Getting Started With Dollarization
You are shopping for paint and find many choices at the local paint store. Product X costs $12 a gallon; product Y costs $20 a gallon. Which paint should you buy?
The salesperson says, "I strongly recommend product Y. Its price may be higher, but it will last eight years, while the other paint will last four at best. That means that over eight years, you'd have to buy product X twice, for a total of $24 a gallon, versus just $20 a gallon for product Y. In reality, product Y costs less!"
You reply, "That's very interesting, but I'm preparing to sell my home, so I don't care about how long this paint will last. I think I'll go with product X for $12."
The salesperson listens and responds, "I understand, but I think product Y is still your best choice. You see, product Y contains 50 percent more pigment, which results in better coverage than product X. This means you will need to apply only one coat to your house. Product X will require at least two coats. This will also cut your labor costs in half. Plus, you are guaranteed that your house will look freshly painted, which will improve your success in selling your home. Wouldn't you agree that an extra $8 per gallon is a great investment to sell your house at the price you want?"
Finally, you decide. The $20 paint is actually less expensive than the $12 paint.
Financial Consequences of Choosing
When businesses make purchases, too often they are myopic and overemphasize the importance of price. They overlook the many other financial consequences of choosing one offering over another. This is a failure on the buyer's part, because it may very well result in financial harm to the organization. But more importantly, it is a failure on the seller's part because the seller has missed the chance to demonstrate the true financial impact that could be provided to the customer.
The meaningful way to compare the cost of two offerings is by evaluating the total cost of using each. In order to help customers to understand the true net cost of your product, you must dollarize the product's true value.
Dollarization is figuring out what your offering is really worth - in dollars and cents - to your customer. It is the management discipline that is missing in many sales and marketing organizations, and its impact can be great, and its applications are many. Dollarization can help your company better understand, articulate and profit from the value you create for your customers and clients. Dollarization should become a standing discipline that guides your thinking about pricing, selling, positioning, new product development, and nearly every other area of your sales and marketing.
Value Is a Number
In sales and marketing, value takes the form of value-added, value chain, value proposition, or value engineering. When sales and marketing people talk value, they use words - words that lack precision - and rarely use numbers.
The solution is an approach to sales and marketing that goes beyond articulating features and benefits, but in fact calculates the full economic value a customer receives from a product or service; the seller is then able to price the product or service as a true reflection of that value. This approach is called dollarization.
Businesses do not buy; they invest. Every time a company makes a purchase decision, it is committing company capital. In theory, that capital is constantly being allocated and reallocated to achieve the best available return. Too few companies exercise this discipline for all purchases. And far fewer companies market and sell in a way that permits customers to understand the economic value provided in return for the investment. Whatever you do, you must map exactly how your offering translates to value for your customer's business. Copyright © 2005 Soundview Executive Book Summaries