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
    Zoe Winters, 23 Jan 2010 @ 11:47am

    I'm going to have to disagree.

    The MONETARY value of something is what people are willing to pay for it. If you're only WILLING to pay $5 for something then that is it's monetary value. Now it may have more intrinsic worth to some people, it may have value that goes beyond money, but monetary value is determined by what people are willing to pay. And when people are talking about value and price they are speaking about monetary value. The fact that others want to extrapolate the conversation onto "intrinsic" value has nothing to do with the facts.

    If some people are willing to pay $50 and some are only willing to pay $5, then you have to decide which clientele you are going to cater to. (I say go with the $50 crowd. The more a customer has to pay for something, the less they generally whine about it later.)

    But FREE indefinitely for everything WILL devalue your work. It won't devalue everyone's but it will devalue yours, because when you train people to believe what you are providing has no monetary value outside of a hard copy of whatever it is, i.e. the story/information/entertainment has no inherent monetary value, then they will never buy it from you.

    I believe in the power of free, but I also believe in too much of a good thing. But I suspect eventually those who are such "information wants to be free" proselytizers will see the light when it doesn't work out for them well enough in a real-world financial sense, or when hard goods are such a minority percentage of sales that you have to be able to sell digital to survive. (i.e. sometime in the next 10-20 years.)

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