Are you constantly worried about your competitors undercutting you in price? Are you unsure of your pricing? If you are frequently adjusting your price to attract your customers, then you’re focused on the wrong thing. In this video you will discover the difference between price and value.
Once you master this value formula, you can finally charge the right price for the value you’re extending – and be confident in that price.
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Prefer to read rather than watch and listen? No problem – here’s everything I said in the video as text:
What I want to cover with you today is the difference between price and value. Now let me share a very quick story with you which happened over the weekend.
I Want To Buy This Toy
I went to a toyshop with my son and we wanted to do a little bit of splurging and indulging. He was looking at a couple of toys and he came up to me and said: “Mama, I want to buy this toy,” which was around £5, and to which I said: ”No, I’m not so sure I want to buy that one for you.” So he moved on and he picked up another toy, this time for £15. After studying the toy a little bit I said: “Let’s go for it. This looks interesting.”
By the time we finished our shopping and we came out of the shop, my son looked confused. He looked at me and he said: “You said no for a toy which was £5 and you actually ended up spending 3 times more. Why’s that? I thought you’d agree for that £5 toy.” A very valid point from an 8-year old. What he was comparing was actually the price of 2 toys. What I was comparing, as a buyer, is actually the value of those 2 toys.
Now, this is where I want you to think it through: what is the actual difference between value and price, because there are so many concepts floating about. People talk about “value for money” and they talk about “extended value to the customers”. I’m sure you are always thinking about these things. So actually what is this value, how would you define this concept?
The Value Formula: Value = Benefits – Cost
What I want you to do is jot this down so that it’s always handy for you to look at. The way I see value is that value is equal to benefits minus cost. Right? Now, you, as a business owner, want to increase the value for your customers. There could be 2 ways or a combination of ways. But let’s keep it simple – 1 way is to actually reduce the cost and the other one is to actually increase the benefits. As soon as you do that, the value for the customer goes up. Now let’s also understand this: this cost, which your customer is incurring, is actually the price that they are paying for your product or service. That’s the cost for them. The benefit is the problem that’s getting solved by using your product or service, or how it actually helps them improve their current situation. That’s the benefit.
Now, what I’ve noticed is that most business owners are generally very keen on increasing the value for their customers, but they generally think about discounting the prices, reducing the prices or making offers, which actually brings the price down. Now that’s not the only way. In fact, it’s a very expensive strategy – a very, very expensive strategy – for the business, which I’ll cover in a different block session other time. What you need to think, as a business owner, is, “How do I increase the benefits for my customers and communicate it loud and clear so that they know that these are the benefits that they’re getting.” In fact, you should be charging the right price for the value that you’re extending. Never ever discount your services or products. That’s not the way you grow your business or increase the value for your customer. They are not interested in the cheapest price.
What they’re interested in is in maximizing value for themselves. That’s the key point that I want you to remember. And one more thing – the price that you charge has some relevance to the material cost, the time and effort that goes into extending that service and product, but that’s not the only thing. What you need to keep in mind is the extent of benefit that you’re providing to your customer. What it means in terms of emotional value, in terms of material value that they are getting out of your services and products. And then you need to set your price. Again pricing strategy and different concepts altogether but keep these bits in mind. They’re very useful when you’re determining your price or how you’re increasing your benefits to communicate value.
So I hope you got some value and some thought for your business to implement. And once again, make sure you look at this value formula very carefully, go back and see how you can increase the value for your customer. And make sure you undertake massive actions for massive results and on that note, I will see you again very soon, take care and have a great business.
If you would like to discuss any of the points covered here, please feel free to request a free call below.