Part Deux: Price vs. Perceived Value

A little more than a year ago a struggling local automotive repair shop asked me for a proposal to market their shop. They were charging $10 for an oil change (yep, $10), all their advertising (print) was focused on low prices, and they financed some of their repairs. They couldn’t understand why they were struggling and why customers were not beating a path to their door.

Here’s some of what I proposed:

1. Raise your prices, stop financing
2. Stop all price leader advertising.
3. Develop an image of a shop of personal mechanics with the owner being the lead mechanic.
4. Use your advertising to publish a “column” called Straight Talk about automotive repair.

The owner rejected my proposal because he didn’t see how raising prices could get him more business. In his way of thinking, raising prices meant less business because fewer people would want to do business with him. He didn’t understand price vs. perceived value.

Picture the price-value equation as a balancing act on a scale. When customers make a decision about your stuff, they are adding and subtracting things from the value side of the scale based on your offer. They then learn your price and the scale will either tip to the value side or to the price side. If they consider your scale to be heavy on the price side, you do not have a customer.
Unfortunately, when a business sees their scale tip to the price side, they think the answer is to make the price side lighter: they reduce the price. This is not the answer.

Instead, a business owner should look at the value side of the scale and make it heavier. This is not necessarily done by adding more services and free stuff with the purchase. Giving away more stuff with the purchase is essentially working on the price side of the scale.

The two key components of the value side of the scale are the product/service itself and the customer experience. Make sure your customers understand the full value of the stuff you are selling, and then enhance that value with a well-designed customer experience.

Lesson: Add value, don’t reduce price. For more on price vs. perceived value, see my previous post featuring the Forrester Research video.

What happened with the automotive repair shop? A few months later they closed down. The business has now reopened with a new owner and a new name. They no longer have $10 oil changes.

Related posts on price and perceived value:
Nine Compulsions That Keep Your Brand Mired in the Pack
Starbucks: Not Any More
Style is Free

For marketing ideas and case studies, see our other blog: The Idea Spot
Our company website: www.themarketingspot.com/