In the world of sales and marketing, we often hear the terms “value” and “price” used interchangeably. Specifically, many people think that the lowest price option is the best “value” because it’s the cheapest. That may be true in the narrow context of commodities – $100 for X amount of ABC grain is a better value than $150 for X amount of XYZ grain, because for true commodities, there is no difference between ABC and XYZ brands. But for non-commodity products and services, value and price mean very different things, and marketers need to be aware of the difference.
Price
Price is the more straightforward of the two terms. Price is simply the amount of money that must be exchanged to acquire a good or service: $25,000 for a car, $10 for lunch at a restaurant; $300 for an airline ticket, etc.
Value
Value is a bit more complicated than price, but a fairly basic concept. As Ralf Leszinkski and Michael V. Marn write for McKinsey & Company, “’Value may be one of the most overused and misused terms in marketing and pricing today. ‘Value pricing’ is too often misused as a synonym for low price or bundled price. The real essence of value revolves around the tradeoff between the benefits a customer receives from a product and the price he or she pays for it.”
Benefits
A key word in the definition from McKinsey is “benefit.” That benefit can come from a number of different sources: re-sale value, status symbol, functionality, usability, customization, durability, consumer taste, relatively scarcity, superior service, etc.
Application
So, how do these two terms differ in practice? Let’s take the example of a $25,000 car. If that car is a used 1990s-era sedan with 200,000 miles, paying $25,000 for it doesn’t provide a very good value. But if the car is a brand new Lamborghini, that’s a great value. In both cases, the price is the same, but the benefit the customer receives is vastly different. The Lamborghini conveys greater functionality, durability, status, resale value, etc.
It’s important for marketers and salespeople to fully understand the difference between price and value and be able to speak in the language of both, especially value. Being able to show superior value to a customer allows you to justify a higher price and retain and attract customers with comparable or higher prices than your own.
Be cautious, though, about making assumptions related to what you market values—or attempting to convince them that what you value, or believe to be exceptional, about your product or service should also resonate with them. You must take a consumer-centric approach to defining and conveying value.
It’s not about what you want to sell. It’s about what they want to buy!
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Tags: consumer value, how to establish price, marketing fundamentals, pricing your products and services, Strategy, value vs. price