I just wrote a brief article on the psychology of value vs. price.
The challenge is that businesses & managers still try to predict consumer behavior rather than predict value-assimilation.
It’s more than a just a purchase – think here of the utilitarian principle which says the product or service is of as much value as the job it performs. It’s also riddled with emotional considerations because human being are not monolithic nor are they purely rational. Emotional bases are often the driver for the products we buy and the things we do.
So, what you want to do is “Learn to understand the emotions of the consumer.” This is harder to do because emotions beyond the binary (think here, happy vs sad) are harder to understand & even harder to collect data on. What is the data point for satisfied but unhappy?
The thing about value is that simplistically we tend to think value is price. Not so.
Price the cost of something. Value is the benefit (real or perceived) derived from the thing.
Building a business for value is much more complex. It’s not just about the perpetual rise in revenues, growth in market share or customer share of wallet.
So when looking at the “valuation” of a business, the temptation is to consider only the numeric drivers of the business. But there are deep-seated drivers of value beyond price. One must also consider customer perception of the company and product, brand image, longevity and community engagement amongst others.
So the We Company (& I know because we are a member) are phenomenal at activating their community. How much that’s worth is hard to quantify. What cannot be argued, is seeing your business as a platform rather than a solution is a significant advantage.
I think we are entering an era where for the first time depth of community engagement (notice: not the size of community but depth of engagement) will be the key drivers of a great strategy, budget allocation from finance & ultimately shareholder value.
What about customers that say, “You’re too expensive”?
Beyond commodities or commodities services, expensive is about affordability. Your target client will tell if you are mispriced by choosing a “functionally equal” alternative. The prospect that says “expensive” often cannot afford the product.
Affordability is about the capacity to buy. Mis-priced is about preference to buy.
But consider that, as Conrad Shezi says, value is determined by time & scarcity. The value of a cellphone call 20years ago was far higher & the satisfaction index for more pronounced (even though the technology was poorer) because of the availability or scarcity of the technology as well as the low expectation of the customer.
I had NEVER considered that.
Value is not static hence the “time-value” of something.
If value is benefit perceived & derived, then value is Personal (functional utility); Communal (perception) & time based.
I did an entire masterclass for our VC entrepreneurs on this. The video has since gone viral with requests for similar classes as far afield as India and Cuba. You can watch the video for free here –> How to sell based on value.
Speaker | Investor | Disruptor