price vs value

The Price Of Everything, The Value Of Nothing.

Gee Ranasinha Marketing

Oscar Wilde is credited with the quote “The cynic knows the price of everything and the value of nothing.

Today, many of us confuse the meaning of the word “value” with the word “price”. Or maybe the word “cost.”

Speak to a group of marketing people (even if it may be something I wouldn’t wish my worst enemy). Ask them what, in their opinion, would be the criteria for something to be perceived by potential buyers as having a high “value for money” rating.

I’d bet most of them would tell you that the product in question needs to either be either:

  • Cheaper than the competition’s offering.
  • Offering “more” than the competition.

Of course in the real world the perception of what constitutes “value” is a lot more subtle, and more subjective. Just by pricing your widgets 25% cheaper than the ones sold by the guy down the street doesn’t mean that everyone’s going to buy your widgets and no-one’s going to buy his. Customers will have their own rationale why they will continue buy from him and not from you.

Perhaps some people value the fact he offers online ordering, or free delivery. Perhaps he puts his widgets in a nicer-looking package than yours. Whatever the reason, some buyers prefer to buy from him, even if he’s more expensive than you. The reason doesn’t have to make sense to you, as long as it makes sense to them.

The fact is, nobody would buy any product or service – at whatever price it was sold at, from whatever business – if they didn’t see the ‘value’ being demonstrated as part of the transaction. Price may be one thing, but value is everything.

Price is what you pay. Value is what you get.

Value has little to do with price. A corkscrew is inexpensive to buy, but if you’re trying to get into a bottle of wine it has immense value. Similarly just because something costs more than its peers doesn’t mean it’s poor value. If it did, nobody would buy an Apple computer, or a BMW automobile, or an IWC watch. Every brand that exists today has ‘value’ to someone. Otherwise the brand would not exist.

The only reason that a product or service absolutely needs to be cheaper, or offer more for less, is when it is deemed to be a commodity. An item can be considered a commodity when it has no other inherent communicable “value” that its market would pay for, other than its price in relation to the competition. For example, I don’t care what brand of paperclips I buy. I’m guessing you probably don’t care much either. If I’m in the market to buy paperclips, I’m simply looking for the best deal.

But the problem with selling a commodity is that there’s always someone, somewhere, who’s prepared to sell it cheaper. With price as your biggest differentiator, you’re in a race to the bottom.

Supermarkets, for example, often work on the loss-leader principle. They’ll sell daily staples, such as milk or bread, for less than it costs to buy them. The goal is to use such low pricing as an enticement to get more customers through the door. Once they’re in, the supermarket is gambling on these customers buying other stuff while they’re in the store. The profits made for the other items offsets the losses made on the bread and milk, evening-out the profit-per-customer statistics.

Commodity Pricing Wrongly Equates “Value” With “Price”

Today, for any small business marketing their products or services, there’s no future in selling something perceived by customers as a commodity. That space has been monopolized by the giant brands. You’re extremely unlikely to win going up against Coca-Cola or Pepsi with your own cola drink, for example, assuming you plan to compete with them head-to-head.

In order to prevent your business value from being commoditized, it’s essential to position your product or service in a way that creates merchantable value in the minds of your audience. Enough value that they’ll pay good money for what you’re selling. Perhaps your cola drink is manufactured locally, your bottling plant is powered by solar energy, or 10% of your profits go to a social cause.

Creating perceived value in a product, company, or service is about creating something bigger than whatever it is you’re selling. It’s about creating a brand. A narrative, position, or cause that customers can accept, appreciate, and (if you’re lucky) align themselves with.

It’s not about “25% extra free.”

About the Author
Avatar for Gee Ranasinha

Gee Ranasinha

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After founding a successful media production firm, Gee became worldwide director of marketing for a European software company. As well as CEO of KEXINO he's an author, lecturer, husband, and father; and one hell of a nice bloke. He lives in a world of his own in Strasbourg, France, tolerated by his wife and young son. Find out more about Gee at https://kexino.com/gee-ranasinha/

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