Price & value

This is the famous quote from American investor Warren Buffett from 2008.  It’s a principal that guides his investment choices which has led to good levels of profitability. However, it can be applied, not just to investments, but to any business providing a product or service.  

Knowing the difference between price, cost and value can increase profitability. Many see them as the same thing, however:

  • the cost of a product or service is the amount you spend to make it
  • the price is the amount you receive for providing the product or service
  • the value is what your customer believes the product or service is worth to them.

For example, the cost for a plumber to fix a burst pipe at a customer’s home may be £5 for travel, materials costing £3 and an hour’s labour at £15. However, the value of the service to the customer is far greater than the £23 cost. The service may have prevented damage caused by a leak. The plumber may choose to base his price on value, instead of cost, and charge the customer £50.

The cost and the price of a product will be set by a business, however the value is arbitrary and depends on market forces. A number of factors will influence the value of a product or service.

Characteristics of Value

  1. Value varies from person to person

For example: For a person suffering from poor eyesight, glasses are invaluable, but if a person’s eyesight is perfect, the value of glasses to him would be zero. So value is dependent on the need and usefulness to the person, at a certain point in time.

  1. Value varies from time to time

For example: The value of a book for a student before the exams is greater in comparison to the value of the same book, after passing the exam.

  1. Value is dependent on supply and demand

For example: Suppose there is a house for sale in a desirable area. It has a lot of interest, which reflects its demand. As the supply is less, and demand is more, the value would be high.

  1. Differs from one place to another

For example: The value of warm clothes will be higher in cold areas, as compared to a tropical area.

How businesses can provide value

There are several steps you can take to provide perceived value to customers:

  • Transparency – show exactly how your products are made so that customers know they are getting good quality.
  • Outstanding customer service – listen to your customers and ask for feedback.  If they feel valued, they will perceive your products or services as having a higher value. 80% of customers state that a positive customer experience is just as important as a company’s products or services.
  • Assess the competition – what are they providing and how can you do it better? Nowadays, almost all customers do some kind of comparison research before making a purchase. So if you can offer any benefits that your competitors don’t, it makes it much easier to demonstrate value because you know what customers need and what others are offering.
  • Display customer testimonials – people give the word of others a much greater weight than just going by what you say.
  • Create an online community – where customers can interact with you and other customers. This will show you value them as customers and will therefore make them perceive value in their VIP status.
  • Become an authority in your field – if you create and share content that customers find useful they will begin to see you as an expert to be trusted.  This will add value to your products or services.

Value doesn’t necessarily mean cheap although the terms are often used to mean the same thing. Often something is perceived to have greater value the more it costs. And there is often some truth in this.  We like to feel that we are getting good value for money when we make a purchase. But buying low cost items doesn’t necessarily mean good value if they break or wear out within a year and need to be replaced. It’s actually better value to spend a bit more on something that will last longer.  

An example of this is Quadrant2Design. Their exhibition stands are not the cheapest on the market. But by paying a bit more you can be sure you’ll get a product that will last much longer than a cheaper alternative. In addition to that, the company offers greater value in its customer service, being there for the customer at every stage of the exhibiting process. So they provide more value than a company offering cheap, flimsy stands that they source elsewhere and providing no customer service.  Quadrant2Design handle everything in house so you can be sure that you’re getting a quality product.  

Consider reading: Visualizing Financial Concepts in the Complex Plane

But a higher price doesn’t always equate to better quality and therefore better value. Some expensive clothing labels sell clothes that last no longer than their cheaper alternatives. You are paying for the label which doesn’t necessarily mean better value. That’s why it is a good idea to research a company thoroughly to establish if what they are supplying is of a quality that matches its price.

Cost, price and value are often perceived as the same thing, but differentiating them can bring you better profitability. Providing value to your customers will bring greater satisfaction and loyalty, and ultimately lead to more customers through word-of-mouth. 


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