While reading Architectural Record the other evening, (Yes, I still keep up with my original profession) I was struck by an article entitled “How to Make Money” with the sub-title of “Firms improve the bottom line by expanding the definition of architectural practice” by Martin C. Pedersen. What struck a chord with me is the fact that you could substitute any profession, service or product in place of architecture and the core message of the article would still be applicable.
So what is the core message of this article? Basically, your product or service will fall into one or the other of the two (and in reality, the only two) business models based upon the perception of your clients, customers or patients (CCP). The first and most common model is the commodity model. When your service or product is perceived to be a commodity, you are forced to compete primarily on price. In the long run this is a very dangerous game. There is always someone or some company who will find a way to offer a lower price than you and your business.
In that situation, how can you make a profit? You must build the proverbial better mousetrap. You must find ways to operate more efficiently than your competitors. In the short to medium term, this is possible. However, sooner or later, a competitor will figure out a way to operate more efficiently than you. Welcome to a game of business leap-frog.
To quote Mr. Pedersen’s article, “So how do firms escape the commodity trap and achieve what management consultants call “value pricing,” a fancy term for something fairly basic: a profitable fee? It helps to understand the needs of your clients and speak a common language.” (Emphasis added) The alternate business model, based upon offering value has many advantages and one significant disadvantage compared to the commodity model. On the plus side, your Unique Value Proposition (UVP) is yours. Your competitors may attempt to copy it, but they will find it very difficult to capture the underlying essence and complete definition of your UVP. Also, you will not be competing solely on price, or playing business leap-frog. Obviously, if you are not competing on price, your profit margin will be much higher than that of your competition.
So what is the disadvantage? “It helps to understand the needs of your clients and speak a common language.” – This is not easy to achieve and consistently deliver. Why is this hard? Because to design your UVP you must determine your CCPs definition of value, not necessarily the same as your definition of value. For example many physicians value where they went to medical school, numerous studies have shown that patients view this a being near the bottom of their lists of factors they consider when choosing a doctor. Once you have determined your CCPs definition of value, you must marry it to your product or service (the total definition of your product or service, the subject of my next Blog) in order to have your UVP.
If you can design your offering to deliver true value to your CCP, and do it consistently, you will establish a very long term competitive advantage. If you are looking for assistance in determining your UVP, please contact me or any of my ActionCOACH colleagues. We will be happy to help you grow your profitability.