The saying "perception is reality" is not only true but true. It is true down to our very psychology. The "world" is the sum of our own perceptions. As Anais Nin said, "We don't see things as they are, we see them as we are." Your customer's perception is what ultimately dictates how they perceive your products and how they see you is what ultimately dictates
your product’s value.
But there is a common misnomer that says Value = Price. This can't be any farther from the truth. Price is part of value but it only plays a role in the overall perception. A new theme park opens in Orlando, FL that offers tickets for $30 a days. Compared to other parks this price is amazingly low. The park is known for having no rides, no shows and a bunch of replicas of a holy city. The price of going to this park is only your time and a very small fee.
Now let’s think about the customer. After family saves money for a year to visit Florida what do they want? What is the measure of value? For this family every day that passes is costing them time. And time is worth as much, or more, than money.
These customers go through a simple equation. What is worth more? Paying $100 dollars to go to Disney, or spend all day in a park where there is nothing to do? Guess who wins? Disney wins every time. The value was not price. The value was having their family enjoy their vacation, not saving money on a "free" park.
Value does not equal Price.
The first thing we must learn is value is not price. But as simple as this sounds most marketers forget this simple fact and often attempt to resolve all problems by lowering their prices. And this lowering of prices many times results in a lowering of the overall perceived product quality. The fact is you can't discount something that no one wants.
Discounting something is not always a good strategy. While working with jewelry client who persisted in discounting everything this became clear. We did a simple test in a very scientific way: the same piece of jewelry was priced at two points. One was discounted 50% and the other one was marked up 50%. Remember we are talking about the same exact product. The discounted product was displayed with a big orange tag that was cut in the traditional Batman starburst that said “POW!” And the higher cost jewelry was placed on a fancy stand with
a note that read: "Because she has the perfect smile. Because she makes your heart skip a beat or just because you want to say you are perfect for me."
Can you guess which one sold more? You go it. The higher priced one. Not only did it sell more but it yield higher margins. The perceived value was higher. The discount product cost the retailer space and margins.
Then what is value?
Value = Perceived Benefit / Price
This is a simple but powerful way of understanding value.
We must take into account the Perceive Benefit divided by the Price. If the Perceived Benefit outweighs the price, then the product will succeed.
Ultimately the only products that will succeed are the ones whose Perceive Benefit outweighs the Price the customer is paying.
Always raise perceived benefit before moving to a price intensive initiative. Because you can't discount something no one wants.
