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Desperately Seeking Added Value.
By Dr. John W. Howard
Tuesday, 19th September 2006
 
The key to beating your competition - as the balance of the NA 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 less than you are asking, your potential customers are likely to ask this classic commodity question: "A bushel of wheat is the same bushel of wheat, no matter where I buy it. Why should I pay more to 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 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.

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 a commodity trader? The answer, especially for service businesses, is to provide added value the consumer simply cannot find in your competition.

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 on 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 that adds value to 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.

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 benefits from the other's marketing efforts. Their products are complementary 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 a valued customer when someone inevitably offers to sell a product much like yours at a lower price, but without value added.

"Reprinted by permission from Employers' Advantage Newsletter, John W. Howard, Ph.D. Editor
Dr. Howard may be contacted at jwh@prol.ws
©2006 Performance Resources, LLC and Profiles International, Inc."
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