Why price and value must co-exist…
The most important thing in pricing is value. This is not the value as you determine it, or but rather the value as perceived by the customer. The price a customer is willing to pay, and therefore the price you can achieve, is always a reflection of the perceived value of the product or service in the customer’s eyes.
There is a relationship between price and value which the Romans understood; in Latin the word “pretium” means both price and value. Literally speaking, price and value are one and the same. This is a good guideline for businesses to follow when they make their price decisions in that you need to:
- Create value: how your product or service is designed, made and performs all drive the value that customers perceive. Innovation also plays an important role as it focuses on creating, unlocking or delivering customer value that was not previously available to them before.
- Communicate value: This is how you influence your customers’ perception. It includes how you describe the product, your value proposition, and your brand. Value communication also covers packaging, product performance, and shelf or online placement.
- Retain value: Your customers’ expectations as to how the value will last post-purchase will have a significant influence on a customer’s willingness to pay for luxury goods, consumer durables, and cars.
There are a couple of illustrative quotes regarding price and value. Firstly, the French have a saying, “le prix s’oublie, la qualité reste.” Loosely translated, that means that the quality you bought endures long after you have forgotten the price.
“That is the worst and yet easiest error. Better be cheated in the price than in the quality of goods.” (Baltasar Gracian, 1601-1658)
The point here is that price is quickly forgotten, while quality, good or bad, stays with us. So when you create a product or service is when you begin your planning on how and what to price it as. Make sure you create, communicate and retain value which is perceived by customer as valuable to encourage their willingness to pay.
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