“Buy now! A $2,000 value, only $79.95! This week only!”
What is value, really? When a product is on sale, why do we say that product is worth more than we pay? It’s psychological. We’re getting a deal. We presume the company is taking a loss in order to bring us a special offer, figuring that the company’s real goal is to get us to buy more. We think the company wants to sell more products with a profit to make up for the loss leader. That’s possible in many cases, but if the buyer is convinced that a deal is a good value, then it doesn’t matter whether it leads to more purchases.
A product’s value is whatever customers are willing to pay. If that’s $2,000, that’s the value. If sales aren’t moving well at $2,000 but there’s a market for the product at $79.95, I would say that the lower price, among the two options, is the canonical value. This concept has another level; there is a simple formula one can use that could take the frequency of buyers at a variety of price points into account to determine an overall average value.
When sellers advertise a product at the lower price point with a marketing tactic like the one used in this first line of this article, I tend to take the opposite viewpoint. I even feel bad for those who paid $2,000 for a product that is worth $79.95. And if customers who purchased the product for $2,000 find out that the identical product is now sold at the lower price point, I imagine they would be upset. They might feel swindled, and they wouldn’t entirely be wrong.
Prices for products change all the time. Today’s latest technology always costs a premium when compared to next year’s price for the same item. With technology, this premium is for the cachet of being an early adopter or the privilege of having the latest innovative product. With this rationalization, early adopters don’t have a problem with a product being sold later for a lower price. Most products don’t have this sort of psychological premium, though.
This is why I have a difficult time dealing with a lot of sales. I am fine paying a lower price for a product, and I’m often fine paying a higher price for a product if I think it’s a good value. I’m just not a fan of marketing messages that try to convince shoppers of the “real value” of a product.
Published or updated July 8, 2011.