On Sunday August 9th, two cows were herded through an Asda supermarket in Stafford, UK in protest at the plummeting price of milk.
Farmers were protesting the amount they are paid for the milk they produce.
In July similar scenes were witnessed in France as French farmers blockaded roads around the country in protest against failing price and cheap imports.
Farmers are hardworking people, they are the lifeblood of any society.
They are the ones who usually wake up 5am to start work when the rest of the country is asleep.
However, the issue with their protest is, they are failing to take into account the basic fundamental principles of pricing.
The fundamental pricing principle states that the price of a product or service is in direct correlation to the buyers’ perception of value.
There are two perceptions of value of any product or service.
There is the vendors’ perception of value, which is based upon the amount invested in bringing the product or service to the market.
And there is the buyers’ perception of value, which is based upon the magnitude of benefit he/she derived from the product or service.
British farmers are contending that it cost them about 30p to produce a litre of milk and they are paid 23.01p per litre.
The right and wrong of that argument is not for me to say, it is best left in the capable hands of the Pope.
What I have tried to illustrate with this story is, the situation is a typical vendor buyer relationship.
And it comes down to both sides perception of value.
As a business owner, you need to be acutely aware of the fact that in the final analysis, it is the buyer’s perception of value of that matters.
The amount he/she is willing to pay for your product or service ultimately depends on their perception of value.
Therefore, it is the responsibility of you as the business owner to raise your buyers’ perception of value to meet your perception of value.
Ideally you need to raise your buyers’ perception of value to exceed your perception of value.
That is what your pricing structure is going to be based upon.
How to raise Your Buyers’ Perception of Value
I do not know enough about the business and production processes of the British and French farmers to be in the position to give advice about ways of raising the perception of value of their produce.
But I can offer them these words of wisdom from Eli Goldratt:
“Options, service level, guarantees, response times, etc. can change market perception of value of the same physical product or service”.
This is a very important statement because the belief of the majority of business owners is their product or service needs to be superior to that of their competitors for them to command premium price.
That’s far from the truth.
Your ability to command premium price for your product or service depends on who is buying and how it’s been sold to them.
In the first part of this article series, I told the story of a toy bus I bought in ASDA for my son, and the same bus was being sold in Harrods almost three times the price it was sold for in ASDA.
It was the identical bus in the identical packaging probably made by the same people in the same factory in China.
Why was Harrods able to sell the same bus almost three times the price it was sold for in ASDA?
Harrods was able to pull it off because of who bought the bus in Harrods and how it was sold to them.
In ASDA, the bus is just sat on the shelf, with angry store assistants who do not even want to serve the customer.
While in Harrods, there are play consultants who will play with kids, ensure they are familiar with the functionalities of the bus before attempt is made to sell it to them.
The same product different sales strategies.
Everyone know that Samsung phones possess the same functionalities as iPhones.
Yet iPhones are sold more than five times the price of the most sophisticated Samsung phone.
When you buy a Samsung phone, you buy a mobile phone.
When you buy an iPhone, you buy membership into an exclusive club.
As I said, I do not know how farmers could raise the value of their milk.
But they have options.
They could change their delivery arrangements…
Change their payment terms…
Advertise the milk for retailers…etc.
I don’t’ know at this stage.
What I know is, any business can price its product or service for any amount they want as long as they simultaneously raise their buyer’s perception of value.
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