Empathy is the ability to understand and share the feelings of another person, by putting yourself mentally and emotionally in their situation. You might not associate this trait with entrepreneurs, salespeople and marketers, but it is one of the most important skills these professionals should possess. Why? Because if they can mentally and emotionally understand how their prospective customer is feeling and what they are thinking, they can align their sales message in such a way as to connect with them.
Empathising shouldn’t be about manipulating, or taking advantage of your prospects, which are self serving descriptions of the process, it should be about putting yourself in the best position to help them solve their problem, answer their questions, squash their fears, and objections and add value to their lives in some way.
The empathises moves from what’s best for you, to what’s best for them. It’s about serving your customers, not taking advantage and disrespecting them. If your intent to serve and add value is pure, your results will inevitably reflect this positive approach.
Obviously you’re in business to make a profit, you’re not doing it for nothing, but that doesn’t mean you should be gaming the system, looking for short term gains at the expense of your long term, brand equity.
Don’t fake sincerity
People will see through fake, insincere people and will be less likely to want to do business with you now and in the future, they will be unlikely to recommend you to their friends or colleagues. It will make future business more challenging.
Being empathetic also helps you understand what’s driving behaviour, you will be more inclined to see future trends before none empathetic competitors.
An important part of empathy is curiosity, wanting to find out more about customers, their likes, dislikes, where they hang out, and why. The “why” is the most important part of the jigsaw. It allows you to better predict future behaviour if you know your customers “why”.
It’s a good idea to think about your own habits and behaviours, why you do what you do, and why you don’t do what you don’t do. I would recommend improving your own self awareness before trying to understand other people. It will provide insight and experience for you, developing your empathetic side is like exercising a muscle, the more you do it, the stronger it will become. When you do it enough, you will find it becomes habit and your default disposition, and you won’t have to force yourself to think that way.
When you’re being curious about prospects you’re going to have to do some research, find out where they hang out and try to engage with them in social spaces, join groups they are part of, get involved in online groups and discussion boards where they are likely to be found. You’re looking for any opportunity where you can engage in conversation with them.
Ask intelligent questions
When you get involved in discussions, make sure you ask intelligent questions that illicit responses that provide some insight that can used to help you better understand their point of view and perspective.
Listen, really listen
Another vital ingredient of being empathetic, is being a good listener. Be curious in the first instance by finding as much out about your customers, and asking questions, but then you have to listen, really listen to what they tell you or to what they’re saying to other people. If you’re busy talking about you and your product, you’re not learning anything about them. Great salespeople are great listeners.
Don’t overstep the mark
Now it’s important to go about this in a socially acceptable way, don’t just start interrogating prospects, like they’re under investigation. You wouldn’t want people creeped out by your line of enquiry, would you. So be smart and be patient. It takes time to do proper research. What you’re looking to do is immerse yourself in their world and understand over time, where they are coming from and their point of view and perspective. Engaging and interacting with them, also helps you build relationships. Remember you’re there to add value to their situation, not exploit and manipulate them. You want to equip yourself with the knowledge to make your solution the best it can be, for them.
Use Empathy in all aspects of life
Empathy is not just a trait you should develop for your business, it’s a really important life skill, that will improve all of your personal relationships. Understanding other people will help unlock the door to why people act the way they do, and offer you some insight into how to best deal with them for the benefit of all.
It’s a skill that needs developing over time, but an essential one if you’re to enjoy deeper personal relationships. Always try to think about what you say and how you act towards other people and how that impacts them. A careless word can really cause upset if said in an abrupt manner. Every interaction you have with other people has an effect on them, try to make it a good one.
One of the first things I learned about, when starting my own business was the principle of adding value. It’s especially important if you’re selling a product as an affiliate. Affiliates don’t actually own the product, someone else does, and it is these creators that are providing the initial value, because the product they’ve created, serves some good, or is of some use to the end user.
As an affiliate marketer you are a middle man, you add value to the creator, whose product you’re selling, by putting it in-front or your audience, an audience the creator might never have been able to reach. The creator than rewards you by paying you a commission.
You also add value to your audience, who you hope will buy from you. You add value for them by making them aware of the product, as they may never have heard of it had it not been for you. However you might be one of many affiliates selling the same product, and who are all offering the same value added aspect. These other affiliates are your competitors, along with the creator of the product. You’re prospective customers can buy the product from any number of sources and get the same result, if they are contacted by them.
So it’s necessary to add as much extra value to the transaction as you can. You should try to stand out from all the other affiliates and even the actual creator of the product in some way. How do you do this? Well it’s about giving something extra that no one else is giving.
The image above illustrates some of the ways you can add value for your audience/ prospective customers. You can tie the value-added-bit into the transaction. So they only get the benefit of it, if they buy the product from you first. You can take a chance and offer something for free with no strings attached prior to the purchase and hope they feel a need to repay you and buy using your affiliate link after the fact. The choice is yours. Testing the two options is a worthwhile consideration.
Think of adding value in a bigger sense
Adding value can be something you do in all aspects of your life, not just business. It can come from simply smiling at someone who is walking past you on the street, or a thoughtful gesture towards a loved one. It can become a “state of being” that you live your life by. I recently tried to adopt this way of living, a value added life. It feels nice to be nice. I’m not saying I was a bad person before, far from it, I’ve always been pleasant and polite to other people, always. I’ve always been happy to go out of my way to help people. But I’ve never thought of such interactions as adding value, but they are.
Now I like to think adding value is also a way of making people feel better. To change their state in some positive way.
If they’re sad, making them feel a little better,
if they’ve lost something, helping them to find it,
if they’re fearful, helping them feel safe,
if they’re worrying, help them feel some peace of mind,
if they’re frustrated, help them feel relief or a sense of accomplishment,
if they’re feeling despair giving them a sense of hope.
Adding value in this way can be done one interaction at a time, on an individual basis, it’s small but it’s important, it’s important to someone..
