A previous client of mind once called and threatened to pull the plug on our relationship if we did not lower the price.
He complained that he was paying us more than he was getting from the client. I politely called him bluff and he was forced to back down.
My client runs a security firm. It is true that in the security industry, in most instances, the only point of differentiation is price. When the majority of security buyers ask security firms to bid for a contract, in about 98% of the cases, their only criteria for selecting a particular security firm is price.
They look for the firm with the lowest price and select them. It does not matter whether it is a fortune 500 firm or even government agencies, their main criteria for selecting a security company is price.
So my client like most security firms when bidding for the contract bid at the lowest possible price. They lacked the logistical capability to carry on the job in the entire UK, so they contacted us.
Our firm on the other hand charge based upon both our perception of value and what we perceive as the perception of value of the client. One of the sites for example is a fertility clinic. Security for a fertility clinic is critical, therefore, we charge higher for that site.
We are protecting human life and people’s hopes and aspirations. If anything was to go wrong there it would be catastrophic. Therefore, we charge according to what we perceive as the value we were to provide.
However, because our client like most security companies used price as their only selling point, it left them without the room for manoeuvre.
Realising the error of their actions, instead of returning to the client to renegotiate, they decided to squeeze their subcontractors.
I used security as an example because I know with 100% certainty this is how the security industry operations, which is why the industry continue to struggle even though security services are indispensable.
In a way that how the majority of businesses especially small businesses operate. What they do not understand is using price as a point of differentiation is a recipe for disaster.
In any sales situation, there are two perceptions of value. There is the perception of value of the supplier which is the investment in bringing the product or service to the market.
And the perception of value of the customer. The customers’ perception of value is by what amount will the product or service satisfy their needs…The amount of benefit they will derive from using your product or service in relation to the expected value.
A good marketing strategy is one in which both the supplier and customers perception of value are met. This is a challenging situation because in most instances, the perception of value of the customer differs significantly from the perception of value of the supplier.
Consequently, effective marketing is all about raising the customers’ perception of value at least to the level that it is higher than the suppliers perception of value…cost of the production of the product or service…
The challenges that most businesses face in relation to their marketing is bridging the gap between their perception of value and the customers’ perception of value?
Let’s use the security industry as an example again. I know quite well that security buyers do not buy security unless they absolutely have to. The majority of those who buy security view security as a grudge purchase.
The bar or night club owners who has to buy security because it is a part of his license requirement view security as an unnecessary expense imposed upon him by the local authority.
So when he puts out a bid, he searches for the lowest possible bid.
But the key question here is: why is that the case?
Why do bars or night club owners perceive security as an unnecessary expense imposed on them by the local authority?
The answer is simple: security companies continue to fail in their attempt to outline the benefit of security to their business.
Security at a bar or club serve two purposes: prevent potential problem from entering the venue and maintain order inside the venue. The prevention aspect is the most important of the two.
When a venue is notorious for fights and disorder, that venue struggles to attract a certain type of customer…those customers with the ability to buy lots of expensive drinks.
Those customers do not want to go to a bar or club where there is constant fight. The role that a security officer plays in a bar or a club is to prevent potential trouble makers from accessing the venue in the first instance.
However, because most of the times the owner is inside, he does not see what is happening at the entrance, he thinks to himself that security officers are just stood at the entrance chatting with pretty women.
But here is a key point…security companies do not use the fact that their presence prevents trouble as a marketing message to the bar or club owners.
The majority of security companies use price. The ones with a little knowledge of marketing use their accreditations and the fact that their officers are SIA licensed. This is like a law firm selling the fact that all their lawyers graduated from law school.
The same can be said for retail security. Retails security officers play a significant role in the profitability of a retail store. The mere fact that a security officer is stood at the entrance of a retail store serve as a deterrent to all but the most determined shoplifter.
Retail security officers significantly reduce both internal and external shrinkage. However, security companies lack the
ability to communicate this valuable information to their clients, which is why retailers continue to view security as a grudge purchase.
I have used the security industry to illustrate the difference in the perception of value of both supplier and buyer. While security buyers view security as a necessary evil, security providers know that their service has a direct impact of their customers’ profitability.
The questions now: is how can this gap of misconception be bridged?
The answer to the above question has to begin with you answering the question:
What determines the perception of value for your customer?
The perception of value of your customer is based upon the problem that your product or service solves for them. The higher the amount of problem your product or service solves, the higher the customers’ perception of value for your product or service.
How can you increase the perception of value of your customer?
You do that by finding the problems that your products or service solves for your customers but most importantly, finding the core problems of your customer’s market.
How do you go about analysing your customers’ market? You can identify the core problems in your customers’ market by taking the following steps:
Step one: Identify three problems your customers are encountering at that present moment for which reason they bought your product or service
Step two: Identify the three core problems in your customers market…the problems your customers are facing might be difference from the core problems in the market.
Step three: Identify the three core problems your product or service is solving for the customer’s customers. This is the most important point of the article because sometime we have a beautiful solution for no problem.
Step four: Write down the effect those problems are having on your customer business and on your customers’ customers
Step five: Generalise the problem into generic industry wide problem
Step six: Expose the assumptions in your industry. Like the example I gave about the security industry where security firms assume that their clients only buy on the basis of price.
After you have you completed your analysis, you now need to craft an unrefusable offer. When constructing an unrefusable offer, you need to be cognisant of the fact that you have competitor.
So if your offer is something that can be easily copied as we see with the security industry, you will always be fighting over crumbs of bread.
A business has to guarantee reasonable return on investment in order to survive and to be profitable. A business also needs profitability in order to be able to provide quality product or services.
My client obviously did not understand this simple theory. The majority of businesses are struggling to ingrain this fact into their business.
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