Why are people willing to pay a premium for one product over another, when the products appear to be the same or similar in quality? Despite threats of a nasty recession and shrinking profits as a result of a global health crisis, some companies are holding on to their customers, maintaining their prices and even gaining ground. What's the key difference between contraction and expansion?
When I started my public speaking practice, I wanted to do more than just read off a densely packed series of powerpoint slides. I wanted to demonstrate an idea, not just talk about it. To make my point, I used props: I sent two bags of coffee beans through the room and asked each person to take a bean from each. One was from Starbucks with super-fancy descriptions on the bag and the other a "no-name" brand in a plain yellow bag with even plainer descriptions.
Context is a more significant driver of value than content.
The exercise was simple. "Study the beans and, using only information available from your five senses, pick your favorite bean." When I asked for a show of hands, 75% of my audiences consistently picked Starbucks. I asked people from each group to stand up and share their rationales for picking one over the other. The vast majority of people described things that had nothing to do with genuinely observable qualities of the beans themselves. If they voted for the no-name brand they referred to ideas like "not wasting money"; if referring to the world's largest coffee franchise, ideas like "passion and richness" came up. They were invoking imputed brand statements.
I woke up late on the morning I was set to deliver a breakfast keynote to a large group of "entrepreneurial" accountants. I went to the freezer to grab my two bags of beans and was horrified to discover that Tania had ground up all but two of my Starbucks beans. I didn't have enough time to stop and buy another bag so I dumped half the no name beans into the Starbucks bag and did the exercise as always. After they finished counting the beans, 75% picked Starbucks as usual, spouting the same litany of pro-brand attributes.
Starbucks pioneered the now-common idea of spending $5 on a daily latte. They invented an incredibly valuable recurring revenue model generating enormous contribution margins. I once calculated the material cost of the beverage at less than 50¢. Why do people seem quite happy to pay a premium? It's not the machines or the beans, milk and flavorings. There's something more.
More profit comes from emotional sources than technical sources.
LiveCa is a group of entrepreneurial accountants pioneering the remote CPA model as an alternative to traditional accounting services. They have become the largest such firm in Canada, with clients and staff distributed between New Foundland and Vancouver Island. They have figured out how to use technology and innovation to make the traditional approach to tax and reporting compliance much more efficient and adaptable to the specific needs of both the people delivering and receiving the services.
Traditional accounting services meet the definition of a commodity. The "coffee beans" are the bookkeeping and other compliance services that need to be done accurately and on-time. The professional association polices this idea of accurately and on-time such that they can assure that every CPA is interchangeable and operating against a common, high standard. The accounting entrepreneurs at LiveCA are figuring out how to layer on business advisory and coaching support to their compliance work, to make their equivalent of a $5 latte.
The key difference between a five dollar latte and half a buck of materials at Starbucks is the same difference between accountants that just count the beans and LiveCA. It's a brand promise. Starbucks understood that what they were really selling is an experience and a community to be a part of. The experiential and relational qualities of the business, that had nothing really to do with coffee, explains more of the 90% contribution margin than the contents. The same goes for LiveCA.
Experiential and relational values account for the profit above the commodity.
The world has changed, so should your accountant. Businesses around the world have discovered the unique value of utilizing remote service models. The people at LiveCA are not better accountants than other accountants, but they have figured out how to solve the real problem that fast moving growth businesses are facing as they scale their businesses. The entrepreneurs who hire LiveCA get an entire back office solution for less than what they'd have to pay a single employee. If the accounting services are the beans, a mix of trusted advice and business therapy is the secret ingredient making for a tasty latte.