Helping people over and over again
Adding value as affiliate marketers, with the tools at our disposal means we can help our visitors over and over again with one video tutorial, one insightful article, one honest review and recommendation. Once it’s done it’s there to help people over and over again. So next time you’re writing that review, scribing that case study, crafting that white paper, remember you’re doing it to add value to people’s lives.
Hopefully I’ve made you think a little bit more deeply about the concept of adding value. Let’s make the internet and the wider world a better place to be, by focusing on adding value to every part of it, one bit at a time.
We as humans are constantly driven to avoid pain and as part of that drive we strive to “be” more. Western society has conditioned us to believe the more we “have”, the more we will be. So to that end, we constantly operate in accumulation mode. We love to buy stuff and businesses love to sell us stuff. At the heart of our desire to buy is this simple statement.
“If you believe there’s a BENEFIT in a SOLUTION, and you VALUE that benefit enough, and TRUST the SELLER you’re going to buy it.”
Think about the statement from your perspective, is it right for you, well it’s certainly right for me. So from a selling point of view, if we reverse engineer this and align it from a selling perspective we find the following:
Sellers should provide a SOLUTION that addresses customer problems or wants
Sellers should ensure they communicate a VALUED BENEFIT taken from the customers perspective, with regards to a SOLUTION
Demonstrate you are a TRUSTWORTHY SELLER and able to deliver on your promise
So let’s look at each in a little more detail.
1.Sellers should provide a SOLUTION that addresses customer problems or wants
“SOLUTION” refers to the product or service you are wanting to sell. It should provide a solution to a problem or want that your prospective customer has, if it doesn’t do this than it serves no use.
You can either create a SOLUTION to a problem or want that you personally have, or that you know other people have. Do some further research to establish how wide spread the problem or want is before investing lots of time in developing your SOLUTION.
Alternatively you can create a product or service and see if it provides a SOLUTION to a problem or want afterwards, although this does happen, I wouldn’t recommend it.
2.Sellers should ensure they communicate a VALUED BENEFIT taken from the customers perspective, with regards to a SOLUTION
So when you have a SOLUTION to a known problem or want, the next thing you need to do is market the VALUED BENEFITS of that SOLUTION to prospective customers. Write down all the reasons you think your customer would benefit from using the SOLUTION in order of importance starting with the most important aspects to least important. Now it’s important to be empathetic with your customers situation and point of view, otherwise you won’t get this right. It’s not what you think your customers “should” want or what you “think” is a problem, it’s what “is” a problem, it’s what “is” a want.
I would also list the objections your customers are likely to have and try to put a positive spin on these, because you will inevitably have to address them at some point in the buying process. You might have to work from a best “guess basis” to start but do as much research as possible going forward. The more you know your customers’ the better you can address their actual situations.
3.Demonstrate you are a TRUSTWORTHY SELLER and able to deliver on your promise
If you can’t provide some way of proving you are a TRUSTWORTHY SELLER you are going to have an uphill struggle on your hands, particularly if you’re selling remotely as with a website store.
Genuine reviews and testimonials are a good way of establishing trust, social media presence and positive interaction is another. Having a physical location helps people to know you are a genuine business, rather than a rogue scammer. If you’re new to business, give a sample of your product to people in exchange for some honest reviews and testimonials, just to get you started. Without trust people aren’t going to risk their cash with you.
This is a short post and covers the very basics of selling, but I believe all businesses should be working from a solid base, so it’s an article that needs to be written, because I see so many websites not paying attention to these basic principles.
Gary Vaynerchuk is described as a “thought leader” and “social media guru”, neither of which he particularly likes. He sees himself as a business builder first and foremost having built a $60 million wine business using the internet and subsequently a $100 million social media company. A lot of what Gary says isn’t new but he frames it in a no nonsense, high energy way, that engages business leaders and entrepreneurs alike. His messages cut to the bone, are frank, honest and on point. He builds his personal brand around giving value, so I thought we should include some of his messages for you to take insight from….
Ideas are s**t, execution is the game – we can all come up with ideas, but ideas mean nothing without taking effective action that delivers results. Execution comes down to talent. Not everyone is talented enough to execute effectively. This feeds directly into the next point
Improve Self Awareness -know what you’re good at and not good at. Face the truth and make progress from that perspective. Get help doing the things you can’t do and concentrate on what you are good at.
Bet on your strengths -Double down on them and punt your weaknesses. To be extraordinary, you have to be an anomaly. You ain’t gonna do that if you spend time bringing your weaknesses up-to-speed. You lean towards doing some things over others for a reason. When you’re good at something, it’s usually because you like doing it, and have tended to do it a lot, so it makes sense to keep doing it even more. The opposite is true of the things you don’t like to do. Make your expertise narrow and deep, rather than wide and shallow, stay in your lane, and delegate everything else if you can.
Bring perspective to your business -When the going gets hard, instead of fixating on the negatives, be grateful for what you have and realise things could be much worse. Gary imagines getting a call saying his mother has passed away, he says that although this is a dark thought, it grounds his reality and adds much needed perspective to the situation.
Work your ass off – If you’re in a job but want to be an entrepreneur, grind 5pm-2am to build something for yourself in your off time and, “Stop watching episodes of Breaking Bad” says Gary. If you work 9 hours a day, sleep 6 hours that leave you 9 hours a day to grind and hustle.
Stick to your DNA – Be true to yourself, be authentic, it’s what makes you, you and separates you from everyone else. It’s okay to admire others, but don’t try to copy who they are, be the best version of yourself.
Do what matters – Don’t get hung up on unimportant tasks. Micro manage or delegate, you decide. Most things don’t matter. Focus on what matters. Take right action.
Stop making excuses – Lack of time or capital are just two obstacles amongst many others that you will inevitably have to overcome but don’t use them as excuses not to do something. Lack of optimism is the major problem. Overcome the inevitable obstacles. “Lack of ……” are just excuses. There are a million reasons “why not” but just one reason “why” which is you gotta persevere and get on with it. Take responsibility.
