Desperately Seeking: Added Value – The Key to Beating Your Competition
As the balance of the North American economy has shifted from manufacturing to services, the delivery of services has become increasingly commoditized. If your business is insurance, for example, you are faced with competition selling insurance that is very much like yours. If their product looks, smells, and feels like yours, and they are willing to sell it for the same or less than you are asking, your potential customers are likely to ask the classic commodity question: “A bushel of wheat is the same bushel of wheat, no matter where I buy it. Why should I buy it from you?” Think very carefully about your business, and what you actually sell.
Remember that people don’t buy “drill bits”, they buy the capability to produce holes of a given size and depth. How many other businesses are in your market, selling about the same thing your business sells? How many of them are willing to sell it for the same or less than you are asking? If the answer to both questions is one or more, you are in danger of becoming a commodity trader, trading in your own products or services…and the ubiquitous internet offering only compounds your dilemma.
Commodity trading is characterized by high volatility, the need for extremely high volume to make up for extremely low profit percentages, and a high rate of failure—probably not a desirable set of conditions, and not what your business plan describes.
How, then, can you ensure that you will not become an unwilling commodity trader? The answer, especially for service businesses, is to provide added value your competition simply cannot offer. If you can provide unique added value, your bushel of wheat is suddenly different from other bushels of wheat, and can bring a higher price.
This fact has been slowly dawning upon a scattering of businesses throughout the marketplace, and they have begun selling “value-added” services as part of their business plans. Accounting firms have added succession planners to their traditional staffing. Hotels have added “free” breakfasts and internet connections. Pizza parlors have added guaranteed delivery times, bread sticks, fresh-baked cookies, and video entertainment to their (increasingly commoditized) pizzas.
Take a good look at your own business, and at your competitors: What do you offer to add value to the basics of what you sell? Ideally, it will be added value that your competitors cannot easily add to their own offerings, and it will not add to the cost of the basic product or service. An excellent method of offering added value is to enter strategic partnerships with non-competing service providers in related fields. Often, this allows both partners to offer the other’s services without increasing costs. (In fact, with a mutual referral arrangement, it may add a revenue stream to what you already offer!)
An example might be an alliance between the accounting practice mentioned earlier, and a succession planning firm. Since their target markets are the same, each will benefit from the other’s marketing efforts, their products are complimentary in function, and they can offer efficiencies not matched by other combinations of (non-allied) accounting firms and succession planners. It may require a bit of thought and effort on your part to identify and develop value-added relationships to your business plan, but it can provide an important edge in your competitive market. It may eventually make the difference between keeping and losing your valued customers, when someone inevitably offers to sell them a product much like yours, at a lower price—but without value added.
Look around, and see what would make a good value-added partnership for your business!