Relationship between Value and Price
We’re all familiar with the term “you get what you pay for”—but does it really factor into buyers’ perceptions of value today?
There’s a really interesting story that comes from the Stanford Entrepreneurship Center where Christine Benninger, president of the Humane Society Silicon Valley, talks about how she leveraged the axiom “you get what you pay for” to successfully solve a major problem with regards to the chapter’s unacceptable return rates of previously adopted dogs and cats.
For many years, the Humane Society had charged an adoption rate of $25 for cats and $40 for dogs. At those relatively low prices, the adoption business was brisk, but the problem of cats and dogs being returned to the shelter was overwhelming the staff and facilities. At the same time, the California Veterinary Medical Association conducted a study that looked at what types of animals get returned to shelters, and an offshoot to this study also looked at the relationship between the rates of return for animals and the price that had been paid for them. This part of the study showed that there was a very strong correlation between the amount paid for the animal and the likelihood that the animal would someday be returned to the shelter: the lower the adoption price, the higher the likelihood that the animal would be returned.
Armed with the data from the study, Benninger went to her board to propose significant price hikes. She wanted to raise the adoption price for both cats and dogs to $110—an increase of over 400 percent for cats and almost 300 percent for dogs. Naturally, Benninger’s staff and the board pushed back on the proposed price increases, citing the opinion that while the price hike might make a dent in the return rates, it would significantly affect their adoption rates. The staff’s resistance to the hike could be summed up quite succinctly with one question: “Who’s going to pay $110 for a six year-old dog?”
Despite the resistance, the board approved the price hikes. Guess what happened? During the first year, adoptions actually increased 10 percent and more importantly, their rate of return was cut by 50 percent. The response was exactly as Benninger had predicted: As the perceived value of the adopted animals increased, so too did the reluctance of their owners to return the pets to the shelter. In the years that followed, the Humane Society Silicon Valley continues to use price with great success as a major tool in instilling the perception of value among their customer base.
Today, 99 percent of the animals available for adoption find new homes; ten years ago, less than 15 percent found new homes. Under Benninger’s leadership, the Humane Society’s volunteer base increased from fifty to more than 700, and the shelter’s donor base increased from 300 to 30,000 donors.
Patrick Lefler is the founder of The Spruance Group – a management consultancy that helps growing companies grow faster. He is a former Marine Corps officer; a graduate of both Annapolis and The Wharton School, and has over twenty years of industry expertise.