. John (and Jack),

    This is an incredibly important article that I believe should be so very obvious – but everywhere I turn I’m proven wrong. Jack’s quote is apt, I think – the tide has not gone out for so long, that many have never had the opportunity to realize that they never put on clothes!

    Important stuff, John – thanks for continuing to communicate these sort of ideas.

  3. Derek Lewis says:

    EXCELLENT example of the New Economy. I just read an article which says we are entering an era in which no one will own information or be the gatekeeper for a certain set of skills. Think of web design – ten years ago it took a highly skilled professional to create something worth looking at. Now, tweens can create those same websites for free online while at the library – no capital investment, no skills beyond having a knack for making it look decent.

    Your story also highlights the only advantage left to traditional retailers – a personal relationship with its customer base, delivering superior service (since they don’t control the flow of information or access to the products).

    The Home Depot and the internet didn’t put them out of business – they didn’t adapt to their new reality.

  4. We publish an award-winning, full-color, monthly magazine the Landscupltor. It is distributed to more the 4000 professionals in the green industry (landscape design/build, tree care, lawn maintenance, irrigation, snow removal, etc.) in Michigan.

    Wondered if this could be modified for our magazine in a upcoming issue? It would be a great article.

  5. Karla – I would be happy to assist you in any way that I am able. We can reformat this blog article, or I would be happy to write something more focused and specific just for the magazine. Whatever works best for you, it will be my pleasure to assist you. Just let me know what you need — thanks so much — John