What is price?

Price is the definition put to the value of a product. Or put differently, price is often the factor that will govern the quality of a product. Even if it is only the perceived quality.

But, let’s think about it a little differently. Over the years, things have been becoming more and more expensive. Twenty years ago, I used to buy Chappies Bubblegum from the corner café for one cent each. Today, I would not be surprised if it costs seventy cents to a Rand for one of those. Not that the quality has gone up – it is still the same chewing gum, wrapped in exactly the same packaging, most probably with the same little bits of information inside the wrapper as twenty years ago – but rather, something else has come down.

If we were to take a currency as a product, for instance the price of one Dollar to a Rand, it is rather easy to understand that the currency as a commodity can gain or lose value. But what about the value of a currency to a product? The term inflation gets thrown around rather a lot, but what does it mean? A description of inflation usually resorts to saying “an overall rising or upward movement of prices of goods and services in an economy”. But on my example of the Chappie, that product did not increase in value over the last twenty years. It is still exactly the same thing.

The only conclusion that can be drawn is that goods and services usually stay the same – yes, there are innovations, making certain products obsoleet, but generally a loaf of bread was the same a hundred years ago as it is today – it is the currency that lost its value.

Why does currency then loose its value? What is the reason that things become more expensive? Is it the supply and demand issue? So to say that as more notes get printed, the supply obviously rises and as a result the demand for it causes it to loose value? Or might it be that greed in the market pushes prices up so that investors can get more out of their investments, but as a result the cycle will cause everything to go up in price and that will cause the investors to have more money that they can purchase less with? Where will that stop?

There is another problem with this argument: Inflation seems to handle different products differently. Twenty years ago, I could buy a Chappie for 1 cent, now it costs a Rand. That is an increase of 100 times its value over twenty years. Twenty years ago, my dad bought a top-of-the-range 5 series BMW for R120,000. This year he can buy a top-top-of-the-range 5 series BMW for R850,000. That is an increase of only 7 times its value over twenty years. So, who’s getting richer?

Another strange question would be if you happened to have 850,000 chappies lying around in a warehouse, would your BMW dealer accept that as payment for you new BMW? But bartering is another topic that can be discussed at a later stage.

The point is things do not appear to be adding up. Money as a means to define value would appear to be skewed. Comparing apples with pairs is one thing, but comparing a ton of corn with a new television screen is a total different. Still, both cost the same.

This argument would lead me to think that the perceived value of a product, when valued using the definition of price is totally governed by the attitudes, tastes and perceptions of your customers. And this is the crux: to me as individual a ton of corn is about as useful as a dog chasing a car and getting run over in the process. But I might have a client that wants that ton of corn to make maize with, and I need to find that client, and persuade him to buy it from me so that I can get enough money to replace the dog and wash the blood off my car, maybe even repair a dent or two.

That perception of value, value-add, and price then obviously comes down to the end-consumer. If they don’t want it, or want to pay the price that you ask for it, your product is worthless. And the onus lies with you to then either choose the right products to sell, or to make your product appear appealing enough that your client will be prepared to buy it instead of something else.

Now this then brings me to a total different point: If anything and everything can be valued using money, who then is your competition? I mean, if your client needs to decide to buy a little car, a home makeover or a holyday in the Bahamas, and you just happen to be selling a D-SLR camera with all the lenses that can be imagined
to make any guy-off-the-street appear to be the world’s best photographer, and your client just happens to like all four the options mentioned in this paragraph, your greatest competition will not only be all the other places that sell photography equipment, but rather each and every travel agent, interior designer and motorcar dealer in your city and that advertises on the internet and that accepts Rands.

So, how then do you make yourself the number-one priority for your prospecting client? How do you stand out above all the other people – your direct competitors, and all the rest of the people bidding for a bit of your client’s money? And the plain and simple obvious answer is… How the hell would I know?

The other answer is perceived value. Add as much value to your offering that your client would be stupid not to make your product the priority of his purchases. And how do you do that? You know more about your products or services than anyone else except your direct competitors. Your job is therefore to make your offering the best, and to let your clients know why your offering is better than anyone else’s. And then to hope, pray, and be confident that somehow, somewhere, someone will be wise enough to buy your camera instead of the holiday. In my opinion the only way to do that is to provide a client with a product that will give him return on investment.

If something can be bought for a certain price and sold for a better price, or used to make money, either on its own, or added to what the client already have. That will provide ROI. The camera may do that by giving the client an opportunity to make money with the photos that he takes. But so too can the Bahamas holyday, if the travel agent can add a little business opportunity to that package so that when the client arrives there, he may be greeted by someone that might be trading in his industry.

Whatever the example may be, value can be added in an interesting way. And that can create better sales for you.

I am in the interior design industry. We make people’s houses and offices beautiful. In this industry there is a lot of competition. Not only from other designers and implementers that might be less qualified and creative, and therefore cheaper, but also from that company that sells the new Hummer H3 with the Harley Davidson added to make the deal sweeter. The Hummer might cost the same as my project, so now the client needs to choose.

So how would I do it? Late in 2007, I took on a project in Houghton Estates, in Johannesburg. It was a brand new house, built on a 1100m² piece of land. The house itself was about 680m²; quite a big house. The client approached me to paint the house with a specific product that has been totally overrated in their marketing campaigns, and I therefore set out to give him better options.

I did a new design of the entire house, bringing concepts and products in that this client had never even heard of before. By the time that we had the design finalised, the project was about double the price of their initial budget, but they were rather keen on all the new ideas and concepts, and we set out to do the project. It was a rather difficult project as some of these design ideas have not been done anywhere else, but we finally finished it; and it looked stunning!

Then came the interesting part: At the beginning of 2008, a house in the Houghton Estates area of this size, and on a piece of land of similar size, sold for around R6 million. These clients had spent about R3 million to build their house and about another R1 million for us to do the interior. So in total, they spent about R4 million to finish the house.

At that stage, a real estate company started showing interest in trying to sell this house, and my client decided to let them go ahead, just to see what kind of offers they will get. By March 2008, an offer of R16 million was put on the table! That is a profit of R12 million for the house. And the reason? The person making the offer had never seen anything like that house. Absolutely loved every bit of it. And it is true; that house must be experienced in order to really understand how amaising the place is.

The point that I am trying to make is that price is an indication of quality and obviously taste, and value is the concept that you bring to your client. If you cannot add enough value to your product or service, be it in creativity, investment opportunity, ROI, or any other way that will make you exceptional and stand out above the rest so that your client will decide to buy your product instead of the Hummer H3 with the nice Harley ‘value add’, you will have the whole world – not just your competition – to compete with, and anyone that adds a little free gift to any purchase will fall in front of you in the line.

Your house is most probably going to be your biggest tangible asset and investment. You use it to live and enjoy in, you also need to keep it interesting so that when you get to a point that you want to sell, you can get a better price for it than your neighbour, and sell it quicker.

Your office is the image that you give forward to your clients about yourself. The return will be immense if you can create a better perception of yourself simply by making your surroundings better. There is nothing like good taste and style to create first impressions. And does not matter what anybody say, that impression can make or break a deal.