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Two proven pathways to a profoundly profitable business – which will you take?
Think back to when you first started your business. Your aim was simple – you wanted to sell your product or service at the best possible price to as many customers as possible. As your business grows, though, it also becomes important that your customers love what you provide, that they are loyal, returning again and again, and that they recommend your business to others.
However, this can mean that, in your efforts to please and keep your existing customers and grow your customer base, you have added extra complexity to your offering or additional pricing structures and formats. It may be that your product offering now feels overly complicated, and you may struggle to make potential customers understand the value of what you are selling.
It is very important to look at your product or service from the point of view of the customer.
Take a moment to think about this with your team, and then ask yourself this one question:
How do I simplify my price or offering and create a more attractive, emotionally appealing value proposition for my customers?
STOP thinking you can be all things to all people all the time
START simplifying what you do from your customer’s point of view
The one ‘BREAKTHROUGH QUESTION’ you must ask to help yourself…
How do I simplify my price or offering and create a more attractive, emotionally appealing value proposition for my customers?
This question is important because, in order to change, you have to be able to identify what needs changing and how to simplify what you sell so that the pathway to buying your products or services is as straightforward as possible for your customers. Remember – if you choose to do nothing, your competition is waiting to take advantage.
Doing nothing, if you want to have a viable business in the future, is not an option.
It's natural to want to do more, to provide smarter, better products to please your customers and to offer bargain prices in an effort to steal the march on your competition. But in this highly complex, rapidly evolving, ever-changing world in which we live, most customers want to get what they need with as little fuss and effort as possible. Your customers are busy people, but they know what they want. Your job is to prepare an offer that they cannot refuse and which takes little effort for them to purchase.
By simplifying what you and your business do, you can unlock increased sales and profits – just as some of the largest global brands have done.
Think of Amazon – could buying ANYTHING be any easier?
Think of Spotify – could listening to music be simpler?
Think of Uber – could ordering a cab be more straightforward? And how about the flexibility of being able to choose your own driver and car?
Think of IKEA – furniture at affordable prices with instructions that they have worked tirelessly to make as easy to use as possible.
Think of Airbnb – how many of us have booked or know someone who has booked an Airbnb in the last 12 months? And there are Airbnb properties popping up in many towns and villages, making Airbnb the ‘go-to’ app when you think of booking a holiday.
These businesses and many others have transformed their success because they simplified their offer, products or prices for their customers.
If these global giants can do it and do it with staggering success then, surely, it's worth your time and attention to see if you can follow their lead.
Two strategies of simplification – which one should you choose?
“The ordinary way of doing business is not the best way.” – Henry Ford
Price Simplification and Proposition Simplification are concepts discussed in the book Simplify: How the Best Businesses in the World Succeed, by Richard Koch and Greg Lockwood. This book outlines a strategy for achieving business success by simplifying your products or services.
According to Koch and Lockwood, there are 2 strategies – Price Simplification OR Proposition Simplification. Which one of these strategies best suits your business?
1. Price Simplification
Price simplification is the act of offering a simplified pricing structure for your products or services. This means reducing your costs so that you can reduce your pricing options, making it easier for customers to choose your business.
Richard Koch and Greg Lockwood state that “businesses can often benefit from offering a single, straightforward price for their core product or service, rather than confusing customers with a multitude of pricing tiers and options.”
Here are a few of the benefits of price simplification:
- Improved customer understanding – When your customers can easily understand the cost of your product or service, they are more likely to make a purchase.
- Reduced decision fatigue – If you have too many pricing options, offers or structures, it can overwhelm and confuse customers, leading to decision fatigue. When you simplify your pricing you alleviate this issue, making your pricing options simple. Your customer’s decision is made easier.
- Enhanced transparency – Simple pricing options build trust and credibility with your customers. There should never be hidden fees or complex pricing structures. Remember – if you want your customers to refer you to others, your pricing needs to be easy to explain. No one is ever going to listen to a recommendation that starts ‘Well, they are good, but their pricing system is complicated and hard to understand.’
2. Proposition Simplification
Proposition simplification involves simplifying your product or service offering by focusing on what truly matters to your customers. Instead of trying to do everything for everyone, you need to identify and emphasise the core value or benefits that your product or service provides. Your products and services must bring joy to your customers.
