What’s more attractive today: Innovation or price?
There’s a debate these days over whether innovation or price is the driver of sales. In the past, innovation has been hailed as the way businesses beat their competition and stayed on top. In the boat business, we touted innovations like new hull designs, advanced power plants, electronic breakthroughs and more. But has this great recession taken us past the time when our business model called for steadily rolling out newer models, always at higher prices? Has price replaced innovation?
There’s no denying for several years now some economists have claimed the “new normal” for consumers is obvious – “It’s the price, stupid!” There has been a major shift in attitudes regarding purchases of big ticket items. Customers are more cautious. Everyone is watching his money. Economic insecurity means customers take a harder look at their options before they buy. And that includes the option of not making a purchase and saving that money for an uncertain future.
In many ways, this great recession has generally led consumers to think big cheap! Price-line imitations are now more acceptable. The Internet has made them easier to find. The old business model of keeping the customer moving up in a line has become obsolete. Cheap has won out. Or has it?
Not necessarily. Another solid view is that the real change is in how we define innovation. Once solely reflecting new features and techno improvements in our boats, engines and service, today innovation must also include how efficiently we produce the products and how we can deliver them to the customer for less. Delivering for less is not because we accept that price has won out, but it’s to meet the value proposition in the mind of the customer. Value is the perception that will drive our sales. There will always be some customers willing to pay a premium price for a premium product. But, that’s a very narrow target market – perhaps narrower than ever before. The broader market demands a good product in the context of today’s value pricing.
So what’s more attractive – innovation or price? Neither. As an industry, we’ll need both to climb out of the current pit. On the manufacturing level, innovation must make the products good enough to deliver what buyers want while eliminating extras they don’t need, all for a price that meets their (not our) definition of value.
At the retail level, we must find more ways to deliver, service and stay with our customers to make certain their experience also meets their value perception. There is an underlying fear that deflation is still a risk. This slows down a customer’s buying decision because he suspects the price might come down more, particularly on big ticket items.
Since customers are protecting their cash, they will clearly choose to delay a big purchase until they become convinced they’ve found the one that genuinely meets their needs. So, creating a solid value proposition in every potential sales interaction has never been harder or more important.