The competitive landscape is becoming increasingly complicated in our world. Small business owners often find themselves competing with big-box stores and online retailers that can run much more advertising, negotiate lower costs for their goods, and have more stores of cash to weather difficult economic times. It’s more important than ever that we understand not only what value we currently add for our customers, but look for and integrate new ways to add value to stay competitive. In today’s podcast, join Stephen Krausse to learn how you can add value as a small business owner to help you make your business better in actionable, practical ways.
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Adding Value As A Small Business | Up And To The Right | Episode 045
We’ve done a couple of talks about principles of business. I want to talk about adding value. The competitive landscape is becoming increasingly complicated in our world. Small business owners often find themselves competing with the Big-box stores and online retailers that can run much more advertising and can negotiate lower costs for their goods. They have more stores of cash weather in difficult economic times. It’s more important than ever that we understand not only what value we currently add for our customers, but look for an integrate new ways to add value, to stay competitive. It’s time to roll up our sleeves and get to work.
We try to avoid buzzwords, key phrases and the short-term trends that may be chic, but not having stood the test of time. We take these business principles and practical solutions, and we integrate them in ways that help you make your business better in an actionable practical way that helps you stay authentic to who you are but also helps improve your entrepreneurial journey. When I went back a few episodes ago, I defined a principle of business as something that is foundational, fundamental. It’s something that you have to have and build on in order to have a successful business.
What Is Value-Added?
Also, it has to apply to every business model that I could think of at the time. That set a pretty high bar for a concept to be a principle of business versus simply being a good tactic or a business strategy. Those two core components are important. It has to be fundamental and universal. What is value-added? According to Merriam-Webster, it’s a product whose value has been increased, especially by special manufacturing, marketing, or processing. Before we go any further, I want to talk a little bit about the use of the word marketing here.
I take exception to it, not because marketing doesn’t add value, but because I don’t think it’s the core thing. Marketing is a tool to share information about a product or service. It’s not an end unto itself and it isn’t what I would consider a value-add in that sense. What I think more appropriate is experience. Marketing is very much used to do that and maybe that’s where that’s coming from, but it’s about changing the experience of a customer. We’ll talk a little bit more about that as we go forward. Why is value-added a principle of business? It’s fundamental that you have to have something that’s more important to your customer than the money they’re going to give you for it.
That’s a basic fact. Nobody’s going to give you money for something they don’t value more than the money. It is almost by definition fundamental. I do think it applies to all businesses and therefore is universal. I can’t think of a business model where somebody is getting something or offering a product that the customer doesn’t value more than the money that they’re trading for it. It’s that simple. What I wanted to talk about first is, “What kind of value is out there?” I broke this down into a couple of categories. One is Intrinsic Value or what I would almost call, Commodity Value. It’s something that is very commonly traded, you can put a price on pretty easily.
Let’s take the example of gas for your car or normal food items. The prices don’t change dramatically from location to location or vendor to vendor because they are commodities. Generally, a commodity is going to have lower margins and it’s going to be more easily replaceable with another product. For example, online grocery shopping. If they don’t have a LaCroix bubble water, you might end up with some other brands bubble water, and you might have some specific loyalty to one brand or another. In general, they’re very similar. They don’t command a huge price difference unless you are very brand aware or very specific, they are easily replaceable.
Another one is different gasoline stations, Shell, Exxon, and whoever. The decision often for drivers comes down to convenience and location more than the specific brand of fuel that they’re buying. We all have brands that we specifically like. I personally like Jif Peanut Butter. If I can’t get it, I won’t die, but I would much rather have Jif than another brand. Maybe brands of spice, you might be partial to one brand of spice or something, but one brand of cinnamon over another, when you’re shopping online because you can’t go to the grocery store, if you don’t get the brand, you’re probably going to be fine.
[bctt tweet=”Understand your value, not only from your perspective but from the customer’s perspective.” via=”no”]
These commodity products or these things that have an intrinsic value that is easily comparable to another product is a commodity level value. These are gas, normal food items, off-brand clothes, screws, and traditional economy products. If you buy a hammer off the shelf at a hardware store, it’s probably going to fit into that category. There are luxury products which don’t rely as much on competitive pricing and are not as common. We’ll talk a little bit more about that, but you have examples of high-end cars. I’m sure if you are in the construction trade, there’s probably a kind of hammer that specifically better than another kind.
