A large pig pen sits in the middle of a few hundred acres of farmland. The ground inside the pen is about five inches deep in mud. Lying in the middle of the pen is a crisp, new $100 bill; two women stand on one side of the pen, staring at the money. One is young woman who’s never been on a farm and hates getting dirty. She’s also afraid of large animals like pigs and cows. On the other side of the pen is the owner of the farm, a woman who has poured seven years of her life into raising pigs and loves being around them.
Which of these two women would be more likely to jump over the fence, walk to the center of the pen and pick up the $100 bill? Both women agree on the value of the money — both know it can be traded for $100 worth of products and services. But the desire for that particular bill is going to be far less for a woman who’s afraid of pigs and mud. The perceived cost of walking across the pig pen is simply too high. The owner of the farm probably wouldn’t think twice about it.
Although both women value money, their experiences and feelings affect what they are willing to do to get it.
Different people have different values for the same thing. Value changes from person to person.
This is true in a host of customer situations, and income is not the most critical factor. Some people are willing to spend a much higher percentage of their income on a particular type of product simply because they find it more valuable. Two people who each make $100K a year may feel very differently about cars. One may be willing to spend $75K on a new Mercedes while the other wouldn’t spend more than $20K and prefers to buy something used. It’s not the income that makes the decision, it’s the internal assessment of value.
As a blank page entrepreneur, it’s more important to understand a psychology than a demographic profile. If you have one set of customers that’s willing to pay more for a product you have an opportunity to invest in that group and develop a more devoted customer base.
Creating Value for Different Sets of Customers: Barney’s Beer Barn
Barney’s is the place for beer – every kind in every price range. A sizable portion of the business comes from mass-market beer drinkers: people who pick up a couple of six-packs of a nationally known brand about once a week. But the profit margins on mass-market brew are fairly thin, and competition from local convenience and grocery stores prevents a significant price increase.
However, that wasn’t true for the craft beers Barney carried. Customers for those products were willing to spend quite a bit more for a high-quality, well-crafted beer, and Barney found that they were more likely to become repeat customers if he added new offerings on a regular basis. When he spoke to them he found they were interested in the art of brewing and more willing to try seasonal product lines. His research indicated that they were also more likely to add impulse items to a purchase, like beer steins or high quality snacks.
Barney didn’t want to lose his mass market customers, but he wanted to reach out to the beer connoisseurs and offer them new experiences, adding value to the relationship they had with his store. How could he separate one from the other?
Barney began segregating his customer base at the cash register. He designed vintage printed materials that contained “beer lore” — interesting beer-related trivia and history — and monthly calendars featuring a wide range of events. He instructed his cashiers to place them in the bags of those customers who bought craft beer.
The calendars promoted seasonal beer tastings, chef-sponsored beer and food pairings, and tours to local craft breweries. These events were free or low-cost and designed to attract the attention of those who see beer as a hobby, not just something to drink on the weekend. Barney collected contact information from these customers at each event and began building a database of beer lovers that he could reach out to with new product offers. He also created a section of his website for this new community; a way to let these aficionados communicate with one another. Through their conversations he learned more about them and the kinds of products and services he could offer.