The Funding Mechanism Of Business

Every manager and most customers acknowledge that there isn’t any such thing as free lunch. Quality comes with a price, and that cost has to be covered eventually. If a product is tangible, the method for financing its superior performance is generally a fairly straightforward cost: the price. Only customers who pay the cash will be able to benefit from the top product. If you are a service provider finding a method to pay for excellence could be more difficult.

In many cases, pricing is not transaction-based but rather the bundling of several value components or the use of a subscription model like the monthly cost. In these situations, buyers can get different levels of value from their dollars. Even non-buyers can benefit from certain types of services. For instance, a customer may learn about a well-informed salesperson but then leave empty-handed.

When it comes to a service-based company, managers should be aware of how excellence is paid for. There must be a financial system that allows the business to stand out from its competitors with the qualities it has decided to pursue.

Make the payment in a manner that is pleasant to the customer.

The traditional method for funding an item of value is to have the buyer pay for it. However, typically, it is possible to modify the payment method to be less enticing to consumers. It is rare to do this with the option of a la carte pricing for the extras. One of the major reasons Starbucks has appeal is that one can sit for hours in a cafe. It’s not likely that Starbucks would put meters near its overstuffed chairs. A better method to finance the ambiance would be to increase the price of coffee. Commerce Bank is open late and on weekends–getting high marks for its extended hours. And it makes money for it by offering a half-point fewer rates on its deposits. Could it pay for the additional work hours by charging weekends and evening visits? Maybe, but a lower interest rate would be more appealing. In any business, management should be able to think creatively and look at what seems right to its clients. The most common option is to charge more for the particular service feature that you’re paying for.

Find a way to create a win-win for efficiency savings and value-added services.

Highly intelligent management teams find ways to improve the customer experience while also spending less (finding the other way around, namely that there is a possibility that there could be an opportunity for complimentary lunch). Many of these ideas give only a brief competitive advantage because they are easily recognized and copied. Some are extremely resilient, however. One example is the immediate response service offered through Progressive Casualty Insurance. Suppose a person is insured with Progressive experiences an auto collision. In that case, The company immediately dispatches a van to assist the victim and immediately evaluate the damage, usually arriving at the scene before the police or tow trucks arrive. Customers appreciate this speedy response and give Progressive high praise for its customer service.

In the event of an eventuality, will they be willing to pay higher insurance rates? Unfortunately, no. People are extremely price-sensitive regarding car insurance. They rarely choose anything other than the lowest price. Progressive can provide its insurance program primarily because of the savings that it eventually generates. Insurance companies are typically subject to fraud, and criminals can make claims for incidents that were made up or never actually occurred. Because of this and other disputable claims, companies also have to pay large legal fees. This, along with other expenses associated with fraud, amounts to around $15 of each $100 of insurance premiums. Since the introduction of its vans, Progressive has seen costs in both areas drop. A company representative who travels to the scene can pay for itself.