The Meat Market

Ah-ha Moment

Mrs. Smith was very excited as tonight she was going to be able to use her new kitchen for the first time. Just yesterday she had finished unpacking from their move to this quaint rural town from the big city. She ventured into town and found a interesting little market. She was surprised that behind the meat counter there were only two trays of ground beef and they looked oddly the same.

“What is the price of that meat?” she asked the butcher as she pointed to the tray on the left.

“Its three dollars a pound,” the Butcher replied.

“And what about the other?” she inquired as she pointed to the tray on the right.

“That tray is five dollars a pound,” the butcher informed her.

“Wow, they look the same,” she said in amazement. “What’s the difference between the two trays?”

“Nobody’s ever asked before,” said the butcher.

“They are exactly the same.”

“Then why is one $2 more per pound?”

Why do you think the two trays are different amount? Scroll down to see the real reason.

“That’s easy. Some people like meat that costs three dollars a pound and some people like meat that cost five dollars a pound. My job is to give them what they want.”

This anecdote is not about ripping off customers. It is about making sure you are giving the customer what they perceive as value. Mark-ups are arbitrary and vary by industry. Food items are typically low grossing while jewelry normally has a high mark-up. In reality it is up to each retailer to find the items and retails that will cause customers to drive by your competitors and purchase from you. Because of the difference in profit margins by supply sector, a value proposition is being offered by retailers in the sector by staying within the margins for their sector, say food for example, while adding to low margins by carrying higher margin products in a different sector.

Another value proposition is selection. One retailer may sell a high volume of limited products in each category while another sells a breadth of item in each category. This is the difference between companies like Aldi, the grocer that offers low prices but only one brand of each type of product, thereby using buying power to get lower costs on the single brand, and big boxes. Bed, Bath, and Beyond does not have to compete on price because their customer sees value in the ability to go to one store and find a wide variety of products in each category.

A third type of value proposition is the created by giving the consumer the idea you have something your competitors do not. In the 1980s Walmart was a master at creating an image to a patriotic country that they sold more American made products than their rivals. Target has successfully competed with Walmart by telling their faithful that Target is the best place to come for the latest styles in clothing and furnishings. Other value proposition schemes exist beyond these three. Whether differentiating because of price, selection, trendiness, customer service, location, or some other distinguishing characteristic every successful business has found a way to keep price at bay as the final deciding factor with their customer.

Life Lesson:: people have their own perception of value. Give the customer what they want, but honestly.