The Importance of “Price” and “Value”

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May 1  |  Business, Marketing, Marketing Bridge  |   VCoker
Van Coker, Vice President of Marketing Firepower

One of the most essential ingredients of any successful business is an effective Marketing Bridge. If you are unfamiliar with the term, “Marketing Bridge” refers to all the forces that combine to make a sale and create a customer for your enterprise—or any enterprise. Every business has one. Most don’t even realize it. Some are in good shape. Some are in need of major repair and reconstruction. The inventor, designer, and creator of the Marketing Bridge, also just happens to be the founder of Marketing Firepower, Norton E. Warner.

In future articles, we’ll focus on each and every element necessary to build your successful Marketing Bridge. This month, let’s talk about “price” and “value.”

To state the obvious, the “cost” of an item refers only to price. Either the cost you paid to stock the item in your inventory, or the price the customer paid to take it off your shelf. Or, as Warren Buffett once stated, “Cost is what you pay, value is what you get.”  Value represents worth to the purchaser. The more worth your customer perceives, the more they may be willing to pay.

To give you an example, let’s take the case of two lawn and garden equipment stores, Store A and Store B. They both stock merchandise that is similar. In fact, one item is identical: the Go-Mow, 21-inch, electric start, self-propelled lawn mower. Identical in every way…model number, features, etc. And that’s where the similarity ends.

At Store A, you can buy this Go-Mow for the low, low price of $299.95. But Store B across the street sells the very same mower for $349 .95. No kidding—the very same model, down to the last digit. Fifty dollars higher! Are they crazy? Store A will run them out of business with their super-duper low price. In fact, they’ll make Store B look like they’re ripping customers off. Maybe. Maybe not.

At Store A, their $299.95 price is cash ‘n carry only. Hey—fifty bucks is fifty bucks! You grab it off the shelf and pay at the checkout counter. It’s in a box. It’s in a box you have to wrestle with and put in your car. Don’t worry; you’ll have time to catch your breath and wipe the sweat off on your way home. Once at home, you spend the next 20 minutes finding a neighbor to help remove the casket-size box from your car (hang on to that box, it may come in handy later.) Now, let the fun begin with the assembly process. Five hours, one mad wife and two screaming kids later, you’re almost ready to impress the neighbors with your “bargain” while you mow in the dark.

Then you start asking questions and searching the owner’s manual for answers. Does it take oil? What kind? How much? What kind of gasoline? Do I have to charge the battery? Where does this thingy go? Do I choke it to start? How do I adjust the cutting height? Why doesn’t this stupid bagger fit? Why won’t it stay running? How do I change speeds? Why is it smoking? Why did the left rear wheel fall off? Where do I take this piece of junk for service? What was I thinking? But, hey, I saved $50.00 by not buying from those rip-off clowns at Store B.

But the neighbor across the street wasn’t aware of Store A’s super-duper low price. He had been hearing messages for years about Store B. He knew they carried Go-Mow lawn mowers and he was in the market for a new mower. He didn’t know what model he needed, but he was pretty sure he wanted electric start to save his aching back. He knew they provided factory-trained service on the brands they sold, so he was confident he wouldn’t have to scour the country for service, should he ever need it. He knew that when you bought at Store B, every mower was fully assembled…serviced…checked out and ready to go. He knew he could ask questions and expect to receive intelligent answers to help him make an intelligent purchase. He also knew they offered home delivery for a minimal charge. Delivery? He had never been in the store, but felt as though he knew them just from their repeated advertising. Not in a box?

Store B charges $50 more than Store A…for the exact same lawn mower. And Store B sells three times more Go-Mow lawn mowers than Store A. Three times? Are you kidding?

A very strong case can be built that Store B (even though they charge $50 more) is a better value…or, more of a bargain, than the low price at Store A.

Price is what you pay. Value is what you get.

When you add value to price, you can charge more because the customer perceives it to be worth more. Get it? Think about that when you consider your advertising direction.

Do you offer unique services or competitive advantages that customers would be willing to pay more for? If more people knew about your differences would you stand a better chance of selling to them? With proper advertising, your message creates value or worth for your products or services. The desired result is that your product or service—because of the added value you provide—is perceived by the consumer as the better buy. Please understand this—low price alone does not a bargain make.

When you try to fight the big box store by playing the “low price” game…one of two things will probably happen: 1) you’ll find that they have a sharper pencil, and will shame you by offering an even lower price, or 2) you’ll find yourself planning a “Going out of Business Sale” because you’re broke.

Compete on value. Communicate your value. Low price advertising creates low price loyalty. When someone else offers a lower price, that customer is gone. When you communicate your value story, you begin to capture loyal customers.
Remember these three business principles;
Price is what you pay.
Value is what you get.
Profit is not a four-letter word.

Van is vice president of Marketing Firepower with decades of experience in helping small business succeed through the effective use of advertising.

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