How can I resolve the dilemma of delivering a value solution versus profit maximisation?
In an attempt to server the customers most, we strive to deliver the best to the customers. However this would mean low or no profit.
Looking at profit maximizing, we will not able to deliver the best to the customer.
How to strike balance to get the most out of the both perspectives?
Both perspectives are not mutually exclusive. Remember that to serve customers the best should always be the top priority. I would cinsider the cost of new business vs client referrals. Seems that service and attaining refferals leads to very sticky business. The money invested in cold advertising may or may not be an added expense that is neccessary.
Compensation to employees should be based of buyin and production. They all need to have an interest in service. That culture surpasses most problems. If you have a very happy client base and very happy employees, it becomes easier to add value added services and new product lines. Maximizing profits at the expense of relationships and quality and service will eventually fail.
A short term view is to maximize profit. If that's important to you you may want to increase pricing or revise your pricing methods. A long term view is to deliver maximum value to customers. If you cannot do this without a negative cash flow in the process you need to revise your business model. Profit is a snap shot of what happened yesterday. Customer value is the way to build your brand image, increase your customer loyalty and, over the long term, grow your business and profitability. Maximizing both customer value and profit a the same time in the short term is not impossible but it can be challenging if you have not set a specific strategic plan for your business.
I agree with many of the comments listed, quality will help driv eyour profits. Focus on do the best and the clients will pay a fair price. If you lose sight of the quality, what will you market?
Make good enough products. Good enough in project management means the best working products possible without any plus, not needed, usually unused features. Take a look at your market and its needs. Do market research. Make a prototype product, do a trial with reduce prices and ask survey questions about the existing and desired features. Based on your customers' answers, develop or change the product, tailor it to your customer needs. In this way, you are not developing a "perfect" product what your customers don't need. You have to be responsive to your customers. A company without good market research and real product development plan can find itself in trouble quite fast. Check out lean and agile project management methods. They will do a world of good for your company.
There should be no trade-off between "the best" service and making money. People will usually pay for better service.
The problem is, if your definition of best is not what customers value. For example, you may make custom products, but customers may really like fast delivery. In this case, best=fastest.
I would talk to a few customers about what they really want and be sure you are best at that--even if it is not really what you think is best (or most fun) to do.
Also, check the competition to be sure your best is as good as theirs.
You need to look at it holistically. Will this client be a long term customer? Are they likely to recommend you to their colleagues?
Interesting comments from everyone. I think it is useful to differentiate between fleeting value vs. compounding value. A product may provide value to someone initially, but when it is consumed or a cheaper/better alternative is available (or the novelty wears off), that value is greatly diminished. To create long-term value for customer/clients/employers, our actions and relationships must compound. So, numbers like churn rate (in customers, but also employees and partners) help to determine whether we are actually adding value and deepening relationships or just moving through a market, one person at a time. To tie this to a calculation, I would set values for the following factors for each product/ service: 1) time-to-value 2) value sensitivity to repeat business 3) price sensitivity to competition (including consumer opting for nothing). I might set them all as percentages, with the denominator for time-to-value being the duration of your business case/estimation period. How you would use them, would likely depend on the industry framework and competition.
Hot Dog Cart: fleeting value
1) time to value: 5 minutes (< 1% of any business case)
2) value sensitivity to repeat business: low...tourist area (<10% repeat business)
3) price sensitivity to competition: high
So, focus on revenue generation...right pricing model: as high as location/competition will allow (little impact from actual value delivery...more towards perceived value (marketing); so a profit maximization approach has little down side here...unless you want to work ethics into your equation :)
Value (quality) delivery/focus: focus on perceived value, as repeat business doesn't matter much
Airplane manufacturer: compounding value
1) time to value: Several months to several years (10-100% of business case)
2) value sensitivity to repeat business: very high (100%)
3) price sensitivity to competition: medium-low (30%)
Pricing...justify pricing by value delivered to customer over life of product/service. Initial high costs may be offset by lower operating costs (potentially including services from the seller).
Focus on Value Creation and creating value that compounds throughout the value chain...creating and sharing knowledge that grows and bind suppliers, customers and OEMs. Build lifelong relationships over complex technology and millions (or even billions) of dollars.
You can't plot these on the same chart, as they are different ways of approaching value exchange...fleeting vs. compounding. The world needs both, but the key is to understand when you are in a transaction and when you are in a relationship.
The fact is that true value leads to good profits all things being equal. The all things being equal bit pertains to the correct infrastructure being in place and that you deliver well.
I would like to take the liberty to ask you a question to answer your question. Why cannot you be able to deliver the best services to the customer on the profit maximizing strategy and platform? What would be the roadblock for maximizing profits for all parties involved that would mean low or no profit? For me to answer this question more information would be needed.
Value is driven by the customer, profit is driven by you, there is no equation that you need to balance, you need to make sure you have value first and then drive your structure cost to make that solution profitable. If your product can only be sold at 12 dollars a piece and there is no possible way to make it for less than 12 then there is no business model (profitable one that is), that is why a product or service should not ever start from cost to drive value but the other way around. You will maximize profit only after you have a solution that delivers value.
Having said that, I would propose that you focus on value and maximize that instead of profit. Here is a nice article about it: http://www.businessinsider.com/lets-stop-maximizing-profit-and-start-maximizing-value-2012-12