Richard Koch and Greg Lockwood state that “Proposition Simplification involves eliminating unnecessary features, options or components that don't align with the core value proposition.”
Here are a few benefits of proposition simplification:
- Enhanced product focus – By concentrating on what matters most to your customers, you can refine your product to better meet their ever-changing needs. Remember – nothing stands still, and focusing more on your product means you can react to any customer or environmental changes quicker than your competitors.
- Improved marketing and messaging – Simplified propositions are easier to communicate and market, making it easier to connect with both your existing and potential customers.
- Cost savings – The natural result of streamlining your product or service is reduced operational and development costs.
In their book, Richard Koch and Greg Lockwood reiterate that “Price and Proposition Simplification mean that by simplifying both your pricing and your offering, you can create a more compelling and accessible value proposition for your customers.”
This approach can lead to increased sales, reduced operational complexity and a stronger market position. The authors of Simplify argue that many of the world's most successful businesses have thrived by simplifying their offerings rather than adding unnecessary complexity, providing a valuable lesson for business leaders looking to achieve sustained success – just like you.
Which strategy are you going to adopt in your business?
The price simplification checklist – learn from Direct Line, IKEA, Southwest Airlines and McDonald's
“We will make electricity so cheap that only the rich will burn candles.” – Thomas Edison
Price simplification is about the science of cutting costs. Implementing this strategy means that you can remove all the ‘bells and whistles’ and could bring costs down by 50% and, in some cases, by as much as 90%.
Think of McDonald’s and the simplicity of their food assembly line, or of IKEA asking you, the customer, to buy flatpack furniture and then do your own assembly.
So how do you simplify the prices in your business?
Simplifying the prices and the costs in your business is not easy – if it was, then everyone would be doing it. Sometimes you will have to go back to the very beginning of the product or service line to look at where the major costs lie.
At this point, you are looking at what you can change to reduce costs or, even better, to eliminate them completely.
It might be something as simple as cutting out one stage of a process, emailing something to customers instead of sending by post or removing a low uptake pricing option. Changing or removing these processes can save costs.
In the beginning, your product and service line will likely have looked a lot simpler than it does now. It is natural that, over time, you have added production processes or additional pricing options. These additions or changes will have been done for the right reason – to please the customer – but they all come at a cost.
If you invest time in carefully analysing the processes of your business and the prices you charge, there will be savings you can make, savings that you can then pass on to your customers.
Price simplification rests on the observation that by dramatically lowering your prices, you will radically increase your volume. Your costs per unit will go down, which will mean that you can continue to lower your prices, leading to growth in your customer base.
This strategy also makes it hard for a competitor to steal the march on you, as they will find it hard to match your prices.
Consider the following checklist (proven patterns of simplification from the book, Simplify) and then see on which of these 9 price simplification ‘keys’ you can focus in your own business. There are great stories here from businesses that have got it right:
Simplify through product redesign
1. Subtract features – This refers to the practice of removing or reducing certain features, options or components of a product or service in order to make it streamlined and cost-effective. Have you ever thought that your products or services may have become overly complex over time, with additional features or options that may not actually be essential for the majority of your customers?
By subtracting these features, you can reduce manufacturing or operational costs and pass the cost reductions on to your customers in the form of lower prices.
For example, when you are buying a desk from IKEA, it’s a monetary transaction. You don’t need to have a lengthy conversation with a salesman or sit at the desk. You understand that you can see the desk in the store, but that you then have to go and get the flatpack version off the shelf and assemble it yourself at home.
What features can you remove from your production process, products or service line to reduce costs and complexity?
2. Reduce variety – This refers to reducing the variety of what you have to offer. Have you ever wondered if your customers are overwhelmed by your product or service lines? This can lead to your customers struggling to make a decision about what they want, potentially reducing the likelihood of them purchasing from your business. When you consolidate your many different products into a few, or even just one, you make the choice for the customer more straightforward.
Could you reduce your number of products or services? Could you get this down to just one?
Starbucks did this with great success in 2008. Before this, they had an extensive menu offering a wide range of drinks, with many customisations. The feedback from customers was that they found this overwhelming – and Starbucks listened.
