In this series, we will see how three questions for business success are approached and provide some practical tools and techniques for the SME owner to answer them.

Since businesses have been in existence, these questions that have perplexed most of their owners. Before AI, before the internet and even before electricity.

Who is my ideal customer?

What makes my product or service attractive?

How should I be pricing my product or service?

An article in the NZ Herald from June 2024; Big Red, What went wrong for The Warehouse, highlighted the struggles of one of New Zealand’s most famous retail brands, The Warehouse. A senior analyst at investment house Forsyth Barr posed the question, “I don’t know if they [The Warehouse] know what they are and how they fit into the New Zealand retail landscape, or what they are going to compete on”.

Another analyst, Greg Smith of Devon Funds Management, commented, “They need to recalibrate what is the value proposition”. For The Warehouse, which has used bargain prices as it’s core attraction, now has its competitors like Kmart dictating to Warehouse customers what a bargain actually is.

Given The Warehouse is a large, complex business in a highly competitive market, you might believe that it’s relevancy doesn’t apply to SME’s. But it does. No matter what size of business, the principles of success are all the same.

Who are you selling to, why should they buy it and how much will they pay, are the foundations of success for global conglomerates through to food trucks. In fact, these questions are all linked and once you unlock the first two, then the third is much, much easier to answer.

In this series we will take a look at each of the three questions and shed some light on some approaches to get to the answers. This article looks at identifying a value proposition.

What makes my product or service attractive – my Value Proposition?

Borrowing from the world of advertising, Rosser Reeves of US agency Ted Bates was the first to coin the single minded proposition phrase in his book Reality In Advertising back in 1961.

He concluded that unless an ad (or any communication) had a core proposition at its heart, then what you are saying is a waste of both the readers and and the advertisers time.

A great value proposition should:

• • • Be easy to understand for your target audience, something that resonates with them.
    • Communicate specific results that the target customer will get.
    • Explain how you’re different from an alternative they might be considering.

A good value proposition has to be both relevant and compelling. Click bait is sometimes quite compelling but often not very relevant. Making you click, only to reveal that the compelling nature of the message is completely missing. Don’t be that person.

Good value propositions that find their way into the wider world can stem from:

The product: M&M’s: Melt in your mouth, not in your hands.

Service: Avis: We’re no 2, so we try harder.

Location: Disneyland, The happiest place on earth

Price: Walmart: Save money, live better.

So, how do you go about writing one for yourself?

Answering these questions is a good foundation:

1. What difficulty do you solve for your audience?
2. What do you do to solve it?
3. How does your product or service do it differently from other options out there?

To the extent you can, fight the temptation to break your business down into different product lines or services. Try to think about the big picture — your business as a whole. To write your value proposition, start by aiming to answer all of these questions in a single sentence.

It may be a long sentence, but that’s OK. Then start to reduce the longer sentence down to something short and punchy. A good test is to think of it as if it was the only piece of signage you could have that told people passing in the street what was good about your shop or office. What would it say?

So, it goes to show that if you are struggling to answer the three questions or want to step back from the day to day for a minute to consider these questions – then it’s a good exercise.

If a publicly listed company like The Warehouse is struggling to answer them, then you are not alone and shouldn’t see it as a problem but an opportunity to ensure your business has some of the fundamentals of success covered.

The following content was originally published by BOMA. We have updated some of this article for our readers.

In this series, we will see how three questions for business success are approached and provide some practical tools and techniques for the SME owner to answer them.

Since businesses have been in existence, these questions have perplexed most of their owners. Before AI, before the internet and even before electricity.

Who is my ideal customer?

What makes my product or service attractive?

How should I be pricing my product or service?

An article in the NZ Herald from June 2024; Big Red, What went wrong for The Warehouse, highlighted the struggles of one of New Zealand’s most famous retail brands, The Warehouse.

A senior analyst at investment house Forsyth Barr posed the question, “I don’t know if they [The Warehouse] know what they are and how they fit into the New Zealand retail landscape, or what they are going to compete on”.

Another analyst, Greg Smith of Devon Funds Management, commented, “They need to recalibrate what is the value proposition”. For The Warehouse, which has used bargain prices as its core attraction, now has its competitors like Kmart dictating to Warehouse customers what a bargain actually is.

