Value is not ever just a function of the sticker price. In commodity markets, it may appear to be close, but will never be the same for all buyers.
What might offer value to one person is often absurd to another.
Value is equated in each buyers mind differently, and is related to the ‘Utility’ derived. Utility is a combination of the physical and psychological responses, specific to the individual.
Currently the most expensive NFT (Non-Fungible Token), the artistic equivalent of Bitcoin, created by artist Michael Winkelmann, brought $69.4 million US in an auction by Christies in March this year.
It is a piece of digital artwork, which you can download for free, a perfect copy of the original, for which someone paid $69.4 million.
At the absolute opposite end of the Fungible scale, we had Billy and Beatrice Cox pay artist, and I use the word cautiously, Maurizio Cattelan $120,000 in December 2019 for a banana taped to a wall in an art gallery. Someone obviously failed to appreciate the artistic value, so later in the day swiped the banana and ate it. Price, .50cents at Woolies.
Value is a continuum, from the extreme where the dollar is the only measure to where there is just some unexplainable value to a few people, like an NFT, or perhaps a pet rock, or an artistic banana.
The reality is that ‘the price’ is just what someone is prepared to pay. It has nothing at all to do with cost, which is the basis of most price lists I have ever seen, and everything to do with psychology.
Price and value are not the same thing, ever.
Go to Bunnings and buy a box of nails, it is the same as every other box of nails, but those nails hold your million dollar house together. Think about it in that context, and it may influence your view of the value of the nails.
Price is just the easiest way to articulate the product/service package we deliver, but it is one dimensional, just a small part of the whole, and fails to put any value on the benefit a customer receives by using your product/service.
It is our task if we are to stay in business, to find a way to articulate the value in terms other than price, while recognising that we need to be paid more than our costs to stay in business.
One of my favourite stories about value generation comes from Rory Sutherland. He proposed a creative alternative to spending billions to speed up the Dover to Paris train journey time. He suggested that instead, they just buy up all the back vintages of Chateau Petrus, obtain the world’s last inventory of genuine fresh caviar, and have it served by supermodels (male and female to avoid any problems) on the journey. The result would be that everyone would demand the train to be slowed, and the savings would be sufficient to feed sub–Saharan Africa for a generation.
Whimsical, but no doubt right!
Somewhere in the mix of tangible and intangible outcomes is our sweet spot, the price. It will vary enormously depending on the individuals and circumstances involved.
That is why it is so fundamentally important to know your ideal customer, as well as your own costs, so that you can both satisfy their varying needs, and make enough profit to build commercial sustainability for yourself.
An expert can often uncover ‘value’ you might not see. The old trees and forest metaphor at work.
