Price vs Value: Is Cheaper Really The Better?
Let me start with a quiz – which do you think is a better deal?
Let’s say you are interested in learning how to draw. You find two art classes for adults. One is at the local Parks and Recreation Center. The class is ongoing, and you can join any month. It is $30 per month plus $15 for the model. Another is at the local Art College – it is a non-credit continuing education class. So you need to wait until the next semester. One semester class (approximately 4 months) is $500 plus $160 for the model. Both class meets once a week for three hours.
This quiz is based on my real life experience from a few years ago. At the time, I was a complete beginner, and $500 course at the college just felt too much. Plus I wanted to try out quickly. (Very typical of me. . .) So I signed up with the Parks and Rec class. And it was fine. The instructor was a local artist, and he taught me the basics. The atmosphere of the class was easy and non-critical, which was good for beginners.
After a while, however, I reached my plateau. We were doing the same thing week after week, just different poses. The casual atmosphere was not particularly stimulating, either. So I decided to take the course at the college. Believe me, that tuition was a lot of money for me. My thinking was, well, I just do this for this fall semester to see what it is like – if it’s one time, I can afford this, I can do this instead of taking a vacation. . .
Wow. The class was different. The instructor (grad student at the college) set the objective of the class each week. The course was well planned and organized, and I could see my progress. Also, the students were more hungry and serious (They paid the high tuition, you know), and this was encouraging for me. The models were better, too – this was nude figure drawing class, which is terrific to learn the human body structure, and the models had professional attitude.
If I stayed at the Parks and Rec class, paying the $30 per month fee, I would have paid the same amount of money I paid to the college in 17 months. But after the 17 months, would I have learned the same level of drawing skill there? I doubt it. Even if I could, isn’t it better if could learn it more quickly, like I did at the college? My time is valuable.
My conclusion: The higher priced course is a better deal for its value.
The cheaper class did its job in the beginning. I could not just jump to the college class when I started. But when I was ready, the higher priced college course was actually more economical for me, because it delivered more value in shorter time. To this day, I am glad I got that art class for myself.
Of course, the choice depends on your situation and needs. If you actually want to spend more time on an ongoing basis in the class, the Parks and Rec class is better. In this case, it is delivering a different kind of value, a relaxed class setting.
What we need to think about price and value as entrepreneurs.
We need to think about price vs value in two directions: in buying and selling.
When we buy, either for ourselves or for our business, we need to think about the value we are seeking. Remember that the lower price is not always the better choice as the above example shows. What value are you getting, and does that satisfy your need? Is the $150 per hour attorney really cheaper than $250 per hour attorney? How much work can each do in one hour, and what is the quality of their work? Or sundry items such as business cards. You can get business cards really cheap, using a preset template and thin (under 90lb) paper. But does it deliver the value your business needs? Or is the poor print and paper quality undermining the credibility of your business?
When we sell our products and services, we need to set the price. For many new entrepreneurs, this is a difficult process. It is difficult because we are not yet clear about the value of our offering. We do our benchmarking study, and then factor in the uniqueness of our products and services. Yet, with all the preparation, I think there is a level of uncertainty we just have to take as entrepreneurs when it comes to pricing. The best advice I heard is that, if it sells at that price while some prospects complain about the price, then it is priced just about right. (I can’t remember where I read this advice – I read too much – if you know the source, please let me know so that I can give proper credit to the original. I have the feeling, however, that it is the kind of advice that is going around by the word of mouth among business owners. . .) Don’t be too shy in pricing. Your products and services are valuable.
There is an exception to this rule. While fair pricing is important, it is also a good idea to offer value for free or at low price so that people can try it out before they commit to buy. When done right, this should bring in more sales. I also believe in giving back. Giving is not just about sending money to charity – the best giving you can make may be offering part of your products and services. This is why I write this blog and offer lots of information and inspiration for free to anyone in the world with internet access.
There are more about price and value, such as competition. I will get back to this later. For now, here are my two suggestions:
1. When you buy, don’t judge products and services by their prices. Always check their value and your need.
2. When you sell, don’t be afraid to put a good price on your products and services.
How do you make your purchasing decisions in terms of price vs value?
How do you determine the price of your products and services as a business owner?
Thanks to Carnival of Money Stories for including this post.
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