Why marketers must stop confusing price with value

Indulge me for a minute. Think about the cost of the things that you are wearing or carrying right now. That jacket, those shoes, your watch, phone, glasses, perhaps even your tablet. What did you pay for them?

 

Then think about the worth of them. How valuable are those items to you now, compared with what you paid for them, whenever you bought them?

 

If you have indulged me thus far, then you’ll have done something that we marketers very rarely do. You’ll have thought about the worth of possessions, rather than the price paid for them. This is one of the most-powerful and least-used marketing techniques at our disposal. Let me illustrate by example.

 

Earlier on today I was driving to catch a plane in my new car. It’s new to me, but, strictly speaking, not that new. In fact, it’s 30 years old and cost me 200 euros.

 

It was once new, and in those days lived life as a delivery van for Auchan, the French supermarket. After Auchan decided it had got to the end of its useful life, it sold it off to a local plumber, who covered it in stickers advertising his services, and drove it around for probably another 10 years, before retiring it to be his hunting van.

 

When he died, his son (also a plumber) inherited it; I, in turn, bought it from him for 200 euros. He wanted to charge another 50 euros for the bloodhound cages in the back. I said, no thanks.

 

Cost vs value

It just cost me 25 euros to fill up with petrol, which is enough for about five hours driving. So in essence I have a car that costs about 5 euros an hour to run, which replaces a 200 euro taxi ride.

 

In that car I kept looking at my watch (you don’t get a dashboard clock for 200 euros.) It is an Omega Speedmaster Professional, like the ones the astronauts wore on the Moon landing. I bought it on the 30th anniversary of that event, which coincided exactly with my 30th birthday, some 14 years ago.

 

I bought it in Times Square in New York, and it probably cost about $2000. I wear it a lot, and still love it. One day I hope to pass it on to one of my sons. At that stage, what will it be worth to me – or him, for that matter? How does that value compare with the price the same watch would cost you on the high street, let alone the price I paid in 1999?

 

If we start to think creatively about what shoppers receive, rather than hand over, a whole new world opens up.

On my feet I’m wearing a pair of RM Williams boots. I bought them at great expense at the RM Williams shop, housed in an old lead-shot tower in Sydney, four years ago. By any definition they are expensive; they probably cost me about £250 at the time, and sell for the same price in London. But they are fantastically comfortable, durable and versatile. Added to that, last month the nice people at the London RM Williams shop shipped them back to Australia, where they rebuilt them… for £40. I had a friend in Singapore who had been doing that to his RM Williams boots twice a year for 15 years.

 

A final example: my new Nokia Lumia. After I left Nokia last year I tried (I really did try) to be like everyone else and get into my iPhone. I lasted about six months before frustration overcame conformity and I just had to break out of the closed Apple straitjacket. I ran headlong into the warm, flabby embraces of Microsoft, and now no amount of money would make me give up my Nokia Lumia or my Microsoft Surface tablet. The phone came free and the tablet cost me £300… even though the phone actually costs about £400. Odd that.

 

So what I discovered about myself as I chugged on to the airport is that the price I paid for something is less important than the worth I ascribe to it. That worth is a combination of how long I have owned it for, how well it performs and what my life would be like without it. Economists probably have a set of terms to describe these various values, but, interestingly, I’m not sure marketers do.

 

We have become lazy when it comes to talking about the price/value equation in our marketing, assuming that brands will deliver the qualitative part of the deal, giving context to price as the quantitative element.

 

That may once have been true, but as the number of brands in our lives has proliferated (exploded is perhaps a better adjective), so their absolute value has fallen.

 

Perhaps we need to rethink our approach not just to price marketing, but to pricing itself. Once upon a time, marketers and agencies told stories that helped people see beyond the sticker price, and the best retailers showed why the purchase was the start of the relationship, rather than the end of it.

 

What value can you put on a leg of lamb advertised by a supermarket, if it means the family will all come home for the weekend? How much would you pay for "the holiday of a lifetime", if you knew the memories were going to last a lifetime? If we start to think of price as a relative concept, rather than a fixed one, and think creatively about what shoppers are receiving, rather than what they are handing over, then a whole new world opens up.

 

You can probably think of a few examples of brands that do this well, but they are the exception where they should be the rule. In the pell-mell of globalisation, we have confused price with value. If ever there was a time for advertisers and marketers to be screaming "buy cheap, buy twice", this is it.

 

This article was first published on marketingmagazine.co.uk