Per Sjofors, aka “The Price Whisperer,” founded Sjofors & Partners and is a thought leader on using price for higher growth and profits.
This is a personal story from a recent trip I made with my wife—a vacation trip to London. When we arrived at our hotel, after a 10-hour flight, almost an hour in immigration, and yet one more hour in a taxi, we went up to the reception. The check-in was quick and friendly, and at the end of the process, the receptionist asked if we wanted to pre-order and pay for breakfast. It was £15 per person if we preordered and £17 per person if we bought it on the morning of.
And here is where my profession comes in. In 2008, Warren Buffett said, “Price is what you pay. Value is what you get.” This means that whenever people are presented with a price, we compare our value perceptions and benefit expectations with the price, and if there is a match, we decide to make the purchase. If there is no match, we will not make the purchase. It is on the seller to deliver a value proposition that satisfies the buyer’s value and benefit expectations, which influence their willingness to buy.
So, when the receptionist said, “Breakfast is £17” without in any way describing what it meant, my wife and I had to trust our internal value and benefit perceptions and expectations—something called heuristics—compare that with the price and then decide if we wanted to buy the breakfast or not. Considering that most of the U.S. hotels we stay at offer very basic breakfasts, what came to mind was a breakfast consisting of awful coffee self-served in a styrofoam cup, together with equally terrible sweet pastries wrapped in plastic. Thus, our heuristics compared this to the £17, resulting in a resounding “No thanks.”
But a few days later, we decided we had exhausted the nearby café choices and went downstairs to the hotel breakfast. “How bad can it be for £17?” we said to ourselves. The breakfast turned out to be delightful. Great restaurant room. Spectacular, freshly cooked food, and lots of choices, too. Excellent service and the best coffee we had during the whole trip. I wish we had taken breakfast there every day.
By the way, I’m not blaming the receptionist here. But the hotel did not have any marketing material available to describe the value of the breakfast. A value description, with pictures, could have been on the hotel’s website, or on a flyer presented at check-in, or even left in the room. Furthermore, the reception staff could use training on how to deliver the value proposition. I don’t think our experience was unique as, no surprise; the restaurant was virtually empty for the three days we enjoyed breakfast there.
The point is that the only information we had when we were asked to decide to buy breakfast was the price—no value or benefit description. So, we had to rely only on our internal expectations to create that value reference to compare with the price and decide if it was worth the price.
What we experienced is a widespread phenomenon. While not always as extreme as the hotel check-in incident, it is common for salespeople to lack training in delivering an appropriate value message. Instead, they often focus on closing the sale based solely on low prices without ensuring the client accepts the value proposition. This can possibly be attributed to the fact that salespeople are typically trained to take a prospect through the sales funnel with less emphasis on delivering the value proposition. Additionally, companies may develop a value proposition that is only half-right.
How Companies Can Deliver Value Propositions
So, how can companies ensure they do not make a similar mistake to this hotel? Here are three steps to keep in mind.
1. Understand what value your company’s customers really look for.
This must be done by surveying and/or interviewing actual and potential customers, not by the company’s corporate gut feeling. But these surveys or interviews should be made anonymously. In my experience, if a company goes out to its marketplace with questions related to the value it delivers while also disclosing its brand or product names, the answers it gets will likely be skewed. Some of the people interviewed or surveyed will actually lie, either answering what they think the company wants to hear or discounting the true value they see because they don’t want the company to leverage that info for higher prices the next time they buy from the company.
2. Keep your eyes open.
Managers should develop eagle eyes, looking for every possibility where a relevant value proposition can be delivered to its customers, especially when the price of the product or service the company sells is presented. This was one of the issues with my hotel check-in story: a missed opportunity to deliver a value proposition.
3. Develop a training process.
Finally, your company should develop a process to train its customer-facing staff to deliver a relevant value proposition that best aligns with its market. This is more complex than it first appears, as that value proposition may differ for different types of customers and reasons for a customer to interact with a company, but following the first two steps above can help you gather this data. You can also work with a pricing consultant who has the skills to help your company determine the prices it can charge. (Full disclosure: My company offers these services, as do others.)
So ask yourself: How do you ensure the value proposition is presented with the price of your product or service? Do you have a process for this? Are the salespeople trained accordingly? Do you genuinely know what value proposition drives the highest sales volume at higher, more profitable prices? This may seem like a lot of questions, but the answers make a difference!
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