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Understanding The Difference Between Price And Value; Product And Benefit

from the let's-try-this-again dept

Earlier this year, in response to yet another editorial somewhere where someone insisted that if something has a price of zero, it means that people don't think it has any value, we pointed out that price and value are two different things. Price isn't determined by value -- it's determined by the intersection of supply and demand. Value plays into that, by determining what the demand part is. That is, if I value widget X at $10, then I'd be willing to pay anything less than $10 for it. If the intersection of supply and demand prices widget X at $5, it doesn't mean that I value it at $5, but it does make it likely that I'll buy it. The same is true if the market prices it at $0. It doesn't mean I place a $0 value on it. It just means it's worth getting at that price, since it's below what I value it at.

In the past few months, this discussion keeps coming up again and again -- and it's good to see folks pushing back and pointing out the difference between price and value. The latest is Amy Gahran, over at eMedia Tidbits, where she takes a journalism professor to task for asking whether journalism should even be done at all if people don't "find value in what we as journalists do." First, Gahran makes the point that, historically journalism has always been more supported by ads than people anyway, and then makes the price/value distinction:
just because people aren't willing to directly pay cash for something does not necessarily mean they don't "find value" in it. For instance, when was the last time you personally chipped in for a clinical trial? And how are you paying for that air you're breathing right now?

Some benefits are assumed to be part of the environment in which we exist. That's what it means to have an environment. If a benefit grows scarce to the point that people feel they must directly pay cash from their pocket to keep getting it, there's probably a far more dire calamity at hand than that single point of scarcity. Most people will almost always seek other free sources of a benefit first.
She then goes on to make another favorite point: too often, those in dying industries mistake the product they're selling with the benefit they're selling. The horse carriage makers mistakenly thought they were in the horse carriage business (product) rather than the transportation market (benefit). The best way to succeed is not to focus on the product, but the benefit you're providing your customers:
I think it's important to bear in mind that people value benefits, not necessarily forms. The key benefit that journalists and news organizations have provided has been relevant, timely, accurate information that helps people make decisions, take action, and form opinions. For over a century we've established an ad-supported business model around packaging that benefit in a form known as "journalism." But that's not the only form this benefit can take, and many parts of the "American public" (and the advertising industry) are figuring that out.
Good stuff.

Filed Under: benefits, economics, price, products, value

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  1. identicon
    Hal Bredbener, 21 Aug 2008 @ 9:24am

    The value of stock

    120 years ago Henry Ward Beecher (Harriet beecher Stowe's father) warned young men to stay away from speculation and the stock market.

    He said anyone could place a value on a lump of coal in their hand. It was worth something when you were cold. It meant warmth and you might be willing to part with a dollar to buy a night's sleep in a warm house.

    But that same $1 invested in the coal mines stock held only a relative value. It was just a peice of paper that someone else said had value - nothing intrinsic, like warmth, could be seen or felt in the stock certificate.

    His warning was that if you go too long trying to assess the value of intangible things, you eventually lose the ability to assess the value of tangible things. He got it right.

    Our current society seems unable to place true value on anything. We pay ball players millions and teachers a pitance. We gripe about the poor who cannot afford medicine, and instead spend our money on movie tickets, MP3 players and XBoxes. We say we want fuel-efficent cars, but insist they have GPS, lots of chrome, and 5-speaker sound systems.

    For example, many new cars are now engineered to include LED turn signals. These assemblies often include 5-10 high-powered LEDS that will last 10 years or more.

    But the car probably will not be around in 10 years. And the $760 replacement of a LED turn signal assembly that was hit during a fender-bender should be compared with the $75 tail light assembly that used older technology.

    Everywhere I look it seems there are examples of how illogical and emotional we get when trying to assess value. The reason the web is so burdened with SPAM, ad rotators, pop-ups, and banners is because Beecher was right. We've lost the ability to judge value, and unless we can learn again to assess that properly, price will just be a tool that slick marketers and Walmarts use to trick us out of our money.

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