Value Doesn’t Equal Price: Understanding the Consumer Connection

Value Doesn’t Equal Price: Understanding the Consumer Connection

Marketing | Posted by - May 2, 2013 at 8:30 pm

Too often we think that we have to compete on price to win the business. It is important to remember that value is the extent to which customers receive benefits over and above the cost or price paid. Or, in the most simple form:

Value = Benefits / Price

While competing on price is in fact a legitimate strategy, it requires disrupting the status quo and coming up with a new way of doing business: new distribution, new assembly, new raw materials, new delivery model, new markets, etc. Most small businesses can not, do not and probably should not compete on price.

So what are 'benefits'?

To combine an idea from Clay Christensen "Innovator's Dilemma" and sales 101, benefits are the personal outcomes that one gets from a job well done. Products and services are bought to do a job for the customer – tires connect a car to the road to provide transportation; haircuts make us look good; fly rods allow us to catch fish. Since we have alternatives for all of those things, why do we choose one option over another? What connection did we make with a business to give them our money?

They typically make a connection - 'they understand me.'

Benefits are why those things are important to us as individuals. And any business, small or large, new or established, service or product oriented needs to understand the ultimate outcome: safety for tires, self-esteem for haircuts, and relaxation for fly-fishing.

To the extent that you can satisfy emotional needs and express them in a way that resonates with your customers, the more value you provide.

Anthony Power is a marketing technologist with the goal of helping clients get their products in a prospect's consideration set. His current focus is on understanding how content works and impacts choice.

Tags: marketing, content, anthony power, benefit, consumer, emotional, price, products, unafraid, value

Lisa Larter
May 7, 2013 at 10:49 pm

Love this. I am teaching a course right now and one of the topics is pricing and how to see the value in what you do.  Someone recently asked me "I want to do a coaching program and its x number of sessions, how much should I charge?" My response is always, what is the value you are offering? What is the benefit your client walks away with.  My fundamental belief is the value associated with price is also about the value we place on ourselves.  If we believe we are "worth" the investment we will spent, however the seller usually thinks that it is tied to them resulting in their inability to actually sell, communicate and offer value. 

Brands seem to forget this magic equation Value = Benefits / Price

Pedro Arango
June 24, 2013 at 3:26 pm

It would be so convenient to be able to attach a numerical value to Benefits thus obtaining a number as the final result as well. But Benefits has such an important subjective component that...good luck with that :)

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