Value
is not the same as cost.
In fact, a product's value is almost never equal to
its cost.
For example, your product might cost you $2 and you sell it for $10. The value
to you is $10.
The value to the customer will usually be more than the selling
price. If it was only worth $10 to the customer then they have no motivation to
buy. But if the value to them is greater than the selling price, they are
motivated to trade their money for something of greater value. It may be worth
$30 to the customer. Then they will gladly give up $10 of their money for the
product. The greater the difference between the perceived value and the cost of
the purchase, the more the customer will want to do business with you.
Always
provide value that is greater than the price they pay.
The
Value Formula
Take
a look at the following formula, then see where you need to concentrate your
efforts to create value. Every product and service can be described this way.
Total
value = real value + perceived value
Let’s
take it apart to understand it. Real value comprises the
tangibles. It is relatively easy to measure. Real value can be expressed in
this manner:
Real
value = function/cost
Function is what the product or service does in mechanical or analytical terms. How much
money does it save you or make for you?
Imagine
you are buying a new car. If you want to get the best real
value, you would get the most function (efficient ground transportation) for the lowest cost.
You
could measure the car's function factor by comparing it with
the cost of your practical alternatives: public transit, car pooling,
taxi, bicycle, limousine, various car models. You might wish to consider the
costs of these alternatives in terms of time and inconvenience. What does your
new car give you that these other modes of transportation don't?
Having
determined the new car's function factor, you can divide it by its cost. Is its
function worth more to you than its cost? If so, the new car has real
value.
At
the end of your analysis you would buy the cheapest car. Right? Not
necessarily.
Remember that what you are willing to pay for your car is based on
the total value to you, which is a factor of both real and perceived value.
So, sometimes
without realizing it, you assign value to less quantifiable benefits and buy
something that you like.
Liking is not part
of real value, it is part of a product's perceived
value.
What is Perceived Value?
Compared
with real value, perceived value is harder to measure. It is influenced by
emotion, image, and other intangibles - all the benefits you should
emphasize in your marketing efforts.
Perceived
values are not bad - they are a reality. As long as we are individuals we
will think differently, perceive differently, and place different values on
things.
Beware
of that. Use it to your advantage. When your prospect wants to negotiate price,
remember to build up your product's perceived value.
By
the way, always deliver real value too.
George Torok
Keynote Marketing Speaker
Co-author of Secrets of Power Marketing
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