A Tailored Service is the Holy Grail

I buy my newspapers from my village shop. This is a simple transaction where I purchase a commodity at a pre-set price and they make a small profit and have a low profit margin.Something like this:

Purchase Price (£1.00) – Cost to Shop (£0.90) = £0.10 profit or margin of (0.1/0.9) 11%

So they need to sell a lot of papers with such a small margin if they are going to make any real money.

Now if they want to increase their profit and their margin a little they can persuade me to have it delivered, thereby a  adding a standard service (at a nominal price say £0.20) to what was previously a straight forward transaction. The  numbers would now look something like this:

Purchase Price of Paper & Delivery (£1 + £0.20 =£1.20) – Cost to the shop of paper & delivery person (£0.90 + £0.10= £1.00) giving a profit of £0.20 and margin of (£0.20 / £1.00) 20%.

So a transaction plus a fixed service is normally more profitable than just a transaction, but the real money is to be made when you add a tailored service to a standard transaction. If my shop agreed to deliver at a certain time pre-agreed with me I would happily pay extra for this service ( I wake up early so like my paper early!) In this situation the numbers may look like this:

I pay £1.00 for the paper & £0.50 for the tailored service (£1.50) and the shops costs stay the same £1.00, so their profit increases to £0.50 per transaction and their profit margin to 50%. Now that starts to sound a lot more interesting.

So if your company currently just sells widgets at a standard price (& margin), how could you add a service or even better a tailored service to the widget?

Amazon does it with books (think speedy delivery), and many top class restaurants now do it with food (think personal dining).

So the question is what would you customers happily pay you extra for?

1 Comment

  1. Very valid, pithy, sucincct, and on point. WD.

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