What’s the Difference Between Price and Value? In Blackboard Fridays Episode 133, Brad talks about Sales. Need this implemented into your business? Talk to the international business advisor who can do exactly that – Contact Jacob, Learn More, or Subscribe for Updates.
Who is Jacob Aldridge, Business Coach?
“The smart and quirky advisor who gets sh!t done in business.” Back independent since 2019.
Since April 2006, I’ve been an international business advisor providing bespoke solutions for privately-owned businesses with 12-96 employees.
At this stage you have proven your business model, but you’re struggling to turn aspirations into day-to-day reality. You are still responsible for all 28 areas of your business, but you don’t have the time or budget to hire 28 different experts.
You need 1 person you can trust who can show you how everything in your business is connected, and which areas to prioritise first.
The legendary U.S. investor Warren Buffet once said that “Price is what you pay and Value is what you get.” But what does that really mean? Well, here’s an example I had recently at a local coffee shop.
The person in front of me ordered a takeaway coffee that was almost eight dollars. And I thought that was absolute madness. I drink a short black. It’s normally about three or three dollars 50. But to them, their large size double shot vanilla flavored latte was heaven in a cup.
Now I wouldn’t pay four dollars for it let alone eight, and they probably think exactly the same of my short black. Thinking well he’s crazy paying three dollars 50 for a little cup of dirty water. And there you have it. The age old issue of price versus value.
So what is the difference? Well, price is what someone is actually willing to pay for the goods and services, so money down on the counter. It’s an objective assessment. Whereas value is the individual’s assessment of the worth of those goods and services to them and to them alone. So it’s a subjective assessment.
So what does that look like in the context of our daily business? Well our goods and services have a cost. And then as business owners, we work at the margin that we need to run the business and return a profit. And that’s how we calculate price.
Value, though, is determined by a customer and their assessment of the entire transaction. So while cost and price are the same for everyone in the market, value will differ from customer to customer and their assessment of the transaction which drives their willingness to pay our price.
This is the tough part because a range of customers can look at exactly the same transaction and come up with differing values. And that might make you think, well, how do I navigate this cost value conundrum in my business?
The thing to remember is that price is only one element of value. Your customers make an assessment of your entire offer which will include your price, the quality of your goods and services, the service level that you offer, the range available, how accessible is your product in the market, the training that might be required, or do you offer a warranty for your product, and likely many other factors.
So, while price is important, and in many industries it is absolutely critical, it’s only one element of value. The thing to keep in mind is what are you customer’s real needs? By listening to that and aligning your goods and services, you’ll go a long way towards maximizing value in their eyes.
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