Thursday, December 15, 2005

Create Value

The consumer price index (CPI) is a measure of the average change in prices over time in a fixed market of goods and services typically purchased by consumers. It covers about 80% of the nation's population.

A recent news article stated that the November 2005 CPI dropped more than any other month during the past 56 years. That's good news for consumers. You are paying less now for stuff than you were in October. But, is it good news for a business?

Not if your business operates as a commodity. A commodity has no specific advantage other than cheap prices. Look at the nation's commodity markets. Traders pay more or less for a good based on its expected price increase or decrease. Nothing else is analyzed except price fluctuation.

A business was not designed to operate solely on price. This has become the norm because business owners forgot how to compete. It was easier being cheaper than the other guy. Times are changing. A business needs more than just a low price today. A business now needs to offer something that provides value to the customer. A business is destined to fail if no value is created by the purchase of its goods or services. You can't always be the cheapest, but you can always be the best at something.

Need an example? Would you rather pay $350 per night for a room at the Ritz-Carlton in Manhattan, or would you rather pay $90 for a room at the Howard Johnson in Manhattan?

There's a lot of people that would select the HoJo. However, there's just as many people that would select the Ritz. It's called a market. A market has supply and it has demand. In this case, a cheap hotel has a demand. So does a hotel that provides you with unbelievable views, plush rooms, and tons of amenities.

A business can't serve everybody. Some people want you, others don't. Start creating value out of your goods or services. If you build it, they will come.

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