Care for your Customers – run your business with your heart as well as your head. introduce “random acts of kindness” for loyal customers not just when they are leaving you. Find a way to go “the extra mile” at scale
Learn what motivates your customers – Understand what makes people tick and reverse engineering that so you can add value to them. Be empathetic, and really give a s**t. The customer is not always right but they are always the customer. If you want to take their money, you have to get out of the way, and do what’s necessary to close the deal, put pride to one side. It’s how you make them FEEL that they’ll remember you for. Technology lubricates word of mouth, and customer service is key to creating an experience that will be talked about.
Find where your customers attention is focused – Understand where your customers can be found. Attention is much more focused on mobile phones and particularly on social media through mobile. If you want to get your brand in front of those customers you’ve got to meet them were their attention is. Stop holding onto what worked yesterday, and realign to what is happening in the world today. Get out of your own way, stop resisting and move with the times. Two questions to ask yourself, “Where are your prospects focusing their attention?” “Are you engaging or telling stories to them there?”
Be open to change – Roll with the punches. Don’t try to hold ground. Don’t resist what is. Don’t fear change, embrace uncertainty, evolve, and go with the flow. When you try to resist the way things are, you hurt your business. Market in the present day not yesterday. Things are moving fast, keep up, or get left in the dust.
Be a student of behaviour – This point builds on the previous three. Study behaviour and react to it. Today people are spending huge amounts of time on social media, via their phones, however this is very likely to change in the future as a result of technology advancements, so you need to keep observing and reacting to how the market evolves as a result of these future changes. You don’t have to have a defined plan of attack other than “observing and reacting to what’s happening in the market.”
You must have TALENT – Do you have the talent to be successful, either by being funny, clever, creative, good at DOING something of value, KNOWING something of value, CONNECTING people. It’s the variable that either makes you and your content interesting or not. For instance, you can get away with a drab setting for your videos, if the content is valuable enough to the audience. Deliver something of value using your talent.
Use storytelling in your Marketing – if you understand what the consumer wants, you can then back track to get them emotionally there using story. When done properly it is an invisible influencer. We’re wired to tell and listen to stories. Stories lower our emotional barriers and allow ideas to enter our subconscious.
Embrace your uniqueness – Technology will inevitably take out the B, C, D players in many industries and niches, because they have commoditised themselves, but the “A” players will grow and take B, C, D’s market share. So concentrate on growing your brand. Be authentic, be genuine and don’t try to fit in, or blend into the background, or copy what others are doing, otherwise you will become a commodity (same as everyone else). Ask what makes you different? What makes you, you? Dare be noticed, and stand out.
Nothing happens overnight – It takes lots of work, talent, luck, and serendipity. to be “an overnight success”. Put yourself in the best position to succeed and take a long term view if you can, rather than looking for quick wins. Think Branding over “transaction marketing” for instance.
Hope you enjoyed this article, please check out my Ultimate Guides relating to Health, Wealth and Wellness.
Here is a list of ‘Business principles’ that I have found useful to know over the years so I thought I would share them with you, hope you find them useful…
Look for huge expanding markets – a contracting market means you have to work harder each year to maintain previous revenues and margins. Get your timing right – ahead of trends not behind them for the same reasons.
Provide unique and consumable products . if not unique then you must have a retention strategy, if not consumable then you are redundant until next sale
Pay attention to timing
Make sure you business/ product is ahead of trends not behind it.
Study what creates trends. i.e. Follow the Baby boomers (1946-1964 18 years, 1 billion worldwide control 65% of all money)as they age, products that fend off aging, retirement issues, wills and estate planning, security and money, efficiencies (making life easier), identity theft detection, now 41-59, concentrate on the 60 year olds not the 42 otherwise you are behind the trend.
Stop resisting progress and technological advancement. Instead be on the front foot and be hungry to find out what’s coming next. Disrupt your own business, look how you can put your existing model out of business. It’s better you do it to yourself than someone else does it to you.
Where are prospective customer’s spending their attention. If you’re business isn’t there, you’re competitors will be cleaning up in your absence.
Have a strong work ethic. Work harder than the competition
Work smarter than your competition. Productivity is about focusing on the activities that have the biggest impact on your business.
Employ others – leverage their time and effort
Identify your market segment and focus on them
Where are the gaps in your market?
Where is the growth and profit?
Look for needs and translate the benefits.
Always answer the prospective customer’s question ‘what’s in it for me?’
Look after the customer – go the extra mile.
Be professional at all times, but it’s okay to be human. People do business with people they like, respect and trust.
Plan your objective.
Ask, listen, sell.
And make your business fun – life is not a rehearsal.
Decide what you do (and what you don’t do).
Decide who you serve (and focus on them intensely)
Decide what makes you different (and do it)
Manage cash flow (very closely)
Manage employees (incentivise them for success)
Set goals (and go for them)
Expose yourself (tell the market what you do)
Persevere (though the tough times)
Always maintain your integrity (in everything you do)
Systemise your business.
Deliver full range of values – which means anything that satisfies needs, including money.
The 80/20 rule – leverage yourself and your resources
Apply principles not formulas
Think with your whole mind – logical and gut instinct
Define success. What is success to you?
Focus on results – effective better than efficient.
Use your “double vision” (long term and short term view)
Keep a healthy perspective – big picture view.
Don’t Compete, Create a Competitive Advantage – How will you compete? What will be your business edge? How can you create a winning business model with an advantage? Like the Grateful Dead, the secret is to find a niche where you can be not necessarily the best but the only. Find out what everyone else is doing and then do something different. Your competitive advantage can be based on a unique skill, intellectual advantage, or by selling at an unusual time or location. The alternative to uniqueness is to be ordinary, and sell the same product at the same price as everyone else, making minimal profits if any at all.