As part of their price simplification they:
- reduced beverage varieties, focusing on core product winners such as lattes, cappuccinos and flat whites
- standardised recipes for their core products, meaning the baristas could make consistently good drinks
- removed their customisations – making the menu simpler and placing an order easier
- rebranded and repackaged – all Starbucks now look the same and serve the same drinks in the same packaging
- re-priced – as part of the re-branding they applied consistent pricing to one drink, regardless of the milk, flavour or time of year.
This strategy reduced wait times, improved the overall customer experience and meant that customers could navigate the menu faster – meaning that they ordered more. Starbucks boosted efficiency, reduced its costs and had happy customers.
Have a think about what Starbucks did and see if you can apply this to your own business. Make a list of your products and services, including your deals, customisations, holiday season offers and additional pricing offers and see where you can remove or reduce the complexity.
There will be other benefits for your business as well – lower stock, higher stock turns, lower production costs, lower marketing and selling costs and higher product visibility – all as a result of simplification.
3. Add cheap benefits – This refers to the practice of enhancing the perceived value of a product or service by including additional, low-cost features or benefits that can be appealing to your customers without your having to significantly increase the price.
For example, you might offer a basic version of your product at a certain price point and then add cheap benefits to a higher-priced version. These benefits could include things such as extended warranties, free shipping, extra accessories or additional customer support. When you do this, you make the higher-priced option more appealing, even though the cost of providing these extras is nominal.
A good example of this is that, when you buy a car, many garages will offer you an extended warranty, but some will offer you free MOTs, discounted health checks or additional checks in the winter months. The overheads to them are negligible but, for the customer, that peace of mind goes a long way.
Another example is that of a gym membership which includes unlimited classes, a free personal trainer session, free access to a creche or kids club or a discount on swimming lessons. For the gym, the cost of offering these benefits is minimal, but to you, the customer, these small gestures mean a lot.
What can you offer to your customers to increase the value proposition for them at very little cost to your business
Here is another great story from Richard Koch and Greg Lockwood's book, Simplify. This story proves what can happen when you get product redesign right when employing the price simplification strategy:
Image from Shutterstock - 1889546404
Southwest Airlines (story adapted from the book, Simplify, by Richard Koch and Greg Lockwood)
“When I started working on Southwest Airlines, I kid you not, only people flying on business and very wealthy people ever flew.” – Herb Kelleher
Commercial airlines have become more and more complex. The number of routes, class of travel and level of service have only increased this complexity as airlines fight for market share, with many struggling to survive along the way. Before 1971, a mass market for air travel remained elusive.
Herb Kelleher changed all of that when he started the first budget airline, Southwest Airlines.
Southwest started by operating a short triangular route between the Texas cities of Dallas, Houston and San Antonio, but it now flies more passengers within the US than any other airline.
So how did he do it? He simplified the price by totally redesigning the product. Kelleher boldly declared:
“I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-fare airline… once you understand that fact, you can make any decision about this company’s future as well as I can.”
Kelleher simplified Southwest Airlines products in several key ways, including:
- only point-to-point routes
- one class of travel – low cost
- no free refreshments or lounges
- a fleet consisting only of Boeing 737s, which simplified training, scheduling, recruitment and maintenance
- ten-minute turnaround at the gate
- use of smaller, secondary airports which are cheaper and have faster turnaround than the larger ones
- sell directly to customers
His system worked because he was able to lower his prices – leading to full planes and minimal costs.
Basically, Kelleher automated flying.
What can you simplify in your business to bring down your costs and increase your customer base as Kelleher did? Can you automate your market?
Simplify through business system redesign
In Richard Koch and Greg Lockwood’s book, Simplify, they list 5 more keys/steps you can take:
4. Automate – This refers to the practice of standardising a product or service so it can be repeated automatically. This means that you then need fewer resources and can scale easily whilst maintaining the quality of your product or service.
Automation has grown inexorably over the last few decades, but Ford started the automation product redesign way back in 1903.
Henry Ford was a visionary and boldly stated to his partners that “the way to make automobiles is to make one automobile like another automobile, to make them all alike, to make them come out of the factory alike, just like pins come out of a pin factory.”