Premium clothing brands, stuff like that fits into those categories of people are willing to pay a higher price for them for some reason, because they’re not as easily comparable and not as easily replaceable as some other products. They have some additional value. There’s a pretty big scale between these two things, the commodity product and the luxury product. There’s a whole range of mid-tier products, but it’s not a tier, it’s a whole scale of how well did a company or product fit a specific niche or move itself along this line. There’s a wide range between the base commodity and the luxury.
Timex versus Rolex, Ford Fiesta versus Rolls-Royce, and every single model of vehicle between the two that you can think of. There are things that make these things different. Some people would point to a higher-end brand and say it’s a higher quality. What that means to them may be different than what it might mean to you as a consumer, but is the quality consistent? Are there functionality and features that differentiate them? Is it more durable? Customer identification is where we pull marketing back into the discussion. How do we feel about ourselves when we use that product? How does the product support our self-image?
You can bring up your own examples, but some are Apple products. I’m a big Apple product user. That’s an example. They spend a lot of time marketing to create a feeling around their own products. I’m much more objective and I would never buy a product based on self-image, but I have my own reasons for buying Apple products. Sports cars, designer clothes, specific like Whole Foods grocery store where there’s a lifestyle or a self-image around that particular product. Hybrid cars years ago, now that’s a little bit different, but certainly years ago, if you were driving a hybrid car, it said something about your image of yourself.
There’s the customer experience. Getting a coffee at a 7-Eleven is a different experience in getting coffee at a Starbucks. Starbucks has spent a lot of money to make it that way. Taking a train from New York to Los Angeles versus flying first class, it’s going to be a different customer experience. Consequently, you pay a different amount to do it. The further you remove your product or service from the closest commodity, the more value you’re adding, and the more you’re differentiating yourselves from that commodity and making yourself less replaceable.
The key part of adding value to your product is, if you think about it, not so much in adding features or making it out of more expensive precious metals or something like that, it’s how do you use your technology or your features or your marketing to separate your product from the nearest commodity. To think about that a little bit, you have land and seeds, and you create a field of wheat. The wheat is turned into flour by another company. Flour, plus sugar, plus water, plus some other stuff, it makes a donut and donut in a theme park. All of these things have a different value for the same volume. With the donut in the theme park, being the most expensive and highest valued thing.
You can sit in a theme park and grouse about the fact that your doughnut was $6. We might say, “It’s not worth it,” but if you pay for it, then it was worth it to you. It’s okay to overpay for a donut in a theme park because of the experience. Why are they able to do that? Because they have control of the food vendors in the theme park, there’s an experience around it and the location, the convenience of the food. If you don’t want to pay $6 for that donut, you have to go out to the car and eat beef jerky in your car or go to a restaurant. The time that you take the distance you have to travel all factors into why that donut is $6. That’s how the value changes from seeds on a field to a donut in a theme park. You can think about those examples in your own life.
Different Kinds Of Value To Add To A Product
Pretty much from everything that you buy, there’s something that has differentiated it, even if only a little bit from something else. In many cases, that’s the marketing portion of value-added. It also happens with features, function, materials, and quality. It’s a consistency. We’ve talked a little bit about the ways that value is added. What value do we add and how do we know what that is? When I went to put these notes together, I thought about a few different kinds of a value that can be added to a product. One is location. That also goes back to if you’re the only gas station in a mountain town, having gas in the mountain town adds value to the gas itself. You can charge more and you probably do have to charge more because it costs more for you to get your product. Someone has to truck it up the mountain. Part of the value is that location.
A grocery store could be the same thing. If you’re selling groceries in a mountain town, you’re going to be providing a geographic value as well as the value of bread, milk, and cheese. There’s a function. “What does this thing do?” “What does my Apple computer do that a Windows computer doesn’t do?” “What does my Apple not do that a Windows computer does?” It’s the function. You can look at a small economy car, a Prius or Festiva versus one ton Dually pickup. There are completely different functions for those things. You can have lifestyle value. For example, a gym and yoga studio, and then you can have experience.
