The Australian Small Business Blog

Monday, March 12, 2018

The Difference between Cost and Price

by Dr. Greg Chapman

What is the most critical input to your business, without which, your business would shut down? Consider this for a moment, and think when you next tender for supply of that input, would you go for the lowest cost supplier?

That’s what KFC did in the UK. It changed its distributor for the supply of fresh chickens into its 900 restaurants because they thought they could save a few bucks. What happened next was a total failure of the delivery chain by the new supplier, causing the shut down of most of its restaurants. It turns our that the supply of chickens is critical to the operation of KFC restaurants. Who knew?

A few weeks later, KFC announced it was returning the contract to their previous supplier, the one that was a bit more expensive, but was reliable.

How often is this scenario repeated in business, people trying to save money, putting their whole business at risk. There is a big difference between cost and price.

It turns out that for most people, the top reason that someone will chose to buy their product or service is that it will do what they want it to do. In fact, people are willing to pay a premium for that greater confidence that you will deliver, than your competitor gives.

However, what many businesses fail to do is make the confidence building a key part of their marketing. This requires a deep understanding of the customer’s need, the impact upon them if the product or service doesn’t meet that need, and clear proof that it will do what you say it will do. This might be independent certification, testimonials or your guarantee.

While I have no inside information on what happened at KFC, and whether the original supplier emphasized their superior reliability, and the risk to KFC of other suppliers with inferior (albeit cheaper) systems, but it’s evident that they didn’t do enough convince the accountants making the decision.

If your product or service is superior but you don’t demonstrate that and the benefit to the client explicitly, the decision will be made on price. This is just one of the factors that will enable you to charge more than your competitors without losing sales.

To learn about other factors, you can listen to an interview with me on How You Can Increase Your Prices when youCLICK HERE.

May You Business Be - As You Plan It!

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Dr Greg Chapman is the Director of Empower Business Solutions and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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Dr. Greg Chapman is also the author of
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