Every car assembly line in the world now runs with massive automation.
Decades later, McDonald's had the same idea when it came to making burgers and fries.
We are now seeing the rise of automated apps for accounting, betting, ordering a taxi, ordering a takeaway and finding a date – increasing the ease of use for the customer and lowering the costs for the business.
How can you apply automation in your business to cut your costs and enhance the customer experience?
5. Orchestrate – When you are able to pull the strings in your market sector, to seize the high ground and capture most of the customers, you are then able to co-opt independent players into your circle.
IKEA did this brilliantly when it revolutionised the furniture-selling business. Before IKEA, there were small furniture sellers, small transport companies serving them and customers who were not sure where to go to buy the furniture they wanted.
IKEA's success meant that a lot of these smaller businesses were absorbed into the IKEA world, under IKEA's unifying plan, to their great benefit and, most importantly, to the benefit of the consumer.
Can you work with other businesses to reduce your costs and improve customer service?
6. Co-opt customers – This refers to the customer’s understanding that they will pay a lower price but take on some of the functions that used to be performed by your business.
For example, when you choose furniture from IKEA, you enter into an agreement that you are buying something that, in most cases, you have to take home and assemble.
When you go to McDonald’s for a meal, you have to order your food at the counter or kiosk, wait for your food to be made and then clear your table and put your rubbish in the bin. The win for you, the customer, is that the food is fast and cheaper than if you ate at a more formal restaurant.
In both cases, you as the customer know exactly what the agreement is, and you are happy to cooperate because you get to pay a lower price for the product or service.
What functions can be taken on by your customers to enable you to lower your costs and prices?
7. Sell direct – This refers to the practice of selling directly to your customers. This is not a new phenomenon. However, it has been affected by advances in technology and the ‘app’ revolution.
Compare the Market and Just Eat are examples of businesses choosing to sell through another business.
Price simplification through direct selling kicks in when at least 2 of the 3 conditions below apply:
- the middleman is removed
- new tech is utilised
- there is a clever simplifying idea at the heart of the decision
A great example of this would be Direct Line, which bucked the trend taken by many insurance companies and implemented the following:
- direct telephone sales lines – where you can speak to an actual person who works for Direct Line
- no use of brokers or online price comparison websites – so no commission
- easy to understand pricing
- deals for low-risk drivers
- a quick claims process, with extras that a lot of other businesses did not include
- easy-to-use website
Implementing these strategies has meant that, in one of the most competitive markets, Direct Line is still the market leader for car insurance.
Can you beat the competition by selling directly to your customers?
8. Use simpler technology – The simpler you make something to use, the more likely people are to want it – think Apple, Google and Amazon.
You can now order something from Amazon with one click and it will be delivered to your door the following day – how can any other business compete with this? And with Amazon warehouses being built all the time, they aim to have same-day delivery in place within 5 years.
Simplify through Scaling up
9. Go international – This is self-explanatory and, while definitely not for every business, history shows that when you have a product or service that works, it can become a global brand – think Coca-Cola and McDonald’s.
The proposition simplification checklist – learn from Apple, Uber and Airbnb
Proposition simplification is all about the art of delighting customers. When you get this right, you will create a product or service that is a pleasure to use.
Think of Apple or Uber – their absolute priority is to add convenience to the customer's experience. Proposition simplification has nothing to do with cost. In fact, many of the businesses that choose this strategy of simplification charge a premium for their product or service.
We all know that Apple products are not the cheapest, but you are drawn to using their products because of their ease of use.
While the profits and the margins are high if you employ this strategy, you will need to be proactively aware of behaviours, trends, competition and outside forces to ensure you are always one step ahead.
Think about how often Apple is redesigning product lines and launching new phones and new tech. It’s a competitive industry and they have to work hard to stay number one.
Product redesign is probably the most important thing when it comes to proposition simplification. You want your product or service to be a joy to use for your customers, but it must also be:
- Easier to use
- More useful
- More aesthetically pleasing
Image taken from Richard Koch and Greg Lockwood’s book - Simplify
Here is a proposition simplification checklist for you and your team to use when it comes to thinking about how to apply this strategy to great success in your business (checklist taken from the Richard Koch and Greg Lockwood book, Simplify).
