The old adage "price is what you pay, value is what you get" contains an essential truth for businesses and consumers. At its core, it's about recognizing that price and value are different.
I work with leadership teams who are laser-focused on price - what they can charge for their products or services, overlooking that the most successful companies intentionally go beyond price to create value.
Value is what the customer gets from the product or service. It's the benefits, solutions, and transformations they experience. Price is just what the customer pays to acquire those things. Value is the difference between all the benefits of a product or service and the costs of acquiring those benefits.
Think about a visit to the doctor. The price is what you pay for the appointment and any tests. But the value is in the expertise and care you receive, the reduced uncertainty about your health, and the peace of mind. The value is often far greater than just the price. Juxtapose going to a professional sports game. A ticket to an NFL game may cost north of $200 each for a seat that lacks the detail and data of watching it on tv, in the luxury of your home. But that's not the value the fan is seeking. They want the experience. They want to feel the game; therefore, they will pay a high price to obtain that value.
Companies that adopt a value-based approach tend to outperform their competition. They focus less on reducing prices and more on enhancing the customer experience at each touchpoint. This builds loyalty, trust, and relationships that go beyond one-time transactions. Let's look at three familiar examples:
Costco can command strong customer loyalty and sell membership at $60 per year. They deliver tremendous value through their wholesale bulk pricing and high-quality private label products (Kirkland). Their 2021 annual report shows Costco's membership renewal rate is over 90% worldwide.
Apple charges premium prices for their technology products, yet retains devoted fans. Customers value the sleek, intuitive designs and integration across Apple's hardware, software, and services ecosystem. According to Future Market Insights, global consumer loyalty towards Apple is unparalleled at 92%.
Starbucks charges significantly above the competition for their coffee drinks yet has grown into a global empire. Customers value the consistent taste, friendly service, inviting store ambiance, and branding that Starbucks delivers. According to 2021 data, Starbucks retains a 40% share of the US coffee shop market.
As an executive coach, I advise leadership teams to identify their unique sources of value. How do you create transformations or impact that customers genuinely care about? That's where long-term competitive advantage comes from.
I often see companies make the mistake of over-relying on discounts, sales promotions, and low-pricing strategies. That can help in the short-term but it's not sustainable. It trains customers to only care about price, not value.
Other companies try to artificially manufacture value by adding superfluous features or making misleading claims in their marketing. But savvy customers see through the facade. The true value must be baked into the entire customer experience. The most successful brands build their reputations around consistently delivering a fantastic experience. Think Zappos! Everything from their hiring practices, to their operations, to their customer service is engineered to wow. Apple is a prime example. Customers gladly pay premium prices because the value is obvious.
So the next time you consider a product's or service's price, also evaluate what you'll get in return. As a business, always aim to enrich your value, not just lower your price. Deliver an experience so outstanding that customers rave about you for years to come.
The value you provide is the best competitive advantage.