On Sacrificing Profit for Value
The Gift That Keeps on Giving
A point companies sometimes fail to realize the importance of is their value to their consumer versus their profit. It may seem that for the survival of the company profit would be the most important metric to stay on top of, but this isn’t necessarily the case.
While profit is important (and without it a company perishes). The often-overlooked metric is value provided to consumers (whether monetary or otherwise).
Having a profit guarantees a company made more money on a product or service than it spent in delivering it.
Providing value to the consumer, on the other hand, is what keeps would-be one-time-buyers coming back over and over again.
There are a number of ways to provide value to customers, some more obvious than others.
An obvious way is simply having a great product and delivering on your marketing promises for this product. An example would be: “Our soap removes coffee stains” on a ad leads to customer purchasing your soap, using it on a coffee stain and having the coffee stain come out. This soap has provided value to the customer by delivering on the marketing promise.
This method of providing value, i.e., delivering what you promise, is extremely important to the success of your business or product.
A less obvious way of providing value exists in the form of seemingly sacrificing profit to deliver value to your customer. I wrote “seemingly” because on a immediate basis you lose (or more specifically, don’t gain) money, but in the long run this method leads to a very happy customer that keeps coming back and may even tell their friends about you.
There are many ways to do this, but I’ll give you a recent example of my own experience as a customer that highlights the points where different companies succeeded and failed.
I was on my way downtown on a long stretch of the freeway. I was driving in the left of four lanes when the engine sputtered and then stalled out. I ended up on the side of the road in the middle of the summer with my car that wouldn’t start.
I pulled out my phone and looked for “BMW mechanic near me” and found Foreign Autohaus about 16 miles away. I called them and told the first person who answered the phone what had happened. He immediately told me what he thought might have gone wrong and that they’d be able to take care of it. I got a tow and headed over there. They did a diagnostic and found that the problem was indeed exactly what they guy had said over the phone (fuel pump).
They got it fixed up and back to me by the next morning. When I went to pick up my car the guy who I had talked to on the phone (turns out he was the service manager and had been fixing cars since he was little) went out to my car with me and told me all different things about it, common problems, the positives and generally made me feel much better about my car and the money I’d just had to spend. He also told me what upcoming maintenance would be needed as well as what it would cost.
A few weeks later I had a question about whether or not my car was running normally. I took it back to Foreign Autohaus. The service manager took a computer out to my car, plugged it in and ran a diagnostic to pull what codes were showing up. He gave me a summary (as it turns out, it was fine, there were a couple of stored codes but nothing that needed immediate attention).
Seemingly, he didn’t gain anything by doing this. In fact, he lost 20 minutes of his time.
However, I drove off that day knowing that he was there for me. Here was somebody who knew what he was talking about, understood my concerns for my car, was able to reassure me and was willing to go out of his way to check if anything was going on.
Needless to say, I brought my car back for every service it needed thereafter.
A while later I sold this car (it was a 2002 BMW 325CI) and got a newer 3 series. This one I bought as a pre-owned vehicle from a Volkswagen dealership. I thought that since Volkswagen had been involved in a multi-billion dollar settlement they’d be inclined to give me great service in an effort to get and keep customers.
A day after I bought the car I noticed that the fuel gauge wasn’t working (it showed as being half full when there was no fuel in it). This is obviously a serious issue since running out of gas can be very dangerous if it happens on the freeway. It’s also not good for your engine when you run the car to empty since all the gunk that inevitably collects at the bottom of your fuel tank ends up getting sucked into the engine and can damage it.
I spent about three weeks trying to get someone at the dealership to help me get this fixed. I was lied to (told someone would call me when they didn’t) more than five times, given the run around and generally not taken care of. After calling the dealership over thirty times and having talked to everyone from the sales manager to the service manager, I got no help. I contacted VW corporate customer support and after a few days of back and forth they said that they had gotten the dealership to accept to pay for half of the repair costs to get the fuel gauge working.
At this point I had decided that it wasn’t worth working with a company like this, so I took my car back to Foreign Autohaus.
They ran diagnostics and found the issue. However, they also found that the issue would be very expensive to repair since it was going to be very labor intensive. The service manager told me to hang tight while he contacted BMW. He got on the phone and five minutes later he gave me a thumbs up. He hung up the phone and told me he had good news. The repair that was needed fell under an extended factory warranty and would be covered 100% by BMW. He told me he was sorry that his shop couldn’t take care of it, that I would have to take it to the dealership and have them do it, but he assured me they would take good care of me.
Here’s the thing, he didn’t have to call BMW; the Volkswagen dealership didn’t. He could have quoted me for the repair and done it that day and gotten the profit. Instead, he referred me to BMW to have it done for free.
Technically he lost out financially that day. In actual practice, however, he further cemented my loyalty by demonstrating that he is there for me and that no matter what, he’s going to provide me with the best value possible.
That is why I keep coming back to him, and why all my friends know where I get my car serviced.
As a note, the BMW dealership did end up taking great care of me, they repaired the issue completely free of charge and even gave me a free car to drive for the three days my car was being worked on (most of the time waiting was simply waiting for the parts to be delivered). Not one minute of these three days did I spend complaining since they gave me a $50,000 car to drive around in the meantime. Also, their service representative checked in on me daily to let me know what the status was. All of these points made me feel like I was important to BMW and that they cared about my experience.
To highlight the lessons in this story:
Foreign Autohaus delivered value to me by doing the following:
- Delivering what was promised (fixing my car)
- Giving me free advice on what to expect with my car in the coming months
- Running a diagnostic on for free to alleviate my concerns
- Going out of their way to get my issue solved for free instead of taking the immediate profit and sacrificing my loyalty
Volkswagen lost out due to:
- Caring only during the sale and dropping the me as soon as profit was made
- Giving me the run around to avoid having to expend time and effort on an issue that wouldn’t make them more money immediately
- Not delivering on their promise (a working car is expected to have a working fuel gauge)
BMW USA gained my loyalty to their brand by doing the following:
- Repairing my car at no charge despite no longer being held by the original owner nor under a standard factory warranty (my particular model fell under a specific extended warranty)
- Giving me a nice car to drive while mine was being fixed (made me feel like a valued customer and gave me the opportunity to show off one of their new models while driving it around)
- Keeping me informed on what was going on while my car was in the shop so I felt cared and reassured
The above was a long example, but I think it breaks down how a company can sacrifice profit by providing value and how this can become the gift that keeps on giving. I think this becomes especially clear when contrasted with a company focused purely on making immediate profit.