A Question of Value

If you’re in business you have to be making money, right? If you’re not making money (not enough to cover expenses), the old saying goes that you’ve got a hobby, not a business. I was having a conversation the other day with my partner about a program for the computer that has a pricey yearly fee, and he was considering paying that fee, and I told him that I use a different, open source, program that works just fine and I haven’t had any complaints from clients about it, or had any difficulty using it, and didn’t really notice any differences from that program and the open source one I use. It brought us into an extensive conversation about what we would be willing to pay on a yearly basis, why there is a cost to begin with, and whether the cost is reasonable or not.

Most people understand the need to pay for products and services. The business world has even done a fair job of explaining the concept of luxury goods and services and the value of paying extra or more for some products and services. Some businesses are better than others at explaining the value of their offerings, regardless of the price. I speak with businesses each week who struggle with their marketing not (just) because their marketing is weak or insufficient, but because they haven’t established the true value of their offerings. Sometimes a brand itself is enough to establish value, but more often than not it is up to the product or service to establish the value.

For extended return periods, free exchanges, free 2 day shipping, special/unique features, limited editions, a special cause or story or regular (quality) updates, yes, it’s understandably worth paying (a little) more. A company can easily retain faithful customers that are willing to invest a little more in their products or services because they offer things like this.

But the other is true as well. Because they offer a lower price or a small subscription fee, a company can gain customers that would not be willing to subscribe to more expensive subscription programs or would not make the investment in the more expensive product. Maybe it means a company has to be a little more creative about what they offer in the subscription or not offer all the bells and whistles another company might offer, but some customers are just fine with that.

It is possible that the number of people that are willing to pay the higher amounts make up for the customers that are lost because the price is higher, but it’s not something you should assume without doing proper research.

So what did my partner end up doing? As you probably guessed, he went ahead with the free open source computer program too. We both agreed that if the cost was more reasonable and better aligned with the lack of improvements and special features we would both have been willing to invest in it.  But the benefits aren’t worth the cost.

What about your costs and benefits? Is your company clear about the value you offer and why your pricing is what it is?

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