According to a recent McKinsey & Company report, consumers are increasingly looking for value and are often switching brands given the record-high inflation and concerns about a recession. Should manufacturers and dealers take note?
When people think of “value buyers”, it is often a euphemism for price sensitive shoppers who favor low-priced brand. That is not what we are talking about here. In over three decades of doing research, it is fairly uncommon for shoppers to tell me that they selected a given brand because it was the highest quality without regard to price. It is equally unlikely for someone to select a brand because it was the lowest price with no consideration for its quality. The vast majority of shoppers – whether they are “price” or “premium” shoppers – lie somewhere in the middle. They are looking for value as they see it. In other words, are the perceived benefits worth the price – often in comparison to competitor offerings.
Why Value is Important Now
Though delivering value is always important (in fact, it is really the main reason why businesses exist), it is especially important at this time considering the findings of the McKinsey report noted earlier and the fact that the rising cost of goods will likely shift purchase patterns for things like boats and other discretionary items.
…the gap in Used vs. New prices will likely increase driving many back to pursue pre-owned products.
With the current rate of inflation, some shoppers will be pushed out of the market all together, others may shift to lower priced brands, and an increasing percentage will pursue Used offerings. The latter hasn’t occurred yet because the surge in demand due to the pandemic dramatically increased the price of Used goods as well as New. Therefore, the New vs. Used value equation did not change much for most buyers. However, if a recession soon arrives (as many anticipate), the demand for discretionary goods will soften while the supply of things like used boats will likely increase driving prices downward. However, manufacturers of new products still need to contend with the rising cost of production and materials and so prices will continue to rise. As a result, the gap in Used vs. New prices will likely increase driving many back to pursue pre-owned products.
Are You Delivering Sufficient Value?
…to be successful you need to be positively differentiated on something important to a sizeable segment of customers.
While all brands need to deliver some degree of value in order to survive, to be successful you need to be positively differentiated on something important to a sizeable segment of customers. How do you know if you are delivering meaningful value? Here are two broad questions you need to ask target customers:
- What are the main things you look for when shopping for a [product/service category] and why?
- What are the perceived advantages of [brand] vs. competitor offerings?
Of course, you need to look at this overall and by key customer segments. The answers may fall into one of three scenarios:
- You are not delivering sufficient value (i.e., no perceived advantages on the things that matter) to a sizeable segment of target customers.
- You are delivering value but not enough target customers are aware of it.
- You are delivering value AND target customers recognize it.
If you fall into the first category, it is time to revise your offerings to hone in on one or more important areas where you can differentiate vs. competitors (especially those in the same price range).
If you fall into the second category, your challenge is one of communication. It is important to tighten your messaging (which key benefits to emphasis) and your targeting to avoid diluting your message and resources.
Finally, if you fall into the third category – congratulations. Keep on doing what you are doing and continue to communicate your key advantages.
Finding the Answers
For businesses that have direct contact with target customers, it is a matter of having an intentional (qualitative) conversation with them. Start with the two broad questions listed above and be sure to clearly document the answers. It is also important that the questioner be objective and a good listener – otherwise, they might be subjected to “confirmation bias”. That is, the tendency to only hear things that conform to one’s ingoing beliefs or hypotheses.
If you don’t have direct contact or don’t have the time and inclination to interview target customers, then you might need to hire outside help such as yours truly. In most cases, the focus of the research should be more qualitative than quantitative to help you fully understand both the “whats” (what target customers value) and “why’s” (why it matters to them).
However, many small and mid-sized businesses don’t have a budget for a fully customized research study. If that is you, here is an excellent survey tool that is free to use to help you uncover why your customers chose your product over your competitors. Designed for boat manufacturers, this survey will help you identify who your customers are, where they came from (prior boat ownership history), which competitors they considered and why they chose your brand. Plus, you will get instant access to the real-time results (for free) and can customize the survey for a minor additional charge. You can see an example of the survey here for XYZ boats.
As stated earlier, delivering sufficient value is important for all businesses to be successful and having a clear understanding of what matters to your customers is the best place to start. While it won’t insulate you from all environmental factors and influences (e.g., inflation), focusing on delivering value will help you to remain competitive no matter what the future holds.