When is the Lowest Price Not the Best Price?

The Situation:
Let’s start with the facts. Fact one: Here in Minnesota, we’re in the middle of the driest spring and summer in the past 75 years. Fact two: My wife’s hobby is gardening. These two facts presented us with a clear directive – we needed an in-ground irrigation system.

One more important fact: I don’t know much of anything about in-ground irrigation systems. So, like most people, I started asking friends, neighbors, and coworkers whom they might recommend.

Our Options:
The first recommended person was a local contractor. Let’s call him Fred. Fred offered to build us the exact system we needed, at a great price – as long as we held his hand and corrected his course along the way. The questions he asked – and didn’t ask – demonstrated that he didn’t know what he was doing. It was clear that Fred might be in over his head.

Fred may have gotten the job done in the end, but the process would have been agony. So, even with Fred’s nice price, we looked for other options.

A coworker recommended another irrigation company, who sent out Karl. Karl inspired confidence immediately. He showed us that he knew what he was doing by asking the right questions and using his expertise to guide us down the right course of action. Karl had done a project like this before, and it showed.

The bad news? Karl had a 30% higher price than Fred.

The Solution:
As you might have guessed, when the time came to make a decision, my wife and I picked Karl. Why? Because we made our decision based on perceived value. And in this case, perceived value was far more complicated than price. We believe this supplier will provide a problem-free system that will meet all of our needs and, in the end, justify our added investment. In short, our choice was built on trust.

My Question for You:
Are you the low-cost provider? If not, what value do you bring to your customers that causes them to pay more for your product or service? What problems are you solving for your customers that gives them confidence in your ability to meet their current and future needs? Are you clear about exactly what you will need to do to continue to add value for your customers in the future?

Doing everything you can to provide value is important, but understanding your customers’ perceptions of value is key.

Gary Gerds, Managing Partner
E.G. Insight