I want to talk about experience because it’s something small businesses can do in many ways, without spending a tremendous amount of money that can differentiate them from Big-box stores and online retail. That is changing the experience that a customer has or creating an experience for customers when they come into our stores or experience our products. We can differentiate those things with thoughtful, intentional action versus spending a tremendous amount of money. We’ll go back to buying coffee in a coffee shop versus going to a convenience store. People talk a lot about the fact that they brought the European coffee shop experience to the United States. Ironically, we exported it back out, but the real genius to me from this perspective at least is the fact that Starbucks was able to decommoditize coffee.
Coffee is ubiquitous. You don’t have to pay $4 for a cup of coffee. They were able to not only de-commoditize it but create an experience that made it widely popular. That’s what I’m talking about experience. We can’t all open up a specifically designed retail location. Although, if you’re a franchisee, that’s potentially an option as a business owner. It’s about the experience itself. It’s not about the coffee. Maybe you like Starbucks coffee, or if you’re like me you pretty much like any coffee. I go to Starbucks, but I also brew regular coffee in a coffee pot. To me, going to Starbucks is much more about the experience than a specific flavor or type of drink.
I drink black, plain coffee. All of those exotic drinks that they sell at any coffee shop are pretty much wasted on me. I still have a different experience when I go to a coffee shop. Why is that? That’s part of what we’re talking about here. This applies even to startups. Even if you don’t have a customer, you can start to think about, “How do we know what our customer wants or what they’re going to value in what we offer?” From a startup perspective, you have to put a crystal ball together, look at how customers behave in similar situations in the marketplace.
As a business owner, you can listen to what they say and to conversations when people are in the store and you’re not talking to them. What are they saying about the experience that they’re having? Watch how they act. We can ask them directly. One of the things we can do is send out a survey, ask them, “Why do they come to our store? What would they like to see?” The surveys are interesting though, because they tell you what customers think about themselves, as much as they tell you what they think about your business. It’s important to compare survey results to observed behavioral results.
Another thing to look at when it comes to how customers behave when it comes to your particular offering, do they go out of their way to use your service or product versus something else? Do they make a difficult traffic turn to go to your shop or if you have specific hours you work and they have to wait three months to get an appointment, are they willing to do that? Those are some of the ways we can look at how we add value, location, function, lifestyle experience and there are more. I’m not limiting it to those things. I’m trying to keep us where are we at.
[bctt tweet=”Adding value is creating something more when the value of something is more than the sum of its parts.” via=”no”]
Understanding The Value We Add
There’s also, how do we know what people value about our offering, surveys and observing behavior? Let’s talk about how we can get practical with this? What do we do specifically so that we can understand the value we add and generate new value to always keep ahead, but especially in times where the market changes? We’ve had a tremendous change in the ability to deliver products and services between February of 2020 and June 25, 2020. We don’t know when that’s necessarily going to stop. There are a lot of places trying to open up again, and consequently, there’s a huge spike, at least in the United States of incidents of Coronavirus.
We don’t know what that’s going to look like, or how long it’s going to take to normalize or return to some semblance of the standard way of doing business that we always have. This challenge is one of many. I said in an episode, in my professional career, I’ve never gone more than eight years without an economic crisis. There’s always going to be something that affects the way that we deliver products and services or the market and environment in which we deliver those products or services. We always have to keep things like adding value. All of these business principles that we’ve been talking about are constantly under pressure, and that’s why they have to be fundamentally part of the way we do business.
Something we think about on a regular basis, so that we’re always improving them, shoring that foundation, and building our business on a bedrock of well thought out foundational processes. What value do we add practical action that we can dig into? I think the first thing to remember is not always what you think it is. The core value that you add might not be bread and milk in your grocery store. It might be a location or experience. Maybe you’re good at selling those things, or you make people feel good. Maybe you’re Whole Foods and people feel good about the food they buy from you.
