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Value and its perception.

Value, its perception and presentation, is a fact of doing business in this decade. A focus on value has been a high priority during times of economic downward cycles. This is no longer the exclusive domain for searching for value. To be successful, businesses must understand the value they add to the offering they make to their first-time buyers. The buyers must perceive the value of the offering as well.

Value is not interchangeable with price, although much of the reporting on the most recent recession emphasized price only and characterized many successful businesses offering multiple perceptions of value as "recession phenomena", which they implied would disappear with an economic turnaround, forgetting about the priority of value. This may be a model correct prognosis, but it tends to disregard and demean the merchant's sense of business, and that of the buyer as well. It assumes that recovery means product and service capacity shortfalls, creating shortages, raising the priority from value to availability, and establishing the historical "sellers' market".

This is probably not the correct track to take in this world-scoped and technically driven economy of now and the future. Capacity and service availability are, to a great extent, limited only by global market area priorities for maximizing investment return, not global overselling.

Henry R. Lambert, vice president of Nabisco Foods Group and general manager of the Food Service Division, sees selling value perceptions as an effective partnership between supplier/producer and wholesale/retail merchants in the January 1992 issue of Institutional Distribution. This partnership amounts to training, merchandising, and service presentations which highlight the perceptions of value and "pull-through" sales which are profitable to both partners.

Steve Zurier, Senior Editor for Industrial Distribution, asks in the May 1992 issue, "Do You Charge For Value Added?" He reports that Professor Michael Workman of Texas A&M states that no one really knows what to charge for value-added consultation and engineering services. Professor Workman is reported to believe that the key to solving value-added pricing riddles is to develop a solid understanding of cost and margin dollar impact by significant customers. Mr. Zurier reports separately that Bill Creecy, president of Sales

Systems Ltd. in Portsmouth, Virginia, says that those who expect to stay profitable through increased market share and cost cutting are kidding themselves. He says that sooner or later, value-added services must be paid for.

The first basic step is to recognize the value a business adds. No one has a problem with this basic step when put into an analogy of food service in everyday life. We can all perceive the value provided by comparable restaurants. None of us would stop at price or the exclusive value of lowest price when selecting a place to buy a meal. We have an easy time perceiving overall values in this scenario. All businesses are different from a restaurant, but to start with a VALUE MENU for any particular business is appropriate. By listing the value-added items on a VALUE MENU, one can:

* Identify them

* Assign a cost to them

* Gain a customer perception of those values

* Gain employee acceptance of those values

* Find differentiations from competitors.

Once it is clear just what value a business is adding, those added-values can be quantified and marketed. No business can "make it" by simply pounding suppliers for ever lower prices and then assume they have a continuing competitive advantage. That kind of competitive advantage might last one day, one week, or at best one month. At the same time, pricing added-values on a "take it or leave it" basis won't fly either.

Following the identification of values-added, they must be articulated so that customers, employees, and competitors understand them and how they benefit all parties.

It is through this articulation that a strategy of buying efficiently and effectively, followed by tactics to develop traffic and sales building programs, including merchandising and promotional ideas which can appeal to the perceptions of the customer base of any specific business, can be implemented. The above are what builds long-term competitive advantage.

The values-added must be commercially marketable. The business must be compensated for providing them. This now falls to either increased pricing to the customers who benefit from them or to purchasing tactics to provide compensation from the producer/supplier who avoids the cost of adding these values, or both.

Every business provides added values. The perception that customers have of those added values are what will make businesses successful in this decade. Customers are not going to disregard value just because of a positive economic cycle. Value and its perception are now and will continue to be constant buyer/customer demands for the long term. It is time to prepare a VALUE MENU.

D. Jack Hensler is Managing Principal of Fry Consultants Incorporated, Atlanta, Georgia Mr. Hensler is a former Vice President and General Manager of both the Supply Division and the Interior Products Operating Division of the Owens-Corning Fiberglas Corporation. He also served as President, Amarlite Architectural Products Company. Most of his current consulting activities are involved with industrial/business marketing and distribution problems and opportunities.
COPYRIGHT 1993 Canadian Institute of Management
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Copyright 1993 Gale, Cengage Learning. All rights reserved.

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Author:Hensler, D.Jack
Publication:Canadian Manager
Date:Jun 22, 1993
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