Competitive Advantage – where is it to be found?

Competitive Advantage

Everybody in business is seeking a competitive advantage. That elusive “thing” which allows the business to stand apart from the competition.  But where is competitive advantage to be found?

Michael Porter (Harvard Professor) said over 30 years ago that there are only two sources of competitive advantage – cost leadership and differentiation. 

To any reader of my posts would know I talk incessantly about value.  Unfortunately I believe too many businesses don’t do enough to understand what is really valuable to their prospective customers and then communicate the value of what they do.  But enough of that for the moment because my strong belief is that through understanding what is valuable and then connecting with that value is the easiest source of competitive advantage for small business. 

To achieve a competitive advantage through cost leadership is nearly impossible for a small or medium business. Many small businesses unfortunately sit in between cost leadership and differentiation. That means they have no  real sustainable competitive advantage. Why then do so many small businesses try to compete on price? It just does not make any sense.

But wait differentiation is not just about a great product. The next thing I see businesses saying is that their great product is a competitive advantage. Product innovation is important but it is only a source of competitive advantage for a short while. The market will copy or introduce a similar product in time and then the cycle starts again.

Jack Welch (former CEO of GE) is quoted as saying that there is only two sources of competitive advantage – the ability to learn more about your customers faster than your competition and the ability to turn that learning into action faster than your competition.

So what problems are you solving for your customers?  How are you doing it different and better than anyone else? How are you constantly keeping up to date with what is happening in your customers world?

Who are you performing for – cast or audience?

Recently I came across the statement about who are you performing for :- the cast or the audience?  The context of the statement was in reference to the theatre. However it started me thinking about the application to business. 

Most of the readers of this have businesses where a significant (if not all) part of their products and services are based around knowledge, ideas or expertise. (As an aside though even the most product orientated business should be looking how to take their internal know-how and make it a process which will be a much more valuable offering.)

Sometimes in ideas or expertise businesses we can be caught in the trap of performing for the cast or in other words doing things for the approval of our peers rather than focusing on providing value for the audience (i.e those who are paying for the value provided). Creating elegant and attractive offerings etc with an eye on the opinion of the peer group does not mean the ideas will connect with the audience. The focus must be first on the audience and only second (and there must be a huge gap) on the cast.

Approval from our peer group, from fellow travellers in business is important and something that we all want. 

But approval from  the audience is what pays the bills and gives us real freedom. 

Who are you performing for?

 

Are you speaking in the same tone of voice?

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Whilst I personally don’t drink the energy drink Red Bull I love the business of Red Bull.  Apple gets much said and written about it for its huge success (and so much of it is well deserved). However there is so much about Red Bull from a business perspective that is an incredible story.

I know some people have a problem with the energy drink sector. However lets just put that issue aside for the minute.

One of the things that I admire is the consistency of their message. Since founding the business the message has been the same. They have constantly attached themselves to the extreme sports and the sports which have significant risk and excitement attached to them. And then off course there is Felix’s jump from space.

The founder Dietrich Mateschitz in a interview stated that they have always been “speaking in the same tone of voice.”  Everything about the company from the advertising, to the sports, to the ambassadors of the brand, to the shape of the can is consistent. The message is always the same.

The value of this consistency is massive. There is no doubt in the minds of the customers exactly what Red Bull stands for.

Can this be said about your business?

I don’t just mean the marketing message, I mean every aspect of the business. From the marketing message, to what your customers experience when purchasing from you , to the internal operations of the business.

Is it clear what your business stands for?

#21 David Bateson – Creating authority through content

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David Bateson from News Business join me to talk about the topic of building your authority in a chosen market.  Much is said about content marketing but in this conversation David brings it down to some key actionable points on how to really make this a reality.  David is originally from Oxford UK who ended up in Brisbane Australia helping businesses to build their authority. Also David is an Italian Car lover which is an interesting story.

[sc_embed_player fileurl="http://traffic.libsyn.com/pricingpower/Episode_21_-_David_Bateson.mp3"]

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#20 John Chisholm – Creating Firms of the Future.

004c8b5John Chisholm joined me to discuss his experiences of helping firms create firms of the future. John is a fellow of the Verasage Institute and also a third generation lawyer who prior to his current consulting firm has help senior executive positions in leading Australian legal and accounting firms for more than 17 years.

In this discussion we discuss what a firm of the future, why value pricing is a must, and other opportunities particularly for the professions.  However we have a great chat about John’s dad who just had a birthday and the values and life of a lawyer from many years ago.  [Read more...]

Give your prices meaning

All Prices are Contextual 

When people buy, they  judge the choices in terms of relative advantages, not in absolutes. 

Dan Ariely, in his fantastic book he wrote “most people don’t know what they want unless they see it in context”.

If you don’t give them options then they will compare your services or products to something else. It is why people get prices from multiple vendors. They don’t know what they should pay from something. People want to compare to make sure that they’re not spending more than they should.

Now it is important that you adopt a contextual pricing strategy. It is important that you present more than one option with one price to a potential customer. By giving the customers choices they will be be more comfortable.

I will however leave the aspect of options for another post.

