Cost vs. Value Based Services

meninfieldI received a call the other day from LaShae, the owner of a small service business that was looking for some advice on marketing at her company. There was an air of frustration in her voice regarding the effectiveness of recent marketing campaigns which included an ineffective post card mailing, a series of cold calls to potential clients that to date have resulted in dead ends, and a recent website optimization. Everything that she shared with me has been part of successful marketing campaigns at other companies so why wasn’t it proving to be effective at hers? I believe that there are two primary reasons why:

You must combine marketing activities to multiply effectiveness

Everything you do in marketing has a hit ratio; that is, the number of desired responses you receive as a result of your efforts. From post card mailings that result in return phone calls .03 to .06% of the time (3 to 6 return calls for every 1000 cards mailed) to true cold calls that result in future direct communication 2 to 5% of the time. (2 to 5 meetings for every 100 phone calls). The key to building a successful marketing campaign is to combine (multiply) several approaches together with a concentrated group of people. The example I gave LaShae during our conversation was the same approach I identified in “Warming up a cold contact.” The key to this approach combining a series of events to effectively multiply the hit ratios together (2 x 3 x 4 = 24% hit ratio) instead of simply sending out independent campaigns that result in adding your effectiveness together (2 + 3 + 4 = 9%). This traditional method of marketing is a relatively expensive way to drum up new work, but it is effective. In the case of LaShae’s business there needs to be a cohesive link between marketing activities to increase their effectiveness and return a cost effective return on investment for the company.

A value based service industry approach

LaShae’s business provides a “value based service” to clients. Let me explain: services are sold based on both value and cost. Services that can be differentiated from others in the industry are chosen more based on value than cost, while services that are very similar to that which other firms provide are more often based on cost.  Since the services that LaShae’s company offers are value based, she needs to focus her marketing on helping others see her value. The most effective way for a small company to do this is through building credibility in relationships. Note that the warming up a cold contact model above simply follows the Relationship Development Process. A less expensive way to build these relationships is networking. Proper networking yields referrals and introductions that pre-qualify your value before you begin a relationship! Instead of spending hours developing mailing lists, post cards, and making cold calls, your network can provide you with a wealth of potential clients from 3rdparties (people that gain no direct benefit from giving the referral). By using referrals instead of direct sales your potential clients will feel that you have been pre-qualified as one of the best in the area at providing your services.

Cost vs. Value Based Services

Think about your company, are you are providing a value based service (differentiated such as an elite health care architect) or a cost based service (providing a service that is very similar to your competition such as a roofing contractor)? If you identify that you are providing a value based service instead of a cost based service check to see if your marketing approach helps walk potential clients through the relationship development process and ensure that your clients are viewing you as a value based firm. If you provide a cost based service and want to build your profitability, think about ways to differentiate yourself in the market to enable your firm to become a value based service company.

6 thoughts on “Cost vs. Value Based Services

  1. azoptimist

    I’m all for relationships.

    “No one cares what you know until they know you care.”

    Relationships take lots of nurturing. Relationships take time. But it’s really worth all the effort.

    I don’t think anyone in their right mind will, at their death bed, ask for more money and status. We’re social creatures. We want to love and be loved, accepted just the way we are.

    Relationships and customer service — that’s value!

    Great food for thought! Thanks for sharing!

  2. Great material! I never thought of the aspect of multiplying vs. adding concerning marketing, however it makes sense. I have found this especially true in small business. Don’t put all your eggs in one basket, and furthermore one needs to combine marketing techniques smartly.

  3. Tim:

    Great thoughts.

    An important concept in marketing (especially for value-based services) is to deliver value in the marketing process itself (as you are in your blog.) If you are using direct mail, websites, and other out-bound marketing approaches, then delivering something your potential clients can use to their advantage regardless of whether they do business with you will ultimately help your brand, open the doors, and encourage the relationship to mature into profitable business. Couple this with effective networking — especially through relevant associations — and your marketing effectiveness increases exponentially.

  4. Mark-
    Great addition! Creating value is not something the many firms even consider in their marketing, yet it builds a foundation for future work in addition to its direct benefits today.

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