Price vs. value

I was reading an interesting bit on the difference between price and value and how these are defined.

According to the Wiki definition, “If a consumer is willing to buy a good, it implies that the customer places a higher value on the good than the market price.”

The article continues. “… the price is something we attach to the product. The value is the worth the consumer places on it … In simple terms, unless your price is lower than the value a buyer places on your (work), they won’t purchase.”

It would be easy to get lost in an argument over these terms and how they are defined. But the salient point is that someone will not buy your work if they do not perceive that it is worth as much or more than they are spending on it.

I only wish the article answered the ancient mystery, namely how to intuit how much value a parson places on an object. If we could have this information in advance, we would be much better prepared and it would be much easier to set a price point!

D.D.

COMMENTS

  1. Jeff Duncan wrote:

    Hmmmm, someone should tell that to the petrol companies! There are many items we buy b/c we “need” and have nothing to do with value. I think $3 for a half gallon of milk is expensive, yet I still have to buy milk. So my perceived value of gas, or milk or shoes is often irrelevant as it’s something I need.

    Now custom woodworking is a different animal as most people don’t “need” it, however there are always people who are willing to pay for custom. It seems to me like some of the more successful guys instead of trying to figure out what the customer can afford, have taken on a different approach of “this is what I cost and either you can afford me or you can’t”. I’d like to be more inline with that someday;)

    Jeff D

  2. James wrote:

    The value is based on what it means to the individual owner.
    The price is based on whatever you can “con” someone into paying.
    The two are not relative.

  3. JIm Barbour wrote:

    David, it certainly would be nice if we could make even a good guess of the value someone places on something we make. As you say it would make pricing easier. Looked at the other way, it would be nice if the customer could intuit the lowest price we are willing to take for an item – it would make making an offer easier. I, for one, am glad the latter does not hold and if the price is that the former does not either, I suppose I am willing to accept that as well.

    By the way, the difference between value and price is called Economic Surplus and is divided into Consumer Surplus and Producer Surplus. Dividing the economic surplus is one way of thinking about what markets do.

  4. Howard N. Rosenberg wrote:

    Excellent observation David.

    But you CAN get that information in advance.

    It’s called sales skills.

    For every person who thinks that sales skills rely on evil, schmarmy mind control techniques, it’s not.

    It’s as simple as understanding thoroughly the value you bring to the marketplace and asking your potential client enough of the right questions to identify what they’re looking for.

    If you understand what you offer, it can be as simple as a pleasant back and forth conversation while you subtly gain the info you need to identify the best recommendations that’ll suit their goals.

    As far as value vs price goes, if somebody doesn’t know HOW to evaluate a new project – the details, the nuances, the hopes and dreams (yes this is a big part of what we do here) – they’ll always default to price being the only/primary/winning criterion.

    It’s your job to point how much they’re getting for the dollars involved. If the results outweigh the dollars, you’ve created a sympathetic value proposition. If you didn’t demonstrate, you were “too high.”

  5. Doug wrote:

    If my clients don’t wince just a little when I tell them how much, I know I have not asked for enough. I would much rather explain why my price is what it is than accept less than I am worth.

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