Do customers make purchasing decisions based on value or cost ?


I believe every customer makes a purchase decision based on value. The question of cost (or price) is how it relates to the value. Separate from the supply / demand curve, which focuses on price sensitivity (a more complex discussion). I'll share a few points on the value curve:

  1. ​commodity - if something is perceived as a commodity (because of the way it is positioned or because it is truly an ingredient (if you will) for a product, then it has a very low perceived value and cost is the driver.

  2. ​​paper, news, gossip, public transportation, groceries (though there are increasing efforts to create value)

  3. ​product - lots of variability here

  4. many products have very little value added, so they have a very low perceived value.  These typically address one or more functional needs. 

  5. ​but, there are an increasing number of (higher priced) products that deliver on the functional needs, while addressing one or more sets of emotional needs. Think about jewelry (pure emotion). Think about cars (they sell the experience).

  6. ​service - lots of variability here as well, but with a service you have more direct control to create an experience and THAT is where you can achieve very high value (and prices to match). 

  7. Think about the price you pay for a haircut at a barber versus going to a salon.  The former is delivering a functional need via a service, while the latter is building an experience around the functional needs.

  8. ​The better the experience, the more likely the service can improve the perceived value (and push the price). 

​Customer needs fall under Functional & Emotional outcomes.  

Value (from the perspective of the customer) is comprised of how important both of these outcomes are to the customer AND how well they are met by the product (and/or service) being offered.  Price (ideally) should be set relative to comparative offerings from competitors. So, if your product (and/or service) is satisfying the unmet or under met needs (outcomes) for a customer than your competitors, you need to communicate this value (promotion) and set your price accordingly (at which point, you can revisit the supply / demand curve).

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