It’s easy to fall into the trap of thinking that the purpose of a business is to make money. But the real purpose of a business is to create value for others.
Trying to sell to everyone is selling to no one. Focus. Don’t waste time trying to sell to the wrong people.
Use financial control to aid your business decisions.
If you’re not already the most expensive in your field, there is room to charge more.
Adaptability. The species that survives, adapts to changing circumstances.
Smell what sells and sell more of it.
Branding and good spelling matters.
Sometimes less is more.
The importance of listening – Listen to what your market research tells you.
Teamwork, creativity, innovation, humility and salesmanship are critical to much of the success in the marketplace. Ego, self centeredness, looking out for one’s self, pride, lack of individual responsibility, and an unwillingness to take risks are reasons for much of the failure in the marketplace.
Perseverance, tenacity, commitment to learning and growing, knowing your market, having a real passion to succeed and understanding your costs.
Plan a retirement date and work on plan of action required to get there.
Its not about who you know but who knows you.
Do what you love – follow your bliss.
Buy items that appreciate in value; rent those that depreciate.
If it sounds too good to be true, don’t jump.
A pressured decision will always rupture.
Fast, cheap, perfect…you can only pick two.
Define your objective(s). find a clear story of cause and effect. Keeping the end in mind increases your chances of success. When planning, work backwards to help identify what you will need to have in place at each stage of progression.
Avoid insanity. Poor processes produce poor results, if something isn’t working, don’t keep doing it again and again.
In business, when things are good they’re not really that good, when they are bad they are not really that bad. Keep a level head, don’t let emotion get the better of you.
Promote your success stories, as story’s.
Stop thinking and start doing. Actions speak louder than words.
Get a business name that explains what you do.
More than simply selling, relationships matter.
The law of supply and demand – Find the demand first then find a way to supply it, at a profit
Find your niche, find your unique selling proposition (USP). Learn how to differentiate your product or service.
Use leverage other peoples, skill, knowledge, money, resources, ideas, time
Look for scalability. If it won’t scale, how can you re-engineer so that it will?
Use lateral thinking to approach a situation from a different angle
Work on your business (system), not in it
Reap what you sew. You’ll get out what you put in.
You have to spend money to make money – speculate to accumulate
Learn to manage cash flow – it is the lifeblood of your business
Understand human nature/ behaviour – the need to seek more/increase and avoid loss/ decrease
Innovate, always be looking to innovate.
Take action, make things happen. You can plan all you like but without “doing the work” you won’t achieve s**t.
Add value to people’s lives by “Uniqueness” – unique value can be charged more for, “Impact” – the degree you improve peoples lives, “Scope” – the number of people you reach, “Perception” – people’s perception of the value you are adding
Say it in 30 seconds or don’t say it at all.
If you can’t explain it simply, you probably don’t understand it well enough.
Know what you know, what you don’t know and who knows what you don’t know.
Look for service/product differentiation – don’t commoditise. If you’re not a brand you’re a commodity.
No one will give you money. Find a starting point instead of an end point, downsize big plans. Find ways to prove your business model on a shoestring budget
Make your expertise narrow and deep rather than wide and shallow.
Don’t fall victim to your own BS. Don’t talk the talk unless you can walk the walk.
Look for win-win situations in all interactions.
Build your weaknesses into your strengths.
Make sure people know about you and your service.
Be lucky. Be open to opportunities related and unrelated, don’t be too focused on one thing. Serendipity and chance come from a higher order, so be open to it.
Focus, focus, focus. Don’t have too many balls in the air at once. Do one thing well rather than lots of things poorly.
Spend 10% of your day thinking about new ways to make money.
Spend 10% of your day networking.
Analysis risk and rewards, take fewer risks as you get older, because you have less time to pull it back.
Spend your money wisely, think Return on Investment, but don’t ignore opportunities to build your brand.
Have fun at work. If it’s not fun, do something else.
Know when to call it quits, but don’t give up too easily.
Know what you do, do what you know. Make use of your skill-set to give yourself a better chance of success.
Act like a startup. Be frugal. Operate within your means.
Sell more by adding variety. People sell more jellybeans when there is an assortment of colours.
Get it in writing, don’t trust anyone. Verbal agreements aren’t worth the paper they’re written on.
Offering something of value to others strengthens your worth. Adding value by providing more value than you take in return.
Know where you stand legally with customers and suppliers, know your rights and ensure your business abides by the rules
Adaptability – survival of the fittest. Status quo doesn’t exist. The Risk from NOT doing something. Often feels safe, hard to visualise missed opportunities. Ask “what will happen if we don’t do it”. Because it has worked before doesn’t mean it will always work.
Trust can take years to build and seconds to demolish.
Don’t fight the tide, enjoy the ride.
Live the Golden Rule (treat others with courtesy and respect)
Be a leader – let others follow your example.
Be self-aware. Understand what you’re good at and bad at. Why you do what you do and don’t do what you don’t do. What you like and don’t like.
Employ people that add value and that are better than you at what they do.
Participate and contribute and give 100%.
Pursue excellence. Always be looking for the best way things can be done, rather than settling for the best way you can do them.
Work as a team, there is no “I” in “team”.
Share knowledge, results grow exponentially.
Keep it simple (make it easy for customers to do business with you).
Listen and communicate to employees and customers alike – Over communicate
Never burn bridges.
Always be building relationships in business and personally.
Put the customer first.
Manage customer expectations. Don’t give them cause for complaint.
Be resourceful, use your resources to find creative ways to move beyond obstacles.
Exceed customer expectations always, customer service comes first. Under promise and over deliver – there are more than 100 principles in this article
A business model is an abstract view of a company’s commercial activities: how it generates revenue by providing value to its customers, how it converts that revenue into profit and handles its costs.