Easier to use
1. Eliminate – Eliminate unnecessary features that may confuse your customers and make your product or service harder to use.
“Good design is as little design as possible.” – Dieter Rams
There was no greater proponent of this than Steve Jobs. He made his personal computers, laptops and phones as easy to use as possible by eliminating unnecessary function keys.
2. Make intuitive and easier to use – When you watch a 3-year-old using an iPad or using the Sky remote to find what they want to watch, you know you have designed a great product.
3. Make faster – In 1948, the Polaroid camera was introduced, giving the user instant pictures. Polaroid dominated the market for the next 4 decades, selling 14.3 million cameras in 1978 alone. In a time when you had to take camera film to be developed and then wait several days for your photos to be produced, the fact that you could see your image immediately, something we all take for granted now, was revolutionary.
Image from Shutterstock - 2220180751
4. Make smaller/lighter/more portable – When the Walkman was introduced in 1979, it became an instant hit – music on the move, good quality sound and a smaller, lightweight portable device meant that it was the must-have accessory.
Image from Shutterstock - 1331005952
5. Make easier to get – Spotify, Amazon and Uber have all been winners in this space. Spotify now has 205 million subscribers, giving their listeners instant access to music through their streaming service. Uber makes calling a cab effortless. Using the app, you can choose your car, your driver, your time and location – what could be easier?
More useful
1. Vary performance – Uber does this by allowing you to choose your car.
2. Improve quality – Increase the functionality without any loss in performance. We now all take HDTV for granted, but this has not slowed down the performance of the internet.
3. Add new capabilities – Google and Apple Pay, Face ID and Health and Fitness tracking are all now part of our smartphones, making them the one thing we will not leave home without.
4. Provide wider range – Amazon started as an online store, but they have since added Prime, Music, TV, Echo, Alexa, reading, pharmacy and online shopping through Morrisons. None of these additions have affected the core business model of being able to buy items with one click.
5. Personalise – Netflix has done this with great success. You can add things to a list, yes, but you now get content recommendations and content ordering based on what you have watched. Personalising the service with ‘because you watched this, we thought you would like this’ keeps the customer more engaged.
More aesthetically pleasing
1. Art brings a stronger emotional connection to what you make or do. It’s strange to think that the choices your customers will make will also hinge on how something looks and feels, that there has to be an emotional investment. Steve Jobs understood this – he wanted his Apple brands to feel warm and friendly and to look beautiful.
Apple's products – the iPhone, iPad, MacBook and Apple Watch – are known for their clean and modern design, featuring simple lines, high-quality materials and a focus on minimalism. The company's design philosophy places a strong emphasis on the customer experience, and this extends to the aesthetics of their products.
Even Dyson wanted their vacuum cleaners to look and feel different from the rest of the cleaners on the market. They chose modern designs, transparent chambers and bright colours, and they made them easy to take apart to save space. They continue to lead the market with cordless and handheld devices, all copying the same design and ease of use.
Airbnb is a prime example of a business that has achieved success through proposition simplification. The platform has fundamentally transformed the hospitality and accommodation industry by simplifying the way people book and offer lodging.
Here's the story of Airbnb's proposition simplification:
- Peer-to-peer accommodation – Airbnb's core proposition is the simplicity of connecting travellers with hosts who have spare rooms or properties to rent. For both guests and hosts, the process is simple.
- User-friendly platform – Airbnb has created a user-friendly website and mobile app that make it easy for both hosts and guests to list, search for and book accommodations. The platform's intuitive design simplifies the booking process, making it easy to filter properties based on size, location and availability.
- Transparent pricing – Airbnb has introduced transparent pricing, allowing hosts to set their own rates. Guests can view pricing details, which include any additional fees, before making a reservation. The payment process is also very simple.
- Ratings and reviews – The platform has a rating and review system that builds trust between hosts and guests. Both parties can leave feedback and read about each other's experiences, contributing to a sense of transparency.
- Instant booking – Airbnb has an ‘Instant Book’ feature which allows guests to book accommodation without needing approval from hosts. This feature makes the booking process even easier.
- Host and guest profiles – There are detailed host and guest profiles which provide information about preferences, personalities and expectations, enabling users to make informed decisions and find suitable matches.
