Recently a 1913 Liberty nickel sold for four million dollars. This is an extremely rare coin and only 5 are thought to exist. What makes this particular coin so valuable? Well ... its value.
Quite simply value is a concept. There is nothing intrinsic about this nickel that makes it worth four million bucks. Value is simply what people are willing to exchange for something. If people didn’t collect and value rare coins this nickel would be worth five cents.
As a small business owner it’s important to understand that the value of goods and services can be shaped by perception. If your customers perceive what you have to offer as being valuable it will increase your demand and the prices you can ask for.
We know from recent brain-scan research that people make decisions based on emotion first and then justify them with logic. Good salespeople have known this forever, but there is now scientific research that backs this up. There is a reason that packaging and color and sales environment are important to people. All of these things affect people’s perception of value.
We know that a perception of rarity is a factor that can bump a nickel’s value from five cents to four million dollars. If you walk into a very expensive clothing store like Armani you won’t notice racks and racks of their suits everywhere. You’ll only see a few suits out on the floor. Compare this with a less expensive retailer like Wal-Mart which may have 100 of the same article of clothing out on its floor.
Strangely enough, price itself can affect the perception of value. We see things that are expensive as somehow being better. In fact an upscale watch company used to have a slogan, “Expensive by Design”. In general, making things expensive is good when you are targeting an affluent market. People who pay $200 for a haircut would not pay $25 for the same haircut because it wouldn’t give them the feeling of prestige they are looking for.
We also look to compare and contrast like items and services to get an idea about value. If I say “sports car” to you, you probably imagine a more expensive vehicle than if I say “station wagon”. However there are some station wagons that are more expensive than some sports cars. One way to avoid being locked into a price range by competition is to make sure whatever you sell is very different in a meaningful way.
The benefits that your products and services offer are also directly related to value. Maybe you sell life insurance – that’s the product. The benefit may be that if something happens to you your family won’t lose their home – a huge benefit. Maybe you’re a life coach – your benefit may be that you’ll help me increase my income by 10% in the next 30 days. These are benefits that I’d be wiling to pay for.
Urgency builds value. If I offered you a pill that had an 80% rate of preventing heart disease, it will not compare to the price I can get for a pill that has an 80% cure rate for heart disease. People with heart disease have a much higher urgency rate than those who don’t. Frequently you’ll see ads proclaiming, “Act now while supplies last!” This is an appeal to urgency and rarity. Plumbers can charge larger rates for after hours calls because people tend to call plumbers after hours for serious and urgent issues.
Unless you are selling a commodity like sugar, your value is pretty flexible. Even commodities have wide price fluctuations. Take coffee. It used to be that coffee was about the same price everywhere you went. Now you have Starbucks and Dunkin Donuts and other brands with differnet coffee price points. There is a huge range of prices on coffee beans you may buy at the grocery store. There are different types of roasts and blends, coffees from different points of origin, and different brands.
As a small business owner you need to be aware of value. How do your customers perceive you and what you offer? Is buying from you going to give the customer a good feeling?