Price Is What You Pay, Value Is What You Get
How do customers value what you offer and is there’s more you could be doing?
Over the last couple of years I have had the pleasure of working with a number of different operators across the hospitality sector. Regardless as to what part of the market they have be operating within, our conversations invariably always gravitate towards what should there pricing be. Of course there is nothing wrong with this, but what is interesting is how often our discussions around providing ‘value for money’ default into how low they should be setting their prices. Whilst sometimes necessary I tend to try and steer the conversation towards options which don’t simply look at price as the only mechanic available.
In the words of Warren Buffett the American business magnate, investor and philanthropist and as used to headline this piece “price is what you pay, value is what you get”. The question of course is how do your customers go about defining ‘value’?
In the eyes of the beholder
Whether we like it or not a key thing to understand is that value is always defined by the customer or more particularly those individuals who are paying the bill. Therefore to understand the true nature of value, you need to get inside the minds and even hearts of those customers. Once you can do that the next step is to communicate the value of your products and services not in terms of what they do, but what they do for customers, expressed in a language that customers can relate to.
Of course an important consequence of value being defined by customers is that it can be very difficult to quantify. To do this you need to understand all the factors that they take into consideration in assessing value, and you have to understand the relative importance that each customer place on them. Without this understanding you may just be throwing good money after bad. One of the best ways to develop customer understanding is by collecting their feedback. Typical ways in which this can be done is through comment cards, face to face by staff or electronically if you have email addresses etc. Once you better understand the factors that customers consider when making decisions the easier it will be to develop the propositions which offer the most value to them.
Value is multidimensional
Anyone who has ever attended a Sales or Marketing course or even read an online article on the subject will know that customers buy benefits and not features. Typical examples being ‘People don’t want to buy light bulbs, they want to be able to work or read at night’ or ‘People don’t want to buy web hosting, they want their websites online and accessible to web visitors’. In these cases and others you will be familiar with, the benefits assigned to them are usually functional in nature.
Functional benefits are appealing. Our instinct is to assume that customers are rational and will be swayed by functionality. Furthermore, when asked why customers visit a certain restaurant or order a particular dish or avoid an alternative, most people will provide functional reasons. Functional benefits may include; table service, wide range of drinks, Wi-Fi, customer service and of course price. These all come together, usually without even thinking, to help customers establish a functional value for any particular visit to your venue.
And whilst functional value is important we have too much evidence from behavioural science and market research which shows us that this is only one consideration when it comes to how customers make decisions, especially when it comes to determining value.
So what else should we look at?
The next most obvious place to look when trying to understand how customers may judge what you offer is from an emotional stand point. So what do I mean by that? Emotional benefits are when a customer experiences a connection, association or a feeling during their time with you. For example “when I go to restaurant X, I feel at home” or “when I order meal Y, it reminds me of being on holiday”. Emotional benefits add an extra richness or depth to the overall experience and one which can really resonate with a customer in addition to any functional benefits and value they might experience. For many customers these emotional benefits can be very strong and consequently they will assign a high value to any outlet which evokes them.
Although by no means exclusive to the 21st century, the need and desire for social benefits has become a more obvious and demonstrable factor in choosing one venue over another. This is especially true when looking at younger audiences such as Millenniums. For example, a survey by Cardinal Research last year highlighted that nearly 60% of pub goers were involved in some form or other of digital usage when last in a pub.
Advances in technology mean that you no longer have to wait until the following day to tell your friends and peers how cool you are and what a great time you are having. Being seen in the right place with the right people is now almost instantaneous. Operators need to be aware of the importance which some customers place on these ‘social benefits’ and how this is another opportunity to drive value without cutting prices.
Context is king
The above notwithstanding when it comes to customers putting a value on any given experience context is always king. Customers never asses value in isolation. You cannot divorce value from the context in which it will be experienced. Consider customers coming into your outlet to order lunch. A couple of office workers who have only a limited amount of time available will place great deal of importance on the efficiency of order taking, speed of service and how easy it is to pay the bill. On the other hand, two friends meeting for a good catch-up are likely to place a higher premium on a more relaxed and casual approach. Unless you understand your customer’s context, you run the risk of creating propositions and offerings that are not as relevant as they could be. In such cases it is quite likely that no-one will think they are getting ‘value for money’ no matter how cheap you are!
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