We often think about the value of a product or service in terms of its price, but that’s the opposite of how value is created. Value is a perception — one you can control.
You walk into a shoe store at an upscale mall. The interior has been painstakingly designed and a large architectural display features fewer than a dozen pairs of shoes, each an individually lit piece of wearable sculpture. You see a shopper being attended to by a well-dressed salesperson; a sales assistant brings him two boxes and carries away several others. Another salesperson walks up and quietly asks you if there is anything you need; perhaps a glass of champagne to sip while you shop? You spot an exquisite pair of black boots resting on a white pedestal, soft white light emanating from somewhere underneath. You can’t see a price tag — it was either intentionally left off the shoes or cleverly hidden from view. Can you guess how much the boots will cost?
You walk into a nationally branded shoe store featuring large, florescent orange and green posters in the windows: 60% off! Buy one pair get the next pair free! Inside, dozens of shoppers are pulling hundreds of shoes from the shelves, trying them on unassisted and attempting to find mirrors hidden behind bags and tissue paper. One tired looking salesperson is standing at the cash register serving a line of fifteen impatient shoppers. You spy a pair of black boots on the floor near a stack of boxes — boots almost identical to the ones at the upscale store. You can’t seem to locate the box that they came in … how much do you think the boots cost?
If you knew that one pair of boots was $99 and the other cost $2,000, would you be able to match the pair of boots with the correct price? If you saw these pairs of boots — both similar in appearance — outside of the context of the stores, would it be just as easy to price them? We would expect the boots at the upscale store to cost 20 times as much; every aspect of the customer experience leads us to make that assumption. The upscale store has made an investment in its branding infrastructure, and that investment makes it possible for them to charge much more for their products than the discount chain ever could.
This does not mean that the upscale store is more profitable: the discount chain may be highly profitable, even though it receives must less profit per sale. Both stores may, in fact, be owned by the same company. Many large corporations own a wide portfolio of brands in order to attract customers of many types. We don’t know how much it cost to manufacture each pair; is one pair really worth 20 times as much? We may assume so, but we really have no way of knowing the truth. Our perceptions have been intentionally created to provide information about what to expect and to generate certain kinds of emotions. When we see a price tag, we are making a judgement: are our perceptions in alignment with the price?
As an entrepreneur, you must define expectations that clearly create a perception of value. If you are going to offer expensive products or services, you must make that clear through every facet of the customer experience. Otherwise, your customers will not assume that the price you charge accurately reflects the worth of your products and services. And if you want people to think that your products and services are bargains, you must also generate those expectations. Before we see the price tag, we already have an idea of what something should cost. The price tag only confirms or contradicts the perception of value that we have already developed.
Value derives from everything except price: your website, your storefront, your customer service, your competition, your reputation — everything you do and say will create an impression of value. When people see the price tag, they will make a decision. If the price is too high, they won’t buy. If the price tag is too low, the customer may believe he got a bargain, but may also assume the product is of low quality. In addition, the business owner has lost potential revenue. Each entrepreneur must clearly define, communicate and deliver accurate value to maximize sales and minimize losses.
It’s tempting to think that products and services have value independent of our thoughts, but value only exists in the mind. Value is at the heart of the branding process — it is the goal of all branding activities. As an entrepreneur builds her offering, she must focus on how each impression adds to the perception of value.