In addition to providing options however there is another aspect of contextual pricing strategy. Help people relate to the numbers. Unfortunately (I say unfortunately as someone who loves numbers) most people struggle with numbers. They want value rather than nice numbers. You need to create a frame of reference for your buyers.

Sanebox, a tech company with a solution for email has the following pricing page:-

Screenshot 2014-05-24 22.36.08

They have used contextualisation simply in two ways (1) the use of options and (2) the names of the options.  Snack, Lunch and Dinner provide a familiar frame of reference.

However even without options you can still compare your prices to another frame of reference – eg for the price of a latte a day you can subscribe etc……

Provide you prospective customers with a frame of reference and give the numbers some meaning.

We automatically think that the context has to relate to the value eg the price is say $4000 but it will add 10% to the value of your house. The context does not have to be that way though that may work.  The problem with this is if you use another number to frame the context you still have the issue that people struggle with numbers.

So for the price of a latte you could ……

A lesson from a local Espresso Bar

2014-04-30 08.41.02Not far away from where I live is a great little roaster and expresso bar called Cleanskin HQ.  For anybody in Brisbane I strongly recommend that they drop in for a coffee.

However I was in there yesterday (once again) and I saw they had a business card on the counter. Upon reading I was impressed yet again.  An image of the back of the card is in this post. 

So many coffee shops have various types of loyalty programs. Cleanskin HQ says no. Many coffee shops think they have to do copy others, to copy the strategies of the big guys – Cleanskin HQ says no. 

As they state on the card, if you want delicious coffee, carefully sourced and handled by passionate & obsessed people then their coffee is for you.  It is not only the coffee but importantly it is the people.  When you go there it is not just the coffee, it is also the conversation. 

They are not copying blindly other expresso bars. They are creating their own identity and through it a connection with their customers. They stand for something. 

Now guess what I can’t remember the price I pay for the coffee. They have pricing power. I don’t go there to get cheap coffee. I go there to get great coffee with a great experience. 

 

Value is not a number

Digital Image by Sean Locke Digital Planet Design www.digitalplanetdesign.com

 

 

 

 

 

 

Much is talked about Value, Price and Worth. We are questions like – what is the value of our services to our prospective clients?, what is the worth of what we sell, what price should we charge for our services or products?

But value is not a number.  

We spend so much time trying to put numbers around value.  Maybe part of the problem is us accountants. We put numbers around the value of a business. But that is a story for another day. 

Value is subjective. What I see as of value may not be the same as you.  The price I might be willing to pay for an item will differ to the price you are willing to pay for the same item.

Value is always contextual. The context will change our perception of value. The best example that I like is that of Nepresso pods.  If we compared the coffee to instant coffee it would seem to be very expensive but Nepresso have changed the context. We are encourage to compare these coffee pods to the coffee shop experience. The value in that context changes.

Value is not a number. Value is not a constant either. It changes based on our perceptions, on what comparisons we make, on where we are in life etc etc. 

So before we can start talking about the price you should charge you need to understand the value of your services or products from your customer’s perspective. 

Remember value is not a number. It is much more complex. 

 

 

To build your authority – double your prices!

CB-AI-JohnJantsch

Recently John Jantsch wrote an excellent piece for the great Copyblogger site (here is the article) on building long lasting authority. It is an excellent article. One of the five points that John discusses is “Charge what you’re worth”.  As anybody who has read any of my blog posts or listened to my podcast would have heard – hourly thinking is just way to prevalent. 

John challenges readers to double their prices. To make it work John says there would be 4 questions that allow you to figure out to make it work. These questions are :-

      • What would you have to do?
      • Who would you have to become?
      • What would you have to create?
      • Who would you need to start hanging out with?

I would totally agree with John in these questions.  However one key point that I want to make is this – Doubling your prices comes before you have long lasting authority. Often time I hear the comment from a business owner that they will increase their prices when they are the recognised authority, the go-to firm in their chosen market. But price is a signal. The signal being sent from low prices is low quality, low authority. 

To deliver on higher prices (or as John has stated double your current price) you have to determine how to deliver value on these higher prices. The higher price also sends an important signal to the market.

So what is holding you back from doubling your price?

The answer is you – nobody else. 

If you want long lasting authority in your chosen market double your prices. 

 

#19 – Steve Major – Discussion on the 5 Steps to Pricing Power

In this episode I take the time to go through the 5 Steps to Pricing Power.

Warren Buffett (possibly one the worlds greatest investors) stated in a congressional inquiry that in his opinion the single most important decision in evaluating a business is  pricing power.  He went on further to explain that a business that has the power to set its prices is a great business.

From my 25yrs of working with businesses much too often the business are driven by many forces not of their choosing that limits their ability to set their prices. However it does not have to be this way. As Warren Buffett has clearly articulated there are other options.

With Pricing Power comes freedom.  Freedom to choose. Freedom to enjoy life.

The 5 Steps to achieve Pricing Power are :-

  1. Value – understand what is valuable to your market and communicate your value
  2. Product – move from services to value based services to value based products
  3. Price – create a powerful pricing strategy
  4.  Numbers – measure what matters
  5. Authority – become the go-to firm in your chosen market.

In this episode I go through in more detail these 5 Steps.

If you have any questions please email at steve@pricingpower.net