Price and value: 2 powerful marketing resources
Price and value are two terms that are constantly confused by people worldwide. Both words sometimes refer to the monetary amount that a product or service is offered in the market. But is it correct to use these 2 terms for the same purpose?
In this post, you will:
- Understand the difference between the price and value of a product or service.
- Know who is responsible for defining these “resources.”
- Aspects that must be taken into account when making this decision.
- Have the opportunity to evaluate the best strategy for your business.
Price X Value. What’s the difference?
Straightforwardly and directly: the price is what you pay ($$) for a service or product. The value relates to the benefit perceived by the buyer.
Concept of price
Price is represented by a numerical value that a consumer must pay to purchase a product or service. If you go to the supermarket and buy 1lbs of potatoes for 2$, that “2$” is the price you accepted to pay for the food.
Concept of value
Value is the benefit behind the purchased product. If in the same supermarket you see 1lbs of potatoes for 3.5$, you will have to decide. This decision can be based on several factors.
Let’s look at some examples:
1) You choose the 2$ merchandise because the lowest price is more important to you:
In this situation, the value perceived concerning the package of potatoes at 2$ is greater than the package of 4$. For you, the benefit of saving money is what matters to making a decision.
2) You opt for the 4$ product because you compared nutritional tables and saw that the 4$ product is organic and “healthier.” In this case, the more expensive package of potatoes had a higher perceived value, and the price difference was not enough to make your choice change. You saw value in the difference in product offerings.
With the examples mentioned above, we can answer an exciting question:
Who is responsible for defining product price and value?
Well… the responsibility for setting the price lies with the merchandise owner, and the consumer is the primary agent to define the value of that product. If the consumer is responsible for determining the value, we understand that this value is not fixed and varies from person to person, from opinion to opinion.
Although value is a resource defined by the consumer, it can and should be considered in the company’s strategy so that attitudes such as price, packaging, commercials, advertising, name, and positioning are appropriate to how the company would like to be seen.
In a nutshell: price influences the value perceived by consumers just as the value perceived by consumers can change the price, up or down.
What to consider while setting the price?
The first step in setting the price of a commodity is to have its costs in hand. Calculating the total indirect and indirect costs is extremely important to avoid losses and guarantee at least break even.
With direct and indirect, variable, and fixed costs calculated, it’s time to set the final price. This decision can take into account:
- Market competitors
- Target audience
- Long term investments
- Financial goals (desirable profit margin)
- Market positioning (how you would like to be recognized)
Two fascinating strategies for pricing are a strategy for differentiation or a strategy for price.
Differentiation strategy
In differentiation, the focus is on showing the particularities of the service or product offered.
- Why is your service different from others?
- What would make someone overpay you when compared to your competition?
- What value do you deliver that justifies your price?
The price is usually higher in this strategy, and there is a marketing and communication strategy behind it, based on the benefit and differential of your product or service.
Pricing strategy
In the pricing strategy, the focus is on sales volume. If your price is low, but you get a high volume, your revenue can also increase. This way, you make your consumers choose you because it was “the cheapest” or the one with the best “value for money.”
There is no right or wrong strategy; there is one that makes sense and is agreed upon by the company’s leadership. It does not matter what path you choose; you will always need clear and effective communication to make it work!
What strategy have you adopted today? Do you think she is the best option for this moment?
Share in the comments below!