Given The Warehouse is a large, complex business in a highly competitive market, you might believe that it’s relevancy doesn’t apply to SME’s. But it does. No matter what size of business, the principles of success are all the same. Who are you selling to, why should they buy it and how much will they pay, are the foundations of success for global conglomerates through to food trucks. In fact, these questions are all linked and once you unlock the first two, then the third is much, much easier to answer.

In this series we will take a look at each of the three questions and shed some light on some approaches to get to the answers. This article deals with the first question.

Who is my ideal customer – target audience?

Advertising copywriting icon, David Ogilvy, wrote about “man’s unchanging needs”. What he meant by this was that no matter the time or circumstances, consumers had and were driven by, an unwavering set of needs. These needs for example, were about youthfulness in the beauty industry, safety and style for cars, refreshment for drinks, and security for banks. Some of Ogilvy’s ads for these products contain claims and descriptions that could have been written yesterday, rather than in the 1950’s.

It’s important to remember that a demographic never bought anything. People do. A requirement to understand who you are selling to as an actual person is vital to understanding how to pitch your product or service at them in a way that they identify with.

Gender, age and class form part but not the complete answer. A buyer’s attitude to your sector, circumstances that might lead them to consider your product or service are the first steps to building a profile of your customer.

Think of your ideal customer as a person pen portrait. Like how a character would be described in a novel. What would they look like, where do they live, what would they drive, what would they wear? And more importantly, why would these things matter to them?

And then, where does your product fit into their world and why? Are they suddenly different person when they purchase your product? Different attitudes and values?

Your typical customers might not be able to be contained in one person, as you might have a primary audience and a secondary customer. Write these portraits separately. Work out which is the larger of your audience and assign a rough percentage to what of your business they represent.

Bring them to life. Make them real to you. Give them a name. Live with them in your mind for a few days. Imagine how they live. And again, imagine them making a decision to purchase a product or service from you or your sector. When you are making a decision you can now reference your customer portrait and ponder their likely reaction.

Yes, I get it – this might sound like a project out of high school and you are an adult running a business, but believe me, it works. Great brands throughout the years grew using this technique – why shouldn’t it work for you?

So, it goes to show that if you are struggling to answer the three questions or want to step back from the day to day for a minute to consider these questions – then it’s a good exercise. If a publicly listed company like The Warehouse is struggling to answer them, then you are not alone and shouldn’t see it as a problem but an opportunity to ensure your business has some of the fundamentals of success covered.

The following content was originally published by BOMA. We have updated some of this article for our readers.

Price elasticity is an economic concept that you should get to know. It is instrumental in understanding demand for your product and the price you can set for it.

A price elastic product is one that experiences changes in demand as the price rises or falls. Some products are staples, and their price is inelastic. (Think things like bread or milk). People will buy these regardless of price fluctuations. When your product is price elastic, a price rise might prompt people to buy an alternative product or wait until the price is cheaper. Products that are affected in this way are often non-essential or luxury goods.

Working out price elasticity of demand

You can determine price elasticity of demand, using an equation. The equation takes the percentage change in demand and divides it by the percentage change of price.

For a product that increases 10% in price and sees a 10% drop in demand, their price elasticity of demand is negative 1.

Most products range between negative one and zero.

The pricing factors you need to understand

Here are the factors you should consider before increasing the price of your product:

• • • Are there substitutes to your product? – If people can easily switch to another product they may be price sensitive.
    • Your customer’s budget – If the cost of your product represents a small percentage of your customer’s budget, they may pay less attention to the cost.
    • Need or a want? – If your product is a necessity, your customer will buy it no matter the price. But they may not feel very good about the price increase!
    • Loyalty to your brand – The goal is to have people choose your product over your competitors on factors other than features and price. Boosting brand loyalty can help to reduce price sensitivity.
    • Your buyer – If your product is usually purchased through an expense account, your demand may more inelastic, because the purchaser is not paying the final bill.

With competition increasing in most sectors, understanding your price elasticity can give you the tools to pitch your product competitively.

The following content was originally published by BOMA. We have updated some of this article for our readers.