Cost, Value and Price

21 May 2010, by A. Cedilla

Here’s a short marketing tip you might find helpful:

  • Cost is what you pay to make stuff.
  • Value is what the buyer believes your stuff will give him.
  • Price is what you set for the stuff you’re selling.

Longer version:

Cost is what you pay to make stuff. Actual labor and service, time, brainpower, materials, and equipment are what you use up to make your product or service.

Other costs can include advertising, marketing, research and other things that’s covered by overhead. These costs are a given, but their price, on the other hand, varies.

Value is what the stuff brings to the person paying for it. Perception is a major part of the process of setting value to something. Here are a few questions to get you thinking:

  • How much, how fully and how well does your product or service satisfy the need it’s intended to fulfill?
  • How helpful is it, how much does it fulfill its function?
  • What makes it different, special? Why does your product stand out?
  • How will it make the buyer feel about himself? <- This isn’t a trick question. Sometimes a carrot is just a carrot, until it isn’t. For example, buying organic veggies can mean different things to different people: you can feel that you’re a health-smart person making a healthy choice, a virtuous person for making the better choice for the environment, that you’re supporting the community by patronizing the local farmers co-op… it varies.

OK, now ask the same questions again, from the perspective of the buyer. Your values and his values can differ quite radically. It’s up to you to address and use the difference to sell your products successfully.

 

Know your market and do the research, because needs drive the product, and answering those needs means tailoring the product to fit.

For example, think of the different mindset and approach you would take in selling different kinds of bags to varied markets.

Selling a dependable, hardy backpack to avid hikers is different from selling multi-tasking messenger bags to city walkers, or custom, hand-made leather handbags to the high-fashion set. One chiefly addresses answers the customer’s needs for reliability, the other to convenience, and the last to quality workmanship. See?

Price is what you set for what you’re selling. Some would argue that price is what the market sets as acceptable, but that’s generally applicable to certain commodities, and not something the man on the street is thinking of when he say, “Like hell I’m paying that much for this schmatte!

Sticker-shock is relative. If you manage to corner a few collectors (of anything, comic books, watches, jerseys, thimbles) and have time to spare, ask them a) why they collect the things they do and b) what are the most valuable items in their collection, and c) why these items are so valuable.

Explanations like sentimental value — the items have a personal meaning and are connected to a happy memory , rarity, to complete a collection– will pop up, with price probably trailing behind.

People will pay what they’re willing to pay. Your mission is to find the sweet spot where you earn money while making your customers happy. (Unless you’ve got a real solid reason why your price is set above average, of course. Expertise, workmanship, rarity…quality pays out in the long run. You can get a smaller customer base, but one that can afford to pay what you’re asking.)

So, there’s our short essay on cost, value and price. Share what your thoughts and experiences in the comments!

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