MIT Business Model Archetype
When I first started to think about business models I came across this model developed by MIT which provides a good foundation for a systematic study of business models, by defining business models and distinguishing their different types. Their model consisting of two elements:
(a) what the business does, and
(b) how the business makes money doing these things.
It uses two fundamental dimensions of what a business does. The first dimension—what types of rights are being sold—giving rise to four basic business models: Creator, Distributor, Landlord, and Broker. The second dimension—what type of assets are involved—distinguishes among four important asset types: physical, financial, intangible, and human.
Another business model, which takes a different approach, by looking inside a business, at the relationship it has with its customers, in terms of transaction frequency (either once only or recurring), or revenue contribution (being small or large)
There are four types of business models here.
Customer group A – once-only transaction, small contribution purchasers.
Customer group B – are large contribution, but once-only purchasers.
Customer group C – provide small contribution, via frequent transactions
Customer group D – provide large contribution, via frequent transaction.
It doesn’t matter if the business is traditional (brick and mortar) or Internet-based. It makes no difference if the business sells a product or service. The size of the business doesn’t matter, either. The only difference between a small business and a large one is the number of business models contained within the enterprises.
Transaction Frequency: Some customers /customer groups provide “recurring” revenues. Their business repeats from period-to-period. Other customers may be, in contrast, one time purchasers.
Contribution to Total Revenues: Some customers contribute only a tiny portion of the total annual revenue. In contrast, others contribute a substantial slice. You might find that other customers are a mix of the two. providing small individual contributions but, over the year, they might account for a significant portion of total annual revenue.
To illustrate this, in my photography business, we provide products that require return visits, such as our baby packages, were newborns are brought back 3 times throughout their first year, to complete their package. Some of these customers may not spend as much per visit, but overall our average sales per customer (not transaction) are higher than most of our one-off sessions. These customers fall into either group C or D.
Otherwise most other photography customers come in maybe once every couple of years, if at all again (group A or B).
In contrast our nurseries and school clients use us twice a year every year, but average sales per transaction tend to be much less than our studio customers (falling into group C) but if you group these individual customers collectively per school (as they are taken on mass in one day) then they move into group D .
This business model offers a different dimension of analysis than the first (MIT model) but both are equally as valid, depending on your requirements.
Business Model Generation
I love the book “Business Model Generation” which is a great resource for anyone looking to further understand the construction of business models. The slideshare presentation below outlines the main points, you can purchase the book below. Please note this is an affiliate link and if you click through and purchase I will earn a commission, but this is not why I am providing a link here, I am doing so because I genuinely believe it is a good source of information on the subject of business models. If you do click through, I would like to thank you for your support of the site via its affiliates, it helps us provide free information on the site.
The book goes into depth on how to analyse you business into segments,
Each of these help to make up the “business model canvas”, which is a great framework for formulating a comprehensive model. I would highly recommend it.
One of the first things I learned in business was the principle of adding value. Adding value is about bringing something to the table that customers will pay you for. In business it can involve adding convenience, by saving your customers’ time, money, resources, energy.
It can be closer-to-hand, on-demand, just-in-time. It can make things easier for customers, saving them effort, worry, frustration. It can provide them with expertise and knowledge to help them get better results. It can help people get closer to their goals by increasing efficiency, motivation and productivity or help them be more effective in their goal seeking. It can help them solve problems, such as medicines do for the ill, or losing weight, being healthier and fitter, or unblocking bottle necks from their production processes. It can make people feel better about themselves by adding prestige and luxury to their lives. Adding value can involve increasing quality, reliability, durability to something they purchase.
List of value added characteristics
Newness – satisfying an entirely new set of needs that customers previously didn’t perceive because there was no similar offering. i.e. cell phones
Performance – improving product or service performance i.e. PCs
Customization – tailoring products and services to the specific needs of individual customers.
“Getting the job done” – helping customers get certain jobs done i.e. rolls Royce servicing jet engines for airlines
Design – getting a product to stand out with superior design
Brand/status – finding value in the simple act of using or displaying a specific brand i.e. wearing a Rolex watch signifies wealth.
Price – offering a similar value at a lower price to satisfy the needs of price sensitive customer segments.
Cost reduction – helping customers reduce costs is an important way to create value. i.e. salesforce.com sells a hosted CRM application. This relieves buyers from the expense and trouble of having to buy, install and manage CRM software themselves.
Risk reduction – reducing the risk of purchasing products of services. i.e. for a used car buyer, a one year service guarantee reduces the risk of post purchase breakdowns and repairs.
Accessibility – making products and services available to customers who previously lacked access to them. i.e. netjets popularised fractional private jet ownership.
Convenience/usability – making things more convenient. i.e. ipod and itunes offered unprecedented convenience searching, buying, downloading and listening to digital music.
Adding Value in Relationships
In a personal situation, adding value can be done through friendship, by supporting, listening, understanding, caring, encouraging, not putting friends down or making fun of them, or defending them when someone else does. Being fun to be around, and adding to others’ lives rather than taking away from them. Friendships are about connecting emotionally, being empathetic, and authentic. Keeping your word, keeping a secret when you are asked to. It’s about giving them your time, attention, your love and sincerity.
Adding Value for Strangers
Add value to strangers by smiling at passers-by and saying hello, being considerate, friendly, courteous, pleasant. Holding a door open for someone struggling with shopping, letting someone go in front of you when you can see that they are rushing.
The Bottom Line
At the most basic level, adding value is about adding something of value to another person’s life. No matter how large or small that value may be. It’s about making people feel better about their lives even just a moment of their life. Move them towards a better state of being. Move them away from worry, pain, frustration, unfulfilled, disappointment, feeling conflicted, angry, useless, resentful, dissatisfied, struggle, lack of.., limited, confused and towards pleasure, love, completeness, success, their goal, wealth, the realisation of something, triumph, progress, accomplishment, expansion, abundance, freedom, a breakthrough, a work-around, to survive or even thrive. Go out into the world and make it a better place for yourself and others by being a giver and not just a taker.
