Customer costs begin with the price you charge for your offering. While making your operating costs a little lower, you may be greatly increasing your customer's costs . . . making it expensive to deal with you. Cut your customer's costs, and you'll have more customers.
Many business leaders pay a lot of attention to favorably influencing their own prices and costs. In the process they ignore or are insensitive to what customers and end users pay to use these offerings. While this focus may be profitable, much more profit is missed when demand is dampened due to soaring costs incurred by customer and end users.
For instance, my banker telephoned to suggest that I open a new personal checking account. These accounts are free. I didn't really need this checking account, but my interest was piqued when he told us I would receive a free BlackBerry portable digital assistant (PDA). I didn't need a BlackBerry PDA, but imagined that I could sell it on eBay and make a profit to put into my new checking account.
After signing up for a checking account, I learned that I would only receive a BlackBerry PDA if I subscribed to a service costing $720 for a year. Suddenly, I had a checking account I didn't need and a "free" certificate for a PDA I didn't want to spend $720 to use. The bank had wasted its time and money on me, and I had a checking account I didn't need.
Presumably enough other people signed up who used the accounts to make the promotion successful. The bank may have thought that it had won.
But here's what it had missed. If the bank had instead offered a $200 off value on the PDA and six months of free service, I probably would have tried the BlackBerry PDA. If I had liked the BlackBerry and service, I would probably have continued to use the PDA and thought favorably of the bank whenever I did. Or if the bank had offered me $100 off the PDA's price and no required service, I could have pursued my original plan and sold this product on eBay for a profit. That offering would have made me appreciate my bank more, as well.
When you can instead reduce the cost of using offerings, for-profit organizations and their customers both gain. A big waste of my time is in going to a bank to make transactions. Although my bank has an excellent online service, I'm limited to making two transfers a month from one of my accounts into another one. As a result, I don't tend to keep much money in that restricted account.
If the bank instead gave me postage-free envelopes to make such account transfers, I would keep a lot more money in the account because I wouldn't have to make lots of extra trips to the bank for the transfers. The bank could slightly reduce the interest rate it pays on such accounts, and I would still be attracted to the convenience because I would be saving lots of valuable time I could be using for other purposes than going to and from the bank.
Where can you slash your customer's costs?
Copyright 2007 Donald W. Mitchell, All Rights Reserved
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