Price vs Value
Many years ago, I did some work with a manufacturing client looking at why their sales were not where the Managing Director wanted them to be. The company was very good at what it did and made high quality products, albeit for a relatively small market. It turned out that there were a few reasons why their revenue was down, but a key one was that they simply were not pricing their products correctly. Now what do you think - they were charging too much or too little? From my perspective, given the quality of what they produced and the narrowness of their target market, I did not believe that they were charging enough. In fact, when it comes to pricing, the overwhelming issue I see with those that provide high quality goods or services is that their prices do not adequately reflect the value that they provide. When I suggested this to the MD, he told me flatly that “the market would not accept” the pricing that I had suggested. So I requested him to do two things:
1. Trust me and raise the prices for just the next two months and
2. When it came to a sale, focus first and foremost on the value provided and then discuss pricing subsequently.
He was not keen but reluctantly agreed. I came back two months later to see the on-company sales and found that not one prospective customer had knocked him back on price.
In practice, too many companies focus on price and insufficiently on value. At its core, value is the perceived benefit that a product or service delivers to a customer relative to its cost and this perception is influenced by factors such as quality, functionality, customer experience and brand reputation. This means that to be able to defend its pricing, a company needs to ensure that the marketing that sits behind it focuses on those ‘value add’ factors just mentioned. I am quite certain that you currently buy something that you know you could get cheaper elsewhere, but you are prepared to pay more either because you see greater value, have greater trust in the product or service or perhaps you put significant value on the relationship that you have with the supplier.
In reality, low prices can harm your business since when a prospective customer compares your offering to something similar provided by a competitor and yours is much cheaper, it may raise questions such as “where’s the catch?” or perhaps undermine the authenticity or quality of what you want to sell, i.e. where have the short-cuts been made?
I want to be clear that I am not advocating that things are made much more expensive than they need to be; every business has a right to make a reasonable profit otherwise it may simply not survive. Look at the companies that have the luxury of offering a ‘lowest price guarantee’ – these are all big businesses with deeper pockets, and they can afford to offer lower prices since their size means that they make their money through high volume sales and the ability to negotiate cheaper deals with suppliers. Clearly then for small businesses, trying to compete on price alone is an extremely risky approach and one that should be very carefully considered before entering into.
The power of value in business cannot be overstated. As consumer expectations continue to rise, companies that prioritise value creation will not only survive but flourish. By adopting a customer-centric approach, differentiating through unique and higher value offerings and marketing these differentiators accordingly, businesses can unlock the full potential of value in their operations. Ultimately, it is this relentless focus on value that will build lasting relationships with customers and drive sustainable growth in the long run.
Ian Ash ACC, AInstIB
Managing Director OrgMent Talent Solutions - ianash@ombs.com.au