Let me add massive value for you, by joining my mailing list, just sign up below and we will send you tailor made content directly to your inbox. For even more value check out our Ultimate guides by clicking on the posters below where you will find lots of valuable self help information.
Add Value Quotes
“Stop Selling, Start Helping.” – Zig Ziglar
“My mission is to add value. My attitude is of active curiosity, and my method is through relationships of trust.”
“Key to wealth: Provide more value than anyone else.”
“Try not to become a man of success, but rather try to become a man of value.” Albert Einstein
“I learned the value of hard work by working hard.” – Margaret Mead
“Add value to everyday. Sharpen your skills and your understanding.”
“If your presence doesn’t add value, your absence won’t make a difference.” – Zero Dean
“Find your passion, learn how to add value to it, and commit to a lifetime of learning.” – Ray Kurzweil
“Smiles ADD VALUE to our face, love ADDS VALUE to our heart, respect ADDS VALUE to our behaviour and friends and family ADD VALUE to our life.”
“The more value you add to the lives of others, the more valuable you become.” – Hal Elrod
“Price is what you pay, value is what you get.” – Warren Buffett
“Strive not to be a success, strive instead to be of value.” – Albert Einstein
“innovation is change that unlocks new value.” – Jamie Notter
“Never waste your feelings on people who don’t value them.”
“You add value to people when you value them.” – John C. Maxwell
“Too many people overvalue what they are not and undervalue what they are.”
“We make a living by what we get, but we make a life by what we give.”
“Be the type of energy that no matter where you go, you always add value to the spaces and lives around you.”
“Once you realize your worth, it will be easy to get go of those that don’t.”
When it comes to pricing your products and services, there are many ways to go about it, two of the most common pricing methods used are cost-plus pricing and contribution margin-based pricing, but if you check the list below, there are many more options open to you. We will go through a long list of them in this article.
Contribution margin-based pricing
Marginal cost pricing
Odd value pricing or Psychological pricing
Skimming (unique product/service and sell at high price),
Captive product pricing
Optional product pricing
Product Line Pricing
Cost-plus pricing is the simplest pricing method. The firm calculates the cost of producing the product and adds on a percentage (profit) to that price to give the selling price. This method although simple has two flaws; it takes no account of demand and there is no way of determining if potential customers will purchase the product at the calculated price.
Price = Cost of Production + Margin of Profit.
Absorption pricing is a method of pricing in which all costs are recovered. The price of the product includes the variable cost of each item plus a proportionate amount of the fixed costs. It is a form of cost-plus pricing.
Contribution margin-based pricing
Contribution margin-based pricing maximizes the amount of profit derived from an individual product, and is based on the margin between the product’s price and its variable costs, otherwise known as the contribution margin per unit. To calculate the figure you have to assume how many units of the product you are likely to sell at that price. There is an assumption to be made regarding the relationship between the product’s price and the number of units that can be sold at that price. The product’s contribution to the firms total profit (i.e., to operating income) is maximized when a price is chosen that maximizes the following: (contribution margin per unit) X (number of units sold).
Premium Pricing is used where there exists a uniqueness regarding the product or service and where a substantial competitive advance exists. Premium pricing is used by such luxury brands as Savoy Hotels, Rolls Royce and Prada.
Competition-based pricing comes about when setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product:
Products which have a lasting distinctiveness from competitor’s product. Here we can assume
The product has low price elasticity.
The product has low cross elasticity.
The demand of the product will rise.
Products have perishable distinctiveness from competitor’s product, assuming the product features are medium distinctiveness.
Products have little distinctiveness from competitor’s product. assuming that:
The product has high price elasticity.
The product has some cross elasticity.
No expectation that demand of the product will rise.
Marginal cost pricing
Marginal cost pricing is the practice of setting the price of a product equal to the extra cost of producing an extra unit of output. By this policy, a producer charges, for each product unit sold, only the addition to total cost resulting from materials and direct labour. This is often done by businesses during periods of poor sales. If, for example, an item has a marginal cost of £10 and a normal selling price is £20, the firm selling the item might wish to lower the price to £11 if demand is slow. The business would choose this approach because the incremental profit of £1 from the transaction is better than nothing at all.
Predatory pricing is an aggressive pricing strategy intended to drive competitors out of a market. It is illegal in some places.
Odd value or Psychological pricing
Psychological Pricing is used when the business wants consumers to respond on an emotional, rather than rational basis. For example selling for £9.99 instead of £10, this is evident in most supermarkets and retail outlets.
Dynamic pricing is a flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies. By responding to market fluctuations or large amounts of data gathered from customers – ranging from where they live to what they buy to how much they have spent on past purchases – dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. The airline industry is often cited as a dynamic pricing success story. In fact, it employs the technique so artfully that most of the passengers on any given airplane have paid different ticket prices for the same flight.
Dynamic Pricing has a number of variants such as:
Yield Management – depends on inventory and time of purchase. i.e. hotel rooms or airline seats.
Real time Market – based on supply and demand.
Skimming is selling a unique product or service at a high price, and sacrificing high sales in preference to high profits, therefore ‘skimming’ the market. Usually employed to reimburse the cost of investment of the original research into the product – commonly used in electronic markets when a new range, such as DVD players, are firstly dispatched into the market at a high price. This strategy is often used to target “early adopters” of a product or service. These early adopters are relatively less price-sensitive because either their need for the product is more than others or they understand the value of the product better than others. This strategy is employed only for a limited duration to recover most of investment made to build the product. To gain further market share, a seller must use other pricing tactics such as economy or penetration. This method can come with some setbacks as it could leave the product at a high price to competitors.
Penetration pricing is the opposite of skimming, where a product is sold with a low price to gain market share.
