What is collateral value and more to the point, why is it important? It’s easier to understand this concept by contrasting it with direct value. Direct value is what your customers actually pay for. Collateral value is what happens around the transaction.
When you get new tires on your vehicle you pay for the tires and the technician’s time to install them. That’s direct value. What you don’t directly pay for is the expert advice or the friendliness of the staff. You also don’t directly pay for the nicely laid out showroom with a good selection of tires on display. That’s an example of collateral value.
It’s important to define the concept because the small business world is naturally competitive on the direct value front. There is always somebody, somewhere who does what you do. To compete and win business on direct value alone you have to provide more for less. That erodes your profits – unless you have a structural cost advantage over your competition.
I know a real estate agent who has built a very profitable career. He makes everyone he meets feel important by giving them his full attention. It doesn’t matter where it’s at, a restaurant, a golf course or at a community meeting. That’s his collateral value. He rarely talks about real estate unless you bring it up, but when people need real estate advice they regularly go to him first. It works.
All companies should be designed to profitably deliver value. Collateral value is a critical piece of the puzzle. It shouldn’t be thought of as a Unique Selling Proposition (USP). It’s not necessary to be different. In fact a research and duplicate strategy often works very well.
A good first step in developing a solid collateral value package is to look around at companies who are profitable and doing well. Compare their collateral value to their competitors’ offerings. It will be an interesting experiment. At their competitors you’ll likely see examples of things that customers devalue as well.
It’s not always about raising the bar on service and doing more and more for your customers. It’s about recognizing what they really appreciate. Starbucks is a good example of this. In some respects going to Starbucks is like going to a cafeteria. In other respects it’s a high level service. They make your drink exactly the way you want it.
One of the benefits of developing a collateral value package is that it helps to maintain your company standards as you grow. This can be one of the most challenging aspects of building a successful company. Many entrepreneurs struggle when it comes to having their employees consistently treat their customers well. Defining your collateral value is the foundation for a straightforward strategy.
When it’s well thought out and written down it becomes much easier to train your staff going forward. It’s a great idea to include a bit of direct value as along with your collateral value and wrap it into a short Company Promise that every employee is expected to keep, with every customer, every single time.
The concept is simple for each new employee: they are expected to deliver the collateral value and keep your company promise. If they’re not prepared to keep the promise then they’re not prepared to work here. When they take the job they knowingly accept that standard.
There is some training involved. A baseball coach doesn’t show the players the correct way to field a grounder – once – at the first practice and then expect perfection for the rest of the season. That doesn’t work and either does a boss saying “I already told them that.” Funny thing though, I can’t begin to count the number of times I’ve heard bosses say that.
Don’t get me wrong, good direct value is must, but given the hyper-competitive nature of most small business environments it’s the companies who also deliver great collateral value that typically rise to the top. It’s a substantial competitive advantage.
These companies are normally more profitable because they don’t feel the same pressure to compete on price. This gives the entrepreneur the financial resources to build the company they really want to own. Isn’t that what we all want?
Interestingly, there’s often a good selection of collateral value ideas that are free or inexpensive to implement. In auto repair it might be positioning the service advisor so they can see vehicles arriving and then training them to tap the license plates into the computer so returning clients are greeted by name. It could also be vacuuming the interior and wiping the dash clean before returning the vehicles to customers.
The concept of delivering strong collateral value brings new energy into companies and increased profits aren’t far behind.
– John Cameron is a professional business coach based in Langley BC, Canada. He is the author of ROCK SOLID – How to Strengthen Your Company (CLICK HERE to get your copy) and the developer of the innovative Company Strength Program (learn more about it here). For more on improving your profits, CLICK HERE.
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