Several years ago, I was in Denver for the semi-annual meeting of Amplify, a small association of ad agencies from around the country. Our firm has been a member of this network since 1997, sharing best practices and working with partner firms to tackle business challenges and opportunities together.
On the second day of our meeting, the discussion centered around value pricing. I couldn?t help but think of our clients and how some of the concepts we discussed applied very specifically to them as they are in a constant quest to increase margins in an increasingly competitive environment.
The man leading the discussion was Ron Baker a self-described ?recovering cost accountant? and author of five books on the subject of value. With a quick history lesson, Baker explained that the Karl Marx-supported Labor Theory of Value (where the value of something is simply determined by the input of labor costs) was thrown out and replaced near the turn of the 20th century by the Subjective Theory of Value (the concept that the value of something is not inherent, but is instead worth differing amounts to different people depending on how much they want or need the object.)
Baker pointed out that even though the Labor Theory of Value had been disproven over a century prior, thousands of companies yet today are still driven by the dubious practice of focusing solely on cutting costs in attempts to improve profitability. He described in great detail?through videos, charts (see McKinsey Study above), and real-life examples?how efforts like cost-cutting and even increasing sales both pale in comparison to the profit that can be gained through the strategic creation of value and a subsequent (or in tandem) price increase.
Baker noted, ?The default purpose of marketing is not to increase sales. It?s to increase profits. And by increasing the perception of value (often through strategic marketing resulting in the ability to increase margins) this is exactly what happens.?
So what does this mean for your company and brand today? First, I?d suggest walking before you run. If you find your team holding more discussions about cost-cutting than adding value, then just start by simply balancing those discussions between cost-cutting AND adding value. Below is a chart of 34 sources of value to get you started. I guarantee the value discussions will be much more invigorating...and according to McKinsey & Co., they?ll provide a lot more potential for improving the bottom line in the long run.