Limit Pricing is the price set by a monopolist to discourage economic entry into a market, and is illegal in many countries. The limit price is the price that the entrant would face upon entering as long as the incumbent firm did not decrease output. The limit price is often lower than the average cost of production or just low enough to make entering not profitable. The quantity produced by the incumbent firm to act as a deterrent to entry is usually larger than would be optimal for a monopolist, but might still produce higher economic profits than would be earned under perfect competition. The problem with limit pricing as strategic behavior is that once the entrant has entered the market, the quantity used as a threat to deter entry is no longer the incumbent firm’s best response. This means that for limit pricing to be an effective deterrent to entry, the threat must in some way be made credible. A way to achieve this is for the incumbent firm to constrain itself to produce a certain quantity whether entry occurs or not. An example of this would be if the firm signed a union contract to employ a certain (high) level of labour for a long period of time.
Loss Leader Pricing
Loss Leader pricing is illegal under EU and US Competition rules. Larger players in a market may use loss leaders as part of an overall pricing strategy, such as using it to draw customers into their establishment and encourage them to buy other products once there. Loss leadership can be similar to predatory pricing or cross subsidization; both seen as anti-competitive practices.
Target pricing is a pricing method whereby the selling price of a product is calculated to produce a particular rate of return on investment for a specific volume of production. The target pricing method is used most often by public utilities, like electric and gas companies, and companies whose capital investment is high, like car manufacturers. Target pricing is not useful for companies whose capital investment is low because, according to this formula, the selling price will be understated. Also the target pricing method is not keyed to the demand for the product, and if the entire volume is not sold, a company might sustain an overall budgetary loss on the product.
Economy pricing include things like the no frills lines found in supermarkets.
Promotional Pricing is used to promote a product and is very commonly used. There are many examples of promotional pricing including approaches such as BOGOF (Buy One Get One Free).
Captive product pricing
Captive product pricing is seen in cinemas when you are forced to buy refreshments from the foyer, or blades for razors, or ink cartridges for ink jet printers, where the ink is often more expensive then the initial printer cost.
Optional product pricing
Optional product pricing is seen when you buy an airline ticket and are charged extra for seat next to window, extra baggage or speedier check-in.
Product Line Pricing
Product Line Pricing is where there is a range of products or services and the pricing reflects the benefits of parts of the range. For example car washes. Basic wash could be £2, wash and wax £4, and the whole package £6.
Geographical Pricing is evident where there are variations in price in different parts of the world. For example rarity value, or where shipping costs increase price.
Drip pricing is agreeing an initial price, with a customer only to add extra charges when the customer is about to buy. It works because once lured by the initial price and into a sense of ownership, a consumer attaches more value to the goods in question. This “endowment effect” makes them more likely to accept later charges as people hate the idea of losing £5 much more than they like the idea of gaining £5. Extra charges also only become apparent after the customer has invested time and effort, which they don’t want to waste, in the sales process. Anchoring helps here (“it doesn’t cost £200, it only costs £x” – £200 is the anchor). Make the pricing structure complex, create a sense of social approval – “everyone is buying” – then chuck in something free and its job done.
Price leadership is seen with regards to oligopic business behavior in which one company, usually the dominant competitor among several, leads the way in determining prices, that the others soon following.
Value pricing is generally used when external factors such as recession and competition pressure sales. This focuses on prices you believe customers are willing to pay, based on benefits your business offers them. Companies try to increase profits and get the maximum value out of their scarcity and are interested in who is willing to pay more, rather than who can afford to pay more.
Imagine that you dealt with every customer as an individual, and knew exactly how much they valued any possible version of your offering and that the price charged to any customer remained unknown to all the others. Develop a pricing scheme which gets as close as possible to this ideal. There are some attempts to make use of this pricing system:
First degree price discrimination – seen as unfair and unpopular
Tactic used by car salesmen and estate agents
Supermarkets use discount cards which are needed to take advantage of sales prices
Money on – Amazon used to tailor prices based on customer profile using “cookies” to display different selling prices to different customers.
Group discrimination – more accepted form of price discrimination
OAP and student discounts
Discounts for local customers who purchase regularly
Self discrimination – getting customers to confess they are sensitive to price, while still taking advantage of those willing to pay a premium price
So there you have it, there are lots of pricing options open to you. Use a method that best suites you and your business circumstances. Cost-plus pricing and contribution margin-based pricing are the most commonly used methods historically although some form of price discrimination is the ideal in most instances, although is very difficult to implement effectively for smaller, less technically endowed businesses.
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Having run a number of businesses over the years I have come accustomed to dealing with the day to day challenges that come along and the reactionary style owners often adopt in dealing with them. One of the key challenges I have found is to remove myself from a state of “fire fighting” and into working on the business and not in it.
Working on a business involves some strategic (eyes glaze over) thinking and planning. As a business owner I am constantly looking to increase profit and in doing so must look three areas:
In this article I’m going to cover what is often considered the most boring of the three topics “reducing costs“, But saving money within your business is probably easier to achieve then increasing sales, where you need to spend more on advertising or communication with existing customers all of which will involve some form of expenditure, and increasing prices which can be a scary proposition, with research showing it causes much anxiety amongst entrepreneurs and business owners alike. Taking costs out of your business will directly impact the bottom line and increase profits, if done correctly.
There are two ways to reduce costs:
Reduce costs as percentage of sales. For example higher sales on the same costs or costs rising less than sales are rising
Simply cost cutting – However simply cutting costs is not always the answer as it may adversely impact sales and margins. If efficiency or output is reduced as a result of cutting costs than some analysis of the risks and rewards needs to be undertaken first.
5 step plan
Go through this 5 step plan in the sequence I have laid them out, this will prevent you feeling overwhelmed.
Eliminate waste and spare capacity. Use your time wisely, don’t waste hours and hours trying to save a few pounds.
Consider your position on a long term view versus a short term view. Set the level of investment spending where you want it to be.
