Really? Do you take a ruler and measure its length or a beaker to ascertain its volume? It may seem inexplicable, but customer satisfaction is quantifiable.
Willingness to Pay
Let’s pretend that you like cookies. A box of it might be priced (P) at $2.50. And you LOVE cookies. So, are you willing to pay $2.51? What about $2.52? Or $2.53? And so forth … until you reach a point where you’re no longer willing to pay (WTP) for the cookies.
When it comes to microeconomics (the economics that deals with the factors that influence individual decisions, such as those of your customers), there are three items to consider.
- Willingness to Pay (WTP)
- Price [you charge] (P)
- Cost [for you to produce] (C)
WTP – P = Happiness. The difference between your WTP and P is the quantified happiness. For my economics junkies, this is closely correlated with consumer surplus.
P – C = Gross Profit. The difference between your Price and your Cost (COGS or cost of goods sold) is your gross profit (before taxes and other expenses). For my economics junkies, this is closely correlated with producer surplus.
WTP – C = Size of Wedge. To put simply, the bigger it is, the more likely that you will win. Everyone likes to win.
How to Win (Increase the Size of Your Wedge)
To sum it up, the best ways to win are to:
- Increase WTP
- Decrease C
- Increase WTP and Decrease C
The last option is the best option. If you can increase your consumer happiness and reduce your costs at the same time, then everybody wins.
Consumers would be more willing to buy again or share with friends. With lower costs, you have more profit. The next questions are how to increase WTP and lower C.
I will write about these strategies in the next articles. This post is important to help you establish the foundation for what is to come.
I know that I did not get into the formula for how to measure consumer satisfaction. To be honest, it’s very complicated and not worth explaining for our purposes. The takeaway is that you want to reduce C and increase WTP.
- Can You Measure Your Customer Satisfaction?
- Learn to Lower Your Costs (C)
- Increase Your Customers’ Willingness to Pay (WTP)
- Is Inimitability that Important?
- Operational Effectiveness Drives Costs Down
- Why are There Variations in Prices?
Good books also bring me great happiness. They are a large reason for my lack of sleep at night.
In terms of food : authentic Maritime Donairs bring me happiness(you HAVE to get it from Halifax). Non Food: laughing brings me happiness whether it be from myself or hearing others.
Laughter is the best medicine. Love it. No idea what maritime donair is. I did a search and it looks like shawarma. When I visit Halifax, I’ll be sure to try!
My happiness also starts with a C. Coffee! And the conversations that go together with them. Or maybe that’s the other way around. I don’t know. Hahaha. Salamat Lawrence.
Coffee is always a good choice, Jeff. Conversations too. 🙂
I love garlic cheese bread, and bacon. Having either of those things makes me really happy.
All good choices, Jaimie.
My garden of succulents makes me so happy 🙂 looking forward to the next articles!
A garden is a real treat. I miss having one ever since I moved to NYC. Enjoy the fruits of your labor!
spring, the scent of clementines & cucumber, gigs, Instagram, my cat, the market, unexpected snail mail, soap & glory, artisan bread, Tofurious newsletters and much more.
Your cat, Anja, is the cutest. I wish that I could borrow it.
Cookies bring me happiness too :), but I think hanging out with my little one (7-month old son) is pretty wonderful too!
I want to know more about how to reduce those costs!!! Looking forward to the next article 🙂
Enjoy the time with your little one before (s)he grows up, Yana!
Cookies bring me happiness as well. Especially chocolate chip cookies. I noticed how good they look. It brings me happiness when the things I do for people brings them joy and I get to enjoy in it with them. I think that’s why I like wedding photography so much. I hope to travel while doing it. Travelling brings me happiness as well. I love meeting new people.
Stumbled upon this great blog when I googled, how to name photography packages, read some of the articles that always left me to crave for more, then the so convincing testimonials that I was swayed to hit the “Buy Here” button! 🙂 I can’t wait to start reading your e-book. 😀
oh wait, about my happiness, making mochaccinos with melted dark chocolates! 😀
I don’t think I’ve ever had a mochaccino! Have I been missing out, Belle? That’s next on my list.