Value versus Price, is it the old argument about what is more important to the buyer.
Or, is the argument what is more important to you?
There is a school of thought that says you cannot offer value and compete on price, is this true? Not sure, as the interpretation differs.
Price – The cost of something. How much the buyer has to spend to get the product or service
Value – What you get for your money. Value does not mean cheap, providing value means giving something that someone is happy to pay for
The Wine Analogy
OK, first things first. We have taken these figures from the BBC and dare we say it, the programme ‘Watchdog’.
This is how it works;
- Buy a bottle of wine for £5
From this £5 the money is split something like;
- £2 is excise duty
- 94p is VAT
- 60p is transport, storage and packaging
- £1.25 is supermarket margin
So that is £4.81 of your £5.00. That leaves your actual wine as being worth 19p. So, a £5 bottle of pinot gives you a drink worth 19p. Does that seem like value?
The price is OK but now you know the breakdown do you feel like you are getting good value?
Bearing in mind that the majority of the costs above are fixed then does this higher priced bottle sound like better value;
- £8 bottle
- £2 excise duty
- £1.60 VAT
- 60p transport, storage and packaging
- £1.50 supermarket margin
That is a total of £5.70, meaning you are getting £2.30 worth of actual wine. So although you are paying £3 extra you are getting £2.11 of wine from that £3, not too bad then?
So, back to the first question. What is better, value or price?
Where does your business sit, does it offer value or price? Do you compete on being the cheapest or the best value?
Not understanding whether your business offers value or price can be a big mistake, your market will typically demand one or the other (tools for this are available here)
If you have any comments about this article then please add them above using the ‘reply’ button, or contact us direct via the website.
By Lime Consultancy