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Price vs. Value: Today's Business Conundrum

Posted on Wednesday, 6th November 2013

“ Is this your best price? ” 

“ Can you Sharpen your pencil? ” 

“ We have to get three quotes and will go on the best price…? ”

These are remarks that we hear increasingly on a daily basis. We fully appreciate that today’s business landscape is a very competitive marketplace and therefore pricing is a crucial factor behind any purchasing decision. But before you make that decision it should be noted that price alone will not guarantee you value. In essence, price is merely one of a number of variables that determine a product’s overal value. The decision making process must incorporate not only the price of the product on offer, but the level of service provided by the supplier and their reliability in supplying you with that solution.

Value Stool“The Value Stool” provides us with a solid framework for understanding what is of value; if any aspect of the framework is compromised, a substandard service solution is likely to occur causing an uneasy relationship between you and the floor. This, Ladies and Gentleman, is the dilemma that we currently find ourselves in; the service and reliability of our business dealings are continually being compromised over price. Sacrificing these key components will undoubtedly lead to an unstable platform for business growth and prosperity as companies are forced to cut corners to keep their prices low.

1. Pricing Decisions:

What do the following words have in common: Fare, Bill, Expense, Sum, Rent, and Fee? Each term is used to describe what one must pay to acquire benefits from another party. Most people simply use the word ‘price’ to indicate the financial, monetary cost associated with a product or service. The process of price setting requires a business to evaluate what it financially costs to acquire a product, package it, deliver it to the customer and then calculate how much they must charge in order to make a return on investment. The time and efforts taken to add value and enhance a product or service must also be taken into account when price setting.

2. The Service Offering:

The intangible nature of ‘service’ makes it difficult to define; it is a type of economic activity that is consumed throughout the sales process, from the decision making stage and point of sale, to the transfer of goods and after sale communications. Every organisation professes to have outstanding service; have you ever heard any organisation admit to a poor service offering? No, you have not, because they know it would be economical suicide. In reality a lot of companies do not provide quality service because it comes at a price. How many times have you purchased something online because it was cheap only to find it arrived broken or late? Or for an entirely different item to arrive? …Or for it not even to arrive at all? Can you get in touch with them? Do they answer your emails? Do they replace the product or provide a refund? I am not here to criticise online sellers; there are a number of reputable retailers that will have an exemplary customer service process in place, but this comes at a cost and is built in to their operational model. This is something that we, as a customer, pay for in the price we are charged for our goods.

3. The Reliability to Deliver:

Reliability can equate to a number of positive aspects for businesses including the formation of valuable partnerships over time. Good, reliable customer service can create a loyal customer base and even attract new business. Reliability provides confidence, security and peace of mind for consumers; and you can’t put a price on that!

“Your most unhappy customers are your greatest source of learning” – Bill Gates

What does your organisation do when things go wrong? For the most part, people take pride in their work and do not intentionally set out to make mistakes; but sometimes things do go wrong, we are only human. Organisations that overlook crisis management procedures due to budgetary constraints are undoubtedly more susceptible to making mistakes and therefore the value of their product/service is lessened. How an organisation rectifies their mistakes is how they will be remembered. Would you have any confidence in the aftercare from the ‘best price’ supplier? Would they be there to answer your query and resolve a situation in the timeliest manner?

These simple questions are often over looked at the decision making stage because the price is paramount. Are you confident that the businesses you purchase from are entirely ethical and responsible in terms of their safety measures, sourcing and accreditation? Not all countries have regulations in place to prevent the exploitation of workers, products and the environment. Corporate social responsibility and ethical sourcing are not always evaluated prior to making a purchase and it is often the case that when prices need to be cut, these factors are the first to be compromised.

Price vs. Value Paradigm:

uneven-scalesIn these challenging times price will always be a key variable for any purchaser, however it is also a key variable for many sellers, as they operate purely for return on investment and short term gain, rather than providing an exemplary service and developing long term relationships. These unscrupulous traders, looking to make a quick sale with no concern for the perceived value provided by reputable organisations, will have a significant impact on business dealings and force the competition to price match, resulting in the erosion of added value.

Next time you are making that purchasing decision, take time to consider its price, but more importantly its value to you and your organisation and the intangible service, reliability and ethical sourcing that is taken for granted. That peace of mind may come at a cost, but ensures honest business integity whilst providing a stable platform for business growth across the marketplace as a whole.