Do you know what it means price and value? Well, “Price is what you pay; value is what you get”. Surely you've heard the famous quote by millionaire Warren Buffett out there. To understand more about these concepts, see the following article.
If you own a business, surely you must be trying to provide some form of value to your customers. Also, if you've had any success, your customers should be recognizing that value.
The price you charge for your product or service is one of the key business decisions for your company's success. So setting a price too high or too low relative to its value will limit the growth of your business. However, in the worst case scenario, it can cause irreversible damage to your sales and cash flow.
What is the relationship between price and value?
A good balance between price and value of a product or service is by far the most effective investment strategy.
Understanding the differences between these terms is the starting point for pricing a transaction, guiding business strategies and moderating consumer expectations.
There are many cases where a higher price can actually mean better value. For example, when a consumer is looking for a quality product.
High quality raw materials cost more and can translate into a higher final price. In terms of value, however, the consumer benefits more from quality because the product will work better and last longer.
In addition, the quality of customer relationships is another relevant factor when weighing price versus value.
Paying less for a product or service often equates to a lower standard of quality. As such, this can mean greater complaints on social media, greater use of technical assistance, and greater dissatisfaction with company policies in general.
So, if customers feel that the total cost of an item is greater than its benefits, they will regret the purchase. Especially if there is a competitor who is outbid you for a similar product or service. So price is not always an accurate reflection of the consumer experience.
What is the best definition of value?
Value is the balance between the benefits a customer receives from a product and the price they pay for it.
the value needs to be set properly. After all, customers don't just buy because of the low price. They buy to feel good about themselves.
Value-based pricing is used in virtually every industry, to price everything from television sets and drugs to homes and planes.
What are the four types of product values?
- Functional value
It is the value of the solution that your product or service offers to the consumer's problem.
- practical value
It is the monetary value of the product or service. Its durability, quantity, usability, etc.
- social value
The value of consumer social inclusion when buying your product. In other words, it is how owning your product or service interferes with the relationship that the consumer has with society, such as wearing fashionable sneakers or dressing in the same way as their colleagues.
- psychological value
The positive impact that owning your product or consuming your service has on the consumer's life.
Additionally, there are two value-based pricing strategies you can use in your business:
- Value pricing:
This strategy is based on what customers think a product or service is worth, not actual costs. In this way, the value is determined through market testing and a price is set based on that value.
For example, customers will sometimes pay more for a service if it means saving more time to complete a task than a competing service.
- Premium price:
This strategy reflects the prestige, luxury or unique value of the products or services you provide. Typically, when paying a premium price, customers have high expectations for quality, performance, and customer service.
What is the difference in price and value in the Bible?
There is more to the Bible about business than we realize. Many biblical texts shed indirect light on the moral principles of economics without the reader realizing it.
There are over 2.300 Bible verses about money. This includes topics like wealth, possessions, greed, the benefits and harms of money, salary, investments, and more.
Therefore, the biggest lesson about the difference between price and value in the Bible is the story of the 30 pieces of silver contained in the Book of Matthew in the New Testament.
According to Matthew, Judas Iscariot received a payment of thirty pieces of silver to deliver to Jesus. That is, the “price” of Jesus' life was 30 coins, which in current times would be enough to buy a small property. But certainly the value of Jesus' life could not be measured in silver coins.
Another biblical allusion to the relationship between price and value it's in Proverb 20:14, where it says that the customer always complains that the price is too high, but then goes out and brags about the bargain he got.
Why do people confuse the concepts of price and value?
Many people believe that price and value are essentially synonymous. Also, it is common to believe that if your company can offer a quality product at the lowest price, you are offering customers the best value and they will reward that with more sales. But this is not always true.
Companies that offer similar products in three different price ranges tend to report that consumers prefer the mid-range option.
So when people buy products or services, they avoid the extremes (the cheapest and the most expensive) and settle for the middle ground.
Reduce price, value, or both?
A common mistake that every company at some point makes is lowering the price to compete with the competition.
Focusing all your efforts on just a low price to match the competition can even be effective for a short period of time. But by going over the value of the product and focusing only on its price, you will be creating consumers who are dependent on the final value.
The buyer will always expect a low price on all your products and services and will be frustrated if they can't find it. Therefore, customers will motivated to buy just because of a discount they probably don't understand the true value of your product.
Although at first the discounts may seem great to the customer. But it is totally related in the alignment between price and value, with consequences.
When you preach a mentality that the consumer is paying for a superior product to the competition and then lowers the price of that product, you are unconsciously promising less value to your customers or you are decreasing the value of your product in their eyes.
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