Make sure your pricing is set correctly, failure to do this prevents you from knowing the potential of the business. (Check out my pricing strategy article here)
Understand your product offerings. what products haven’t been costed properly, what products aren’t valued by your customers but weigh heavily on costs. What parts of your business have moved away from your core activity and do these contribute sufficiently to profits
Strategic review. The business is the wrong shape. Going small and more niche or larger to cover cost base by pursuing better margin areas of your business.
Below is a list of other areas to consider:
One of the first things that businesses look to cut when making cost savings are with regards to employees, because generally employees are one of the biggest costs and biggest headaches (in an admin sense) for companies. This can be done a number of ways, by reducing staffing levels, introducing short time working, imposing salary freeze, and or reducing pension service costs. However taking this approach can cause an adverse effect on company morale, efficiency, staff absence and turnover levels and may cause issues with supplier relationships, where supplies reduce credit arrangements for fear of not getting paid by a company that is perceived to be struggling. Another way of dealing with such costs rather than simply cutting is to improve productivity.
Improving the productivity of employees is a more positive way of reducing costs per employee, and should involve the employees in the formulation of this process. If they are involved in the development process they will have ownership of it and will be more likely to follow through on initiatives. You don’t need to introduce productivity incentive bonuses to improve productivity, creating a happy working environment where employees are valued and feel they are contributing is beneficial for all.
If you’re increasing capacity, employ an extra shift before adding more space to increase output. This will make it easier if capacity drops again so that you’re not stuck with the cost of a long lease and under capacity.
Outsource all non-core tasks. If you do certain things infrequently look to get things off the books and done by a specialist on a freelance basis..
Supply chain management
Look for bulk purchase discounts, or source cheaper suppliers (but be wary of the risk of supplier failures or enforced single sourcing), reduce stock levels, cut excess production capacity in tougher times. Reduce inventory levels and move to a “just in time” supply or materials
Cut capacity, such as closing business units (stores, website etc),
Sale of business units, such as Clapham house selling Tootsies
Oversees shifts – moving operations to cheaper lower cost locations (be wary of weakening of control over quality)
Asset value write downs – (none cash write downs, cleanse the balance sheet and give clear picture of the trading position, setting a new base to build on. This is more of an accountancy issue rather than something that physically impacts the business.
The general rule of debt management is to pay off your debts, such as your mortgage, loans and credit card bills, before you start to save money. This is because the amount of savings income you can get is almost always dwarfed by interest rates you pay on your debts. To check whether you are better off saving or repaying your debts, you should compare the interest rate on your credit facilities with your savings or investment rates.
Pay down debt levels to reduce debt service costs when surplus income cannot be utilized better through investment or purchase of assets.
If times are really desperate, consider a Company voluntary arrangement (CVA), which would release it from certain liabilities to its landlords.
14 Savings on Purchases
Don’t buy impulsively!
Do your research – do your research to find out when the industry is on the downside of the demand curve and buy, buy, buy.
Know about the secondary market – returns or refurbished
Understand that retailers are in business to make a profit on you – Retailers always have to move through product to make room for the next batch.
Don’t be an ‘early adopter’!
Don’t be afraid to ask for a discount
Buy during off-peak times
Don’t give in to the fashion trends
Always be ready to walk away.
Expose your purchase to competition – Squidbid.com is a Demand Driven marketplace which has developed a cool concept.
plan needs (no impulse buys)
shop for value
ask for discounts
examine receipts and bills
So there you have it, cutting costs doesn’t need to be boring. In fact saving costs is tax free, in many cases doesn’t require any capital and doesn’t rely on any marketing activities. It’s often the easiest way to put money back in your pocket so should be the first area of consideration when looking to increase profits. Check out the other two areas by clicking on the links below.
Anyone that’s running a business wants to make more profit. There are only two ways to do this:
Sell more goods and services (volume).
Make more profit per £1 of sale (margin) either by increasing prices or reducing costs or increasing prices while reducing costs.
For the purposes of this article we’re going to concentrate on the “Increase Prices” part of the model (above) in our quest to increase profit margins.
Many business owners are afraid to charge “more” for fear of losing custom and putting people off buying from them, but the flip side of this is you may be leaving money on the table that could be in your bank account rather than in the customer’s pocket. I once heard this sentence and it changed the way I thought about pricing, it goes “Unless you are the most expensive in your field you can always afford to put up your prices”.
Well not everyone is comfortable about increasing prices, and as business owners we should be wary about the way we edge them up. There are a number of tactics we can employ to ease price increases into our business
Introduce a new pricing structure for new customers only, look after your loyal customers, but let them know that you will honour the old price structure for as long as they stay with you. Should they leave and come back at a later date they will have to go on the new pricing model. Let them know you value their loyalty and are rewarding it, make it a good PR exercise.
Begin to shift your overall product sales mix towards higher profit margin products and services, and start phasing out your lower margin items. Introduce higher margin new products that are perceived as higher value solutions for customers.
Decrease the level of discounts you’re currently offering customers.
Increase your minimum order volumes so that customers have to reach a higher threshold before they qualify for discounts.
Increase your delivery charge and start charging for any additional special services related to delivery.
Charge your customers for any engineering and installation services that you previously included as standard.
Increase prices to cover for overtime or additional time needed to deliver rushed or very short notice orders.
Start collecting and charging interest on overdue accounts from the last few months.
Begin to write stiffer penalty clauses into all of your contracts. Think about it – your suppliers will almost certainly be doing this to you, so there’s no reason why you can’t be commercially more hard-nosed as well.
Find ways to decrease some of the physical features or characteristics of your product, but continue to charge the same prices.
Times are tough, but we have to make sure we are getting a fair price in exchange for our services/products. Make sure you’re maximising profits so that you can continue to provide for your customers in the years ahead.
If you have any additional ways you have increased prices please put them in the comments. Hope you found this post interesting please subscribe to my newsletter so that you get to hear about my newest content as soon as it’s published.