My last company, author Tim Ferriss, and countless others tell us to capture the most value from each customer.
And let’s be real: value = dollars.
Perhaps I’m a communist (false) but I never thought it made sense to extract maximum cash from every client. For a while this feeling didn’t sit right (I’m a capitalist), but I recently figured it out. I think.
When consumers buy a product, one of two sentiments follows: “buyer’s remorse” or “customer satisfaction.”
One time I bought 5lbs of Muscle Milk for $45 and smiled all the way home. I wasn’t just satisfied; I was delighted. So thrilled that I’m also sharing where I got it and how great it tasted. Then last week I spent $10 at a nationally recognized taco spot and am too embarrassed to talk about it.
Let’s look under the hood.
The first vendor (Vitamin Shoppe) captured only a fraction of the value I received from the sale, while the second (unnamed) vendor captured all [or more] of it.
Economics tells us the second vendor is better because they maximized profitability. The elasticity corollary is 1.0 and my supply/demand line graph has been intersected.
Problem is, I’ll never buy from them again. Which makes me think…
The only customer worth having is a repeating one.
One point for Vendor #1.
Now a step further.
What can be done about the value capture (money) that Vitamin Shoppe left “on the table?” I admitted to enjoying the $45 price point… couldn’t they have charged me $60? Absolutely.
But then you wouldn’t hear about it. The transaction would be characterized by full value capture, and that’s not worth talking about. Which makes me think…
Customer delight = the Δ (difference) between what I pay for something, and what I’m willing to pay.
The $15 I “saved” on protein powder – the $15 Vitamin Shoppe did not capture from my AmEx card – is now being captured indirectly by my relentless promotion on this blog post.
And that’s worth something. Which makes me think…
The potential of word of mouth = the realization of customer delight.
So make your customers happy.
Let them think they got a “great deal.” They’ll tell friends about you. They’ll pass off your restaurant as a “hole-in-the-wall BBQ spot with great prices that nobody knows about.”
And then everybody will know about you. And you will have more customers. And those customers will be repeating ones. And they will love you.
That’s worth a heck of a lot more than $15. Don’t ya think?