The time value of money is central to many capital budgeting decisions that is, the choices a business makes on which projects to pursue to make the company grow. Examples include expansions, investments in new equipment or developing new products. Capital projects typically involve significant upfront investment, with positive cash flow coming in only after the project is up and running.
A project is worth pursuing only if the cash flows that you estimate will be generated by the project will make up for its cost. Since those cash flows will arrive in the future, you must convert them to today’s currency “present value” to compare them to the cost. When you “sell a benefit,” you are still essentially describing a product feature but you tie it to some way that it improves the customer’s situation. Example: “Some of our soaps are manufactured locally, so you can be assured of an immediate supply.”While “selling benefits” is more effective than “selling features,” it isn’t always clear to the customer why that benefit is important in the larger context of the customer’s business.
While the customer may know, for instance, that an “immediate supply” is a generally good thing to have, it’s hard to compare that “good” to every other priority in the customer’s business. If the “value” you’re selling is unique to your offering and large enough to make it a priority, you will win the business, as long as the customer has money to spend. And that’s what “selling value” is all about.
The value analysis process often allows users to root out practices that have grown out of date and can be replaced with more modern approaches. This is particularly beneficial when something has been done the same way for an extended period of time. Because the old way works and was new when it was instituted, you have had little impetus to make changes.
However, a value analysis, which calls for questioning every step of a process, can reveal new methods that are cheaper, more efficient and sometimes more effective. Demand for a good arises from its perceived benefit. For instance, people demand food because of the nourishment it offers them. With regard to money, people demand it not for direct use in consumption, but in order to exchange it for other goods and services.
Money is not useful in itself, but because it has an exchange value, it is exchangeable in terms of other goods and services. Money is demanded because the benefit it offers is its purchasing power, i.e., its price. Consequently, for something to be accepted as money it must have a pre-existing purchasing power, a price. So how does a thing that the government proclaims will become the medium of exchange acquire such purchasing power, a price?
We know that the law of supply and demand explains the price of a good. Likewise it would appear that the same law should explain the price of money. But there is a problem with this way of thinking since the demand for money arises because money has purchasing power, i.e., money has a price.
Yet if the demand for money depends on its pre-existent price, i.e. purchasing power, how can this price be explained by demand? We are seemingly caught here in a circular trap, for the purchasing power of money is explained by the demand for money while the demand for money is explained by its purchasing power. This circularity seems to provide credence to the view that the acceptance of money is the result of a government decree and social convention.
Whether you are in discrete manufacturing, process manufacturing or a service related industry you have design issues of usability, comfort, and tolerance of durability beyond prescribe use and identity of “status” of design quality. In this regard, you do not have the axiom of “variation is inherent…” The ability to live up to the “quality of design” is maintained by the “quality of the process” A new product that better meets consumer needs, even an upgrade of an existing product, can one-up competitors and force them to invest in matching or exceeding the new specifications.
Selling a commoditized product with differentiated ancillary services can appeal to buyers willing to pay a premium for the convenience. Indeed, when it comes to commodity products, the burden of proof is almost always on the marketer to show why this handful of dirt is better, and worth more to the customer, than that handful. It is a marketing argument that may have as much to do with the way the dirt is packaged, delivered and used as it does with the dirt’s actual quality and characteristics.
Whatever is involved, it is a task that the marketer must accept and be prepared to handle with a savvy sense of the differing needs and cost points of the relevant marketplace. Successful commodity marketers must start by recognizing that no market is truly homogeneous. One agribusiness giant has come to the conclusion that it has a natural affinity with certain customers based on geography, quality, long-term relationships and compatible values.
On the other hand, company executives have concluded that some customers will never feel comfortable with them and they have gone so far as to “fire customers” when it became clear that the fit was not just right. They are correct some customers are simply not responsive to marketing and are a waste of time. We call our process to identify the right set of customers “carving up the market.” Carving up the market goes well beyond traditional segmentation. It is a deliberate process to find those customers who need, appreciate and will pay for differentiation.
When commodity buyers pay a premium for value, it can’t be skin deep. The value has to be real and tangible, because they will constantly measure and reevaluate it. If the customer paid for the highest-quality product or the highest level of service, then that is what the customer has to get. At the same time, business systems must enforce internal discipline to insure that buyers of the most basic commodities are not over-served.
Changes in the business capabilities are not restricted to production and logistics, but are even more important on the “soft side” customer management. “We have met the enemy and he is us.” Brand marketing requires massive reeducation, new values and tailored incentives. Traditionally, commodity salespeople have had two concerns: volume and the immediate transaction. Their basic tactic is to enhance their personal relationship with the buyers.
Positive thinking doesn’t build self-image. Positive acts do. There’s nothing wrong with positive thinking, but the most effective way to cross over into intentional living is to think positive thoughts that ultimately turn into positive acts. If you perform positive acts, not only will your self-image begin to rise, you will find yourself living a more significant life that matters. To close the deal, they will offer practically anything, culminating in the pitch: “I know what the rate card says, but here’s what I’ll do for you.” And that approach will spell disaster when applied to brand marketing.
With alarming speed, the salespeople will unbundle your offerings. They will erase your premiums. They will offer unfathomable discounts. Left to their own devices, they will destroy your brand faster than any marketing effort can build it back up. Few issues are more problematic for commodity marketers than pricing. “I know of a good number of commodity marketers that sell on the basis of value,” the general manager of a major European chemical supplier told us. “It appears to be a foreign concept.” The norm, instead, is cutthroat bidding aimed at moving volume.
The traditional commodity pricing mentality dictates that all consumers must pay the same price, with reasonable adjustments for transportation and volume. That view of the marketplace is blatantly wrong. Getting paid for it requires branding, extending the relationship beyond the transaction to encompass the full organization. No matter what values we choose live by, it is vital that we look at the big picture, assess what we want our role to be, and map out how we intend to conduct our lives.
Those who accept responsibility are reliable, dependable and willing to take accountability for who they are and what they do. They believe they have a moral obligation to help others and to make a contribution to the society they live in. Integrity is trustworthiness, honesty and uprightness of character.
We value people of integrity because we know what to expect from them. We know they will act honorably and that they will do what they think is right. We want people with integrity as our friends, on our teams and in our organizations. Our personal value system gives you structure and purpose by helping you determine what is meaningful and important to you.
Julie Agnes Omeike
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