Price vs value

Today's post is inspired by this quote from Warren Buffett:

So, what are some of the differences between price and value, and what do they mean?

Here's one equation relating price and value:


The key here is perceived benefits...that is what the customer thinks are the benefits.

There are two ways of increasing value...you can increase the perceived benefits or reduce the price. I think it's much better to increase the perceived benefits than to decrease the price. It's hard to win a price war!

Here's another equation on perceived value:

I haven't been able to find a whole lot more about this, but I can tell you basically what it means...the capital E looking thingy is the Greek letter sigma, which means to add and in this case for each attribute, i, it's adding the value of the individual attributes, b, times the importance of that attribute, a. But the importance depends on the customer...one attribute may be crucial to one customer's buying decision but may mean nothing to another; and then dividing that sum by the price.

But how can we use this to increase the perceived value of our product or service? By emphasizing the attribute or attributes that are most important to our ideal customers...this is where the importance of customer avatars comes in. If you sell widgets, and your widgets are exactly the same as everyone else's widgets, you can still come out ahead by emphasizing those important features and benefits. I talked about the difference between features and benefits here but both are attributes of the widget.

Let's look at some examples. If your ideal customer is a woman, you may emphasize its light weight or compact size. It's the same size and weight as your competitors' but you're emphasizing certain attributes of interest to your ideal customer. If your customer is a man, you might emphasize its ruggedness. If your ideal customer is concerned about ecology, you could point out that your widget uses recycled materials and if your ideal customer likes bright, bold colors you can emphasize the number of colors available. It's all the same widget, but you're emphasizing the important attributes...the "a" in the equation.

We can also increase the value by using add-ons...by including something else like free shipping or gift wrapping.

So, figure out who your ideal customer is and emphasize those attributes that are most important to them and throw in something else of value to increase the perceived value of your product or service.

We're doing that in SendOutCards now. About 80% of our cards are sent by businesses, so we're doing some re-branding and emphasizing the attributes that business owners find important. We're still happy to have individual users of the system, but we would emphasize different attributes to attract them.

The higher the perceived value by the customer, the more you can charge for your product or service. I'll leave you with one more quote:

Interesting days

Today - World Theater Day, Quirky Country Music Song Titles Day, Spanish Paella Day and International Whisk(e)y Day

Tomorrow - Weed Appreciation Day, Black Forest Cake Day, Something On A Stick Day and Manatee Appreciation Day

Next Tuesday - Tweed Day, Fish Fingers and Custard Day, World Party Day, Find A Rainbow Day and Chocolate Mousse Day

April 27 - Marine Mammal Rescue Day, Morse Code Day, Hairball Awareness Day, Day Of Silence, Prime Rib Day, Tell a Story Day and World Tapir Day