This is the second post in a series titled “Team Member and Customer Experience Value.” This installment is titled “It’s Not About Price. It’s About Perceived Value.”
In the first post in this series, I covered six components of value creation and exchange. Today, I’ll focus on the distinction between “price” and “value.” In a 2008 letter to Berkshire Hathaway shareholders, Warren Buffet framed this important distinction by noting “Long ago, Ben Graham taught me that ‘price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks.” So, let me repeat the essence of Mr. Buffet’s quote, “Price is what you pay, and value is what you get.”
For the sake of example, let’s assume you purchased a beverage, and you pay full price for it. Let’s further assume you received half as much of that beverage as you usually do for that price. You likely will perceive the transaction as having been 50% less valuable to you even though the price was the same as normal. Since perceptions of value are affected by far more than the quantity of an item a customer receives, experience designers seek to drive perceived value across a range of dimensions like product quality, environmental aesthetics, service consistency, and even the gratitude of the provider.
The ultimate goal of this approach is to leverage research on perceived equity to produce customers who will refer your business to others. Equity research has shown that to optimally drive loyalty customers should feel they received slightly more value than they paid for. If they receive less value than they paid for they feel cheated. If they received value commensurate with what they paid, they feel satisfied but they are vulnerable to churn. If they receive far more value than what they paid for they often lose respect for the provider and fear the company will go out of business. So, the optimal end state is to give slightly more value than your customers expect.
In my recently released book Stronger Through Adversity, Bracken Darrell shared insights and his innate ability to produce value and a fundamental belief in the law of reciprocity. Bracken is the CEO at Logitech, a Swiss manufacturer of software and computer peripherals headquartered in both Lausanne, Switzerland, and Newark, California.
When asked how he led value during the pandemic, Bracken noted, “I’m proud of what we do for a living. The experiences that we’ve brought to people, whether cameras, pointing devices, microphones, etc., have delivered such value during the pandemic. Our solutions enabled doctors to treat patients, teachers to educate students, and so much more. Our focus throughout the pandemic has been to get value to the people as quickly as possible. If hospitals reached out to me for a product, I shipped it to them. Often there were no invoices.”
To which I asked Bracken, how can you make money that way? He responded, “We have both humanity and reciprocity on our side. You just need to create value, and profits follow.” For Bracken, value delivery is an extension of trust. He operates on the premise that people are drawn to value creators and will support them over time. He focuses first on meeting a need and knowing that need fulfillment ultimately pays. Not every act of goodwill will result in a future customer purchase. However, you shouldn’t provide value only when payment is guaranteed.
Inspired by Bracken’s insights, here are a few challenge questions for you this week:
- If price is what customers pay and value is what they get, how would your team members and customer describe the value they get from your business?
- Are your clients perceiving slightly more value than what they paying for?
- How do reciprocity and humanity help you lead with value, so you can trust profits will follow?
For more about the role of value creation in the future of customer experience success, please pick up or gift a copy of my book Stronger Through Adversity or download one of my many complimentary eBooks including one recently created for Stronger Through Adversity. You can get those by visiting josephmichelli.com.