Understanding the difference between ‘price’ and value’–a quick guide for small businesses
‘Value’ is a word that gets bandied around a lot but is rarely explained in a way that makes sense to the individual. If you’ve been a small business owner or accidental marketer* for a while, you’ll be familiar with the phrases “add value” and “communicate your value” or even “value-driven”. I could keep going…
’Value’ is not some throwaway tip though, it’s an important part of your business and marketing and, if you give some time and energy to understanding yours, you might find things change dramatically for you. Changes like being able to raise your prices, booking out your services, or just being able to attain the elusive reliable sales income.
To get you thinking, I’ve made this quick guide to navigating the complexities of pricing and figuring out how to determine your product or service’s value. It’s definitely not custom designed for you, but I do offer this as part of my coaching and strategy if you’d like to get in touch.
So let’s dive in…
Breaking down four key aspects of ‘value’ for small businesses
Cost to produce
This one’s all about your internal expenses and what it costs to make your products or deliver your services. Understanding this helps ensure profitability but remember—it’s just one piece of the puzzle! The markup you put on your products or services is determined by you, but influenced by many external factors.
Perceived value
Perceived value is how your customers view the worth of your product. It’s influenced by many factors, including brand image, quality, scarcity and customer experience.
Price
The price is what your customers pay for your goods or services. Setting the right price involves more than just covering your costs and making a profit; it's about aligning with market expectations and perceived value. A Birkin Bag costs around $800 to produce, but you’d be hard-pressed to find even a secondhand one for less than USD$15k (more on that in this post).
Perceived values alignment
Customers gravitate toward brands that resonate with their values and beliefs. This alignment creates loyalty and can sometimes even surpass the product's actual benefits. For example, I prefer to buy from small businesses for many reasons, but one key factor is that I know the significance of local business contributions to the local economy. If I can see a business supporting other local businesses through supply chain or collaboration, I’m more inclined to spend with them.
What ticks the right boxes for your customers?
A quick scenario to explain each of those four aspects of value
Imagine you sell handmade jewellery…
Cost to produce: Your cost is $20, which covers materials and labour.
Perceived value: The necklace is handmade and unique, which your customers love, making them feel it’s worth more than the price tag.
Price: The customer pays $50 for a necklace.
Perceived values alignment: You use ethically sourced materials, aligning with customers who value sustainability and ethical practices.
Now that those aspects are hopefully a little clearer, let’s move on to another five important aspects of value.
Five more key aspects of ‘value’ for small businesses
Emotional value
This refers to how a product or service makes the customer feel. It can be tied to status, nostalgia, or emotional fulfillment. Enhancing emotional value often involves storytelling and aligning products with positive emotions.
Functional value
This is about the practical benefits that a product provides, offering a solution to a problem or need. Highlighting functionality in marketing can clarify why your product is essential and provide a good case for purchase for pragmatic and price-driven customers.
Economic value
Consider the long-term cost savings or financial benefits that your product or service offers. Emphasise durability, efficiency, or any value-adds that lower the total cost over time.
Social value
This involves the impact your product or brand has on societal and community level, such as environmental sustainability or social responsibility. Highlighting these can reinforce perceived alignment with customer values. Social value can also be related to status or the feeling of connection and belonging–Influencer and celebrity marketing can be a powerful tool in this instance.
Brand value
The reputation and standing of your brand in the market can also contribute to perceived value. Consistent branding efforts can enhance this aspect. Your messaging and brand identity is key to developing this perception of your brand’s value. There are a LOT of factors that play into this (probably a whole blog post in itself).
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So what next? If you’re still reading, hi! I want to give you some thought-starters around creating consistency between all these aspects of value that I’ve mentioned so far.
Tips for small businesses to use aspects of value to influence price and increase purchasing
It’s a step-by-step process to determine things like price and value. A lot of people just pluck a number out of the air and hope for the best, but that’s not the best strategy. Instead, here a few ideas to get you thinking a little more strategically:
Step one: Determine your price vs value
This step includes:
Competitor research and understanding how similar products are priced.
Knowing all your internal and external costs so you can be clear on your profit margins.
Considering perceived value by assessing how your product is valued by customers. Conduct surveys or gather feedback.
Understanding and measuring your emotional, functional and economic value (and being able to communicate these).
Step 2: Increase your perceived value
If you’d like to increase your profit margins, you can cut production costs or you can increase the perceived value of your products or services. Here are some ideas:
Enhance the quality, ensuring your product or service exceeds expectations in functionality, design, or benefits.
Share engaging stories about how your business started or profiles of the people involved in the business. If you have a sustainability edge or point of difference, talk it up. Customers love a good backstory and they want to feel connected.
Collect and leverage testimonials and review as positive feedback can significantly enhance perceived value.
Step 3: Improve your customer experience
Always provide exceptional service and be transparent.
Train staff to be friendly, knowledgeable and responsive.
Streamline your processes and make it easy for customers to find information and purchase.
Engage your community by regularly interacting with your audience through social media, email newsletters, or community events.
In the end, it's not just about what you're selling and how much you’re selling it for—it's about how you're selling it and to whom. By understanding these aspects of value, you can create a compelling offering and develop marketing messaging that truly speaks to your customers' hearts, minds and wallets.
Join the conversation on Instagram or Facebook.
*Ps. I use the term ‘accidental marketer’ to describe the many people who have found themselves in marketing roles within small businesses and community organisations but have little or no experience to guide them. If that’s you and you’d like some jargon free and helpful training, please reach out.
❤️ Hi I’m Erika ✌️ I’m a marketing specialist with a BA in Media and Comms, Masters of Marketing, Certificate in CX (Customer Experience) and over 28 years marketing experience.
I’m well-placed to help you navigate the sometimes overwhelming world of marketing and social media. I work with you one-on-one or create fun and action-oriented workshops and webinars for groups, organisations and businesses. Book a free discovery call with me or simply email me to get the conversation started.
For more tips, connect with me on social media, I’m always happy to help.
