Added value for the customer

Added value for the customer, i.e. how do I know I'm doing well?

If you ask your sales team what value they deliver to the customer, what answer do you expect?

Most sales reps are likely to focus on touting a competitive price, emphasise on-time delivery and quality. Ask then again, how do you know that what you are saying is adding value for the customer?

The answer may no longer be so easy, and that's because we often don't take the trouble to understand the customer beyond what we hear every day, or what we want to hear.

Perhaps something more will happen, however, and so, for example, someone will try to say that, on balance, our product is better because it is ... more technologically advanced than that of a competitor. Agreed. So let's ask, what does this mean for our customer, why is it an added value for them and how much is it worth to them?

What is the lack of identification of added value preventing us from doing in this case?

Let us first consider how you price your products or services. Very quickly, four basic pricing models can be distinguished:

• Cost Plus (cost plus margin),
• Commodity Pricing (product price, follows commodity exchange price),
• Follow the Market Pricing (price matching the competition),
• Value Based Pricing (price based on the added value we provide)

Only one of these models does not particularly need to worry about what our competitors are doing, as it is based on an understanding of the added value delivered to the customer.

So why is understanding customer value so important?

Well, understanding the customer directly affects our profitability. By understanding the customer, we can price our products and services based on the profit to the customer that our products deliver, rather than based on market expectations. That's all there is to it, and so much more. Think about and answer the question, what margin are you making, and what margin would you like to make? The key is to make measurable the added value we deliver to our customers. To do this, however, we first need to answer the question, what is added value anyway?