A few weeks ago, I read a post on social media which made me stop and think. It said:

“Uber, the world’s biggest taxi firm, owns no cars. Facebook, the world’s most-used social media network, creates no content. Alibaba, the world’s largest retailer, carries no stock. And Airbnb, the world’s largest provider of rented accommodation, owns no property. Something big is happening.”

If I asked you to define the word ‘product’, you’d probably find it harder than you think.

The obvious answer is a tangible object – one that offers features, functions and benefits to the user.

Then, there are intangible items – ones that cannot be perceived by the senses in the same way (at least, until they are used). These products tend to be services such as music downloads, mobile apps or trademarks. But they can also be ideas, concepts, philosophies or stories.

In fact (and this is where it gets harder to convey the right meaning), anything a customer perceives as something that can satisfy their needs or desires – and they are willing to pay for – is a product.

Steve Jobs famously described the iPhone not as a product, but as a lifestyle. It’s the idea of something that compels people to buy it – and that could be the idea of owning an iPhone, looking younger, having your spirits lifted or enjoying a memorable culinary experience.

Or, ideas can be the reputation of the brand or the charisma of the salesperson.

People are looking to buy benefits and solutions, and their decisions are often driven by emotions, feelings and the heart. As a result, price doesn’t really come into it. Or rather, companies should not compete purely on price, because it’s not the only buying reason.

By creating ideas and concepts around a product, businesses can add value to that product. In doing so, they help customers justify their purchase, helping them weigh up the benefits versus sacrifices to calculate the perceived value.

In mathematical terms, it looks something like this:

Perceived value = total benefits and/or advantages – total costs and/or prices

Breaking this down, the benefits and/or advantages are economic, functional, abstract and psychological, so the brand and quality, for instance. Costs and/or prices refers to monetary, time, energy and psychological costs – for example, the time taken to make the decision and use the service, or the psychological cost of switching from another brand.

It is up to businesses to boost this value to the max to ensure the customer accurately perceives and fully assesses the benefits, the subjective and emotional advantages, and the added ideas to override the question of price.

The goal is ‘simply’ to convince the customer they should buy from you, rather than from the competition.

Of course, when you’re dealing with perception, nothing is ever simple. The perceived value is not set in stone and can change from day to day. The valuation a customer makes might be different before they buy, at the time of purchase, when using the product and after using it. The value will also change from one customer to the next, meaning different value proposals are needed for each customer segment or market niche.

The other thing to note is that the above formula is not fail safe. Lowering prices does not automatically mean demand will rise. Equally, raising prices needs to be matched with an increase to the perceived value of the product.

It all comes down to price vs. value. Experience says that it’s always better to increase value rather than drop the price. Experience also says it’s an ongoing battle that businesses need to get right. Companies that successfully manage the perceived value in relation to initial expectations will build customer loyalty.

Like I said, these things are often so much harder than they appear.


If you’re looking to expand your tech team to help your business find solutions to the question of price versus value, get in touch with the team at Talent International today.


By Ian Buckland