Like most people, your understanding and approach to marketing is probably based on the fundamental idea that the purpose of business is to maximize profit, where profit is the difference between price and cost (price - cost = profit).
To maximize business profit, we have to either lower our costs or increase our prices.
This all sounds logical, except that it leads us to hyper focus on improving our businesses’ ability to make money, instead of our ability to best serve our customers.
Although, in theory, these two things are the same, they rarely are in practice.
In pursuit of maximizing business profit, we often make decisions that are best for the company and not the customers. We often prioritize short term gains over long term growth, which hinders our ability to make sound decisions.
Purpose is a powerful thing because it dictates our focus. And wherever attention goes, energy flows. So what if the purpose of business was fundamentally to enhance the human experience; to improve the lives of those we seek to serve? And what if our goal was not to maximize our companies’ profit, but our customers' profit instead?
From this vantage point, profit becomes the difference between the benefits of our products or services, and the cost of acquiring them (benefits - costs = customer profit).
So to increase customer profit, we have to either increase the benefits for our customers or lower their acquisition costs.
Increase Customer Benefits
Generally speaking, customers have three sets of needs: functional, transactional and aspirational.
Take the car industry as an example. Some customers are very pragmatic about cars. They see them as a means to get from point A to point B as efficiently and as safely as possible. These customers are seeking the functional benefits of a car.
Some hate the car dealership experience so much that they are willing to buy their car online. They would rather buy a car from a stranger's lawn to save themselves the hassle and hustle of going to a dealership. Their most important needs are transactional.
For others, their car is an opportunity to uphold and share a belief. For example, their care for the environment might lead them to buy an electric car like a Prius or a Tesla. Others who care most about status may buy a Ferrari or a Porsche. These people are all seeking the aspirational benefits those cars provide.
Increasing customer benefits may mean improving the quality of our products by adding features, but it could also mean adding benefits not directly tied to the products’ performance, like convenience. It may also require that we focus disportionately on a set of needs, the way a luxury brand like Ferrari has.
Now that you understand the benefits customers are seeking, let's talk about the costs of acquiring those benefits.
Lower Customer Costs
When we look at profit from our customers' vantage point (benefits - costs = profit), we realize that it costs them more than just money to buy from us.
It also costs them attention, time, physical and mental energy to research, evaluate us against all other options and, finally, to buy from us. And perhaps the biggest cost of all is the psychological and emotional stress from the risk and uncertainty associated with purchasing decisions.
There's also what economists call opportunity cost, which represents all the things customers could do with their attention, time, energy and money if they were not spending it on us.
As human beings, we are wired to prioritize pain avoidance over pleasure seeking, which means that the fear of making the wrong decision is often more powerful than the anticipated satisfaction.
So it’s important to figure out the many ways we can lower customers’ costs.
Warby Parker's app where people can "try on" their glasses before committing is a wonderful cost-cutting measure. Trials, samples and money-back guarantees lower the risk and uncertainty of buying from us. Reviews and testimonials increase customers’ confidence in their purchasing decisions.
Lowering our prices isn't the only way to lower our customers’ costs. Anything we do to save them time, increase convenience, minimize the risks of buyer’s remorse, or boost confidence in their purchasing decision, lowers their costs and thus increases profit.
The shift from business to customer profit seems counterintuitive until you realize that the two of the most valuable brands ever, Amazon and Apple, are the two most customer-centric companies in the world.
