Many years ago an antique dealer I met in Queensland, Australia taught me an important lesson about value. His name was David Cameron (not the recently elected UK Prime Minister).
He would tour around the rural areas north of Brisbane looking out for hidden treasure on people's verandahs. As soon as he spied something promising he would make an offer – a low offer.
"You see", he told me, "I can go in with a low offer because I know they don't value it. If they valued it, they'd keep it in the house." What these rural folk didn't realise is that in Brisbane, that neglected vase was highly desirable.
So he'd make a low offer. The householder would be pleased to get something for what they considered to be a piece of junk. Off he'd go with his purchase, clean it up, display it in the window of his antiques shop in Brisbane and there, where the piece was valued, he could make a tidy profit.
The value of something isn't fixed.
From this we learn that the value of something is, like beauty, in the eye of the beholder. In this case physically moving a product from one location to another changed it's value. He put it in front of a different target audience and so was able to make a profit because of the different values placed on the same object.
If you have a premium product e.g. an organic product, you will be looking for a premium price. Whether or not you can achieve that price is less to do with what's affordable and more to do with whether the marketplace you target, values that product. Try selling a premium product to a store that piles them high and sells them cheap – you're doomed to fail. Take that product to a store whose shoppers, for health or ethical reasons choose organic food, then your product immediately has a higher value and you stand a much better chance of making a sale.
The balance between value & price
How do you determine the value of your product? A better question is how do you find out who values your product? I was talking to La Creme Patisserie in Neath yesterday. They produce gorgeous pastries and desserts made with fresh cream and fresh fruit. They offer a premium product. Knowing this the hotels and restaurants who buy from them, often include La Creme Patisserie's desserts in a premium option for example in their wedding package.
Yet still as a food producer, La Creme has to negotiate and demonstrate the higher "value" of their product. In this case, the products have a well established reputation and so hospitality establishments add to their own cudos by including them on their menus.
How can you find those who value it?
Targeting customers who already show a preference for premium products makes sense. So if you are selling painting holidays you must target people who want to learn to paint yes but crucially, also have money to spend on their hobby. It's no good mailing the starving artist in the garret. Where do such people hang out? Online certainly but probably also at theatres, galleries and other cultural centres. Do some market research.
How can you increase the value of what you offer in the eyes of the customer?
Once you are broadly targeting the right audience, the best way to increase the value of what you offer, is to identify what key issue your customer has. Then look for ways you can offer even more in this area.
For example: if you sell organic eggs you need to find out why someone would spend more to buy organic rather than free range. Both free range and organic hens technically enjoy high animal welfare, as both should have access to the range. Where are they different? The feed. Feed given to organic layer birds should not contain pesticides, herbicides or have any GMO (genetic modified organism) content. Lack of pesticides, arguably gives organic eggs a lower carbon footprint.
Which of these really matters to your customers? How do you find out? Ask them. If it's lack of pesticides, find out why specifically. Are they buying because of health issues, ideological issues, environmental issues or just to keep up with the Jones. If it's a health issue consider focusing on that in your sales material or packaging. You could offer an information leaflet highlighting how your eggs are different. What's in them and what's not? What health issues are associated with various pesticides. This way you are reinforcing their decision to buy this product.
Are you production led or marketing led?
Many people involved with producing hand made or bespoke products often find pricing extremely difficult. Starting with your costs and putting a price on your time is how production led businesses arrive at pricing decisions. This ignores the value of the item to the customer. It will also lead you to a high input low output business which is ultimately unsustainable.
Businesses that are marketing led, tend to focus on researching their market place and developing their business to constantly improve customer satisfaction. This allows them to price their items based on their value to their customers. In the case of bespoke handbags, market research might lead you to a market place that is willing to spend considerable sums on a unique item. This audience may be more difficult to find but once you've found them you can command a decent price for something you love doing.
Value versus price.
Look at it this way.
Take that handbag.
Lets look at the production led way of pricing:
Cost of materials £25.00
Cost of your labour £50.00
Say you add 30% (because someone told you that was a good mark up)
Lets look at the marketing led way of pricing:
You've discovered through market research that owners of Arab horses are willing to pay up to £350.00 for a hand stitched hand bag with certain designs.
You would have to sell 72 bags @ £350.00 a year to bring in £25,000.
However you would have to sell 257 bags @ £97.50 to bring in £25,000.
Here comes the really scary part. Look at these figures if you now look at the profit rather than the takings.
To make a profit of £25,000 in your business, you will have to make and sell 90 bags a year @ £350.00. That's about 2 per week.
On the first model @ £97.50 with just £22.50 profit you would have to sell …. wait for it
1112, in words that is one thousand, one hundred and twelve bags.
So value is also about how much you value your time, your business and yourself.