- Verification and safety – Airbnb have high verification measures, including identity verification, to enhance safety and build trust within their community.
- Global reach – Airbnb simplified the process of finding lodging around the world. Travellers can book accommodation in various countries with the same account.
- Host earnings and flexibility – Airbnb's proposition for hosts is also simple — they can rent out their extra space and earn extra income whilst retaining control over their property. This proposition attracts a diverse range of hosts, from homeowners with spare rooms to property managers and boutique hotels.
- Local and authentic experience – Airbnb's proposition emphasises the opportunity to experience destinations like a local. Travellers can book accommodation in properties off the beaten track, offering the opportunity for a more authentic and less ‘touristy’ experience.
- Evolving services – Airbnb has expanded its services to include Airbnb Experiences and Airbnb Plus, adding value and simplifying the discovery of unique activities and verified high-quality accommodations.
- Sustainability and responsiveness – Airbnb have committed to promoting sustainable travel and hosts who prioritise eco-friendly practices, addressing the growing demand for responsible tourism.
Through its proposition simplification, Airbnb has revolutionised the way people find and offer accommodation. By connecting travellers with hosts through a straightforward platform, Airbnb has disrupted the traditional hospitality industry, while at the same time creating a community of hosts and guests who value convenience, trust and authentic experiences.
How easy are your products and services to use?
How useful are your products and services?
And are your products and services easy on the eye and nice to use? Do they bring joy to your customers?
If not, make use of the checklist above to re-imagine the way your value proposition looks – from the point of view of your customer.
Think about how you can make your products or services faster, how they could be personalised, how you can add functionality or make them beautiful – all of these things will increase the value of your offering and make the customer’s purchase decision easier.
Remember – car companies have increased sales by simply advertising how nice the car door sounds when you shut it! You are selling the emotional experience, the feeling – not just the product or service.
The book and other resources
Simplify - How the Best Businesses in the World Succeed
Richard Koch and Greg Lockwood
The principle Koch and Lockwood have discovered behind extraordinarily successful businesses is simplifying. Some simplify on price – take Ryanair's budget flights, which still take you from A to B, but so cheaply that nearly everyone can afford them, multiplying the size of their market – and some simplify on proposition, such as Apple's decision to cut down on the number of their product lines and focus on perfecting only a few devices. With case studies of famous companies in all different industries from finance to fast food, the authors show how anyone can analyse their business's potential to become a simplifier and which route they should take to maximise the impact.
What people are saying about this book:
“I’ve read countless business books and attended dozens of business conferences and mastermind groups. But nothing has been as powerful for shaping the vision for my business as Simplify. All ambiguity has disappeared since I learned the Simplify model! True to its name, it’s a very simple model for identifying a clear path for growth, providing a frame in which all other business knowledge and decisions can snap into place.” — Susan Kruger, M.Ed. CEO of SOAR Learning, Inc.
“If you are in any doubt about the value of simplifying your business, read this book. Every time I dip into it, I realise there is more that I can and must do. This book provides you with the tools and inspiration to simplify your business and enjoy success more quickly.” — Nancy Slessenger, founder and CEO of Vinehouse.
Listen to this brief interview with Richard Koch on the process of writing his book. He discusses why simplification is so important to the success of a business and that making things simple for your customers is actually really hard to do. It’s only 3 minutes long, but very interesting.
Watch this video from 3.33 minutes in and listen to Roy Furr describe the power of simplification. He discusses how to simplify a complex thing and make it straightforward for a user to get the most out of it. He discusses how Apple and Google did, and continue to do, this with amazing success. He talks about going to the library and using the card catalogue – how many of us can remember that!
Here is another great review of Richard and Greg’s book, Simplify. Zac, from Kozler Business Solutions, reviews the book and provides an overview of how to create a market-leading business using the star principle.
He will break down the star principle to help you see how you can create a product or service that offers more value than anything else on the market.
Key takeaways from the book include:
- How to create a star business
- What is price simplifying and how do you do it?
- What is proposition simplifying and how do you do it?
- What can you do to offer more value than any other business?
- How applying these principles will help you grow your business
- Examples of businesses who apply these principles
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