It’s the experience of feeling good more than specifically the food itself. Those things can go across any number of experiences. Understand, is it location, a function, a lifestyle, an experience or it’s something else that I didn’t mention? Ask and observe. Make a concerted effort to identify and think about what the value that you add that people are willing to pay for? How do you separate your product or service from the nearest commodity? You need to do some work on your own and say, “What do I think?” “What was my intention when I started the business? Finding out from customers, “Why do you shop here?” Find out from people who don’t shop where you are. That could be more valuable than asking the people who already are your customers, ask people who aren’t your customers, “Why don’t you shop at my store?” “Why don’t you use my services?” You might get very telling information.
They might not be interested in scuba diving or skiing. Maybe they don’t like going to the dentist. You might do some work on that. That could be helpful because you could explain the value of having regular checkups. Understanding your value, not only from your perspective but from the customer’s perspective. You can use tools like SurveyMonkey and Google has a survey tool. There are a lot of survey tools out there that you can use online. You can certainly put one together on a piece of paper. I do like the digital tools.
They collate the data very conveniently and create graphs and data that you can get not only a sense of the numbers, which are important, but also you can get that visual representation of what those numbers mean to you. That’s the first thing I would do. It’s time to start looking at that information and saying, “How can I leverage what I’ve done well?” “What do people come in for?” “I was going to say, take advantage. I’m not sure. That doesn’t feel right,” “How can I leverage that experience for them so that they get even more of that?” “How can I make that even better for my customer?”
There’s a quick, easy one at the human being. If you go get coffee, they’ll put a chocolate-covered espresso bean on your cup. That might not seem earth-shaking, but it’s a change in the experience. It’s not an accident that they do that. It could be a quick add on. Something like that or something completely different, but something quick, relatively easy, and inexpensive to change the experience for your customer, change the value of the product for your customer. Also, you have to dig a little deeper. Go into product development and say, “We want to add a feature or service. We have this information when I started the business, I wanted to do this. We’re not delivering this component of that with what we currently offer. Maybe, I need to do an update on my service or my product or maybe I got a survey and it said, ‘Your product is pretty cool, except it doesn’t X. Can I add X?’” No, X might not be in your core competency. You might say, “We’re a gas station. We don’t serve ice cream.” That’s a business decision, but you might get data that lets you know that there’s something that you can do or that you should do to add value to that experience for your customer. It could be a product development thing, adding features of services or something like delivery.
During the pandemic, if you can’t sell your product using your normal sales channels, can you use a different sales channel? Can you add delivery? When you start adding things during what you might consider a temporary change in the economy, I think it’s important to be very careful about how much money you spend or how much time you spend implementing something with the expectation that it’s going to go away. I think it’s important to have, “What is going to happen when business goes back to normal? Is it going to go back to normal?” You might find that adding delivery is a great thing that you can do for your business. You might also find that it adds more costs, you have to pay people to drive around town, add insurance issues, that prevent it from being a good long-term solution for your particular business. It’s important to be able to transition away from something that you consider adding value during this pandemic or during a temporary change in the economy. When you know it’s going to go away, how are you going to transition away from that particular value without losing customers and customer’s experience? That’s something is worth thinking about.
Overall, adding value is that ability to separate your product offering from the nearest commodity, and in a larger sense, adding value is creating something more when the value of something is more than the sum of its parts, that’s the value creation process in a nutshell. It’s very important to us as business owners because we have to have something that someone’s willing to trade us money for. That’s what I wanted to talk about this time. Episode 46 is about Cash Management. That’s near and dear to everyone’s heart as small business owners.
I’d like to thank you for spending time with me. Our vision at Beyond 50 Percent is successful entrepreneurship as the rule, not the exception. We develop actionable solutions and help business owners cultivate practical business knowledge so they can act with informed purpose to improve business operations and management and benefit from their entrepreneurial journey. Visit our website at Beyond50Percent.com for more information. Contact us to schedule a complimentary one-on-one meeting with a kindred spirit and see how we can help you benefit more from your entrepreneurial journey. If you found this helpful, please subscribe to the Beyond 50 Percent YouTube channel, share it, like it, do the thumbs up.
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