It’s hard to believe if you haven’t had any first hand experience with the concept of perceived value but it is very real. People will pay what they think something is worth. Entrepreneurs generally understand this but seldom put the concept into use. Someone will pay disproportionately more for a product or service that delivers an experience to them that is better than the alternative choices. Two products may functionally provide the same result but the manner in which they deliver the result can be the difference between better than average profit margins or average profit margins.
Have you ever thought about how much money Ferrari makes per car sold? What about Mercedes-Benz? It turns out that someone has done the work to estimate the profit per car for each company with Ferrari earning $80,000 compared to Mercedes $10,500. Whether these numbers are exactly correct is not necessarily the point but rather that the difference between the two is so great. It doesn’t mean one company is doing something right and the other is doing something wrong, it simply suggests that one company is able to earn a higher margin per car based on the opinion of customers purchasing them. Both vehicles perform the same function but they deliver the results through different experiences for their owners.
In considering your products or services, are there aspects of how it is delivered to customers that could be improved? Would any improvements give your business the opportunity to increase its prices? If value is perceived and your business is competing on price, are there other variables that your business could compete on which would lead to higher prices and higher margins? It’s certainly not an easy exercise but for those brave entrepreneurs that are prepared to work on it, the results can be very rewarding for both your customers and your bottom line.
