An important distinction to make in these days of “value driven consumers” is: what, exactly constitutes value?
There are really two types of value with which marketers should concern themselves–inherent value and added value.
Inherent value is the anticipated value of your product. Every product or service is perceived to have a certain amount of “value,” and it’s up to the consumer to really define what this inherent value is. On the other hand, there is “added value”—somewhat unexpected features or functionality to add to the perceived usefulness of your offerings.
Technically, “absolute value” can be reduced to a mathematical equation: the functionality you receive from a product or service, divided by its monetary costs to you.
If you think of value as this equation, then there are two variables you can address: the functionality, and the cost. The easy way to increase value (and the way most marketers are prone to do it) is to lower the cost, either through a direct price drop, a lower cost of ownership or discounts on your first or future transactions.
While discounting can improve relative value and may stimulate immediate sales, it is not truly “adding value.” It is a tactic to improve the relative value of your offerings in the short run, and is often done at the expense of your margins.
Before you sign off on a discount strategy, think ahead a bit and ask yourself what happens in the mid- and long-term. Have you subjugated yourself to forever being the “low cost” brand? Is this a winning strategy in your category, or does another competitor already have that position staked out? Or is this a temporary tactic to clear inventory, steal market share or give you a short-term boost in the marketplace? Are you willing to accept the “churn out” when your pricing returns to “normal?” It’s a good idea to figure this out up front, as raising prices later without adding additional value can be a tough sell.
On the other end of the equation “adding value” is exactly that: adding something of value to the customer to enhance the product’s or service’s usefulness and help separate you from the competition in your customers’ minds.
The Apple iPhone provides a wonderful example. Yes, Apple lowered its retail price, thus improving its value. But it’s the apps from the App Store—the ones that can help you find your car, comparison shop or find the nearest clean restroom—that “add” value.
So before you resign yourself to cutting prices in order to enhance your value proposition, ask if there a way to add some new kind of functionality or unexpected features that will be embraced and appreciated by customers.
Posted by Mickey
On Customers, Ramblings