How much would you pay?
How much would you pay for a five-pound bag of potatoes?
If you saw two similar bags of potatoes, one priced at $3.00 and one at $3.25, I suspect youâ€™d choose the $3.00 bag. Even though the price difference is small, it offers a better value.
But what if one bag was priced at $3.00 and one at 59 cents? Would you still choose the cheaper one? Perhaps not, because youâ€™d figure there was a reason why it was so inexpensiveâ€”and not a good one. Your value equation would be different in this case than when the potatoes were close in price.
Now take it in the other direction. One bag of potatoes is $3.00, and another is priced at $8.50. You may indeed still choose the $3.00 bag, but Iâ€™ll bet youâ€™d stop and consider why the other was priced so high. Maybe thereâ€™s something really special about those potatoes that provides a different sort of value. Some people, I dare say, would purchase them just to find out.
One of my most popular BusinessWeek.com columns is â€œFive Words to Never Use in an Ad.â€ One of those words is value, and for good reason. What constitutes a value is not only different for everyone, it can differ by purchase occasion. And as the potato example demonstrates, it can even differ based on the dynamics of any set of circumstances.
I was fascinated to read an interview with David Ovens, Taco Bellâ€™s CMO, in which he described the brandâ€™s value proposition in three ways: price value (79-, 89- and 99-cent menu items), abundant value (larger products like a triple steak burrito) and quality value (new ideas like the â€œFrescoâ€ menu). The chainâ€™s pricing strategy further reinforces the point, and as a fairly regular customer of Taco Bell (thanks to my teenage son) I find even my own value equation changing depending on the circumstances.
Like a complicated mathematical formula, value is based on a number of variables. Change any one of those variables and you change the result. Thatâ€™s why itâ€™s vital to put the â€œwhoâ€ before the â€œhow muchâ€ in your pricing strategy. Value is as much about your customers as it is what theyâ€™re buying.
Steve McKee is a BusinessWeek.com columnist, marketing consultant, and author of “When Growth Stalls: How it Happens, Why You’re Stuck, and What To Do About It.” Learn more about him at www.WhenGrowthStalls.com and at https://twitter.com/whengrowthstall.
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