The Odd Secret about Capturing Value.

Moreover, there’s even a more bizarre oddity in how we think about price, value, and worth. I had the opportunity once to speak to a consultant who charged his clients millions of dollars a year. You would know the names of both the consultant and some of his clients. He operates in that rare ether of personal coaching. I asked one of his clients why he paid so much, and what he felt the value was of the coaching. His answer was astonishing. He said to me: “I don’t think _____ (the consultant) is really all that much smarter than me. I don’t always believe that he has better insights than I do; sometimes he does, and sometimes he doesn’t. But I know this much, since I’m paying him $XXXX (big amount of money) to consult for me, I value his advice, and I act on it. If I didn’t have to pay dearly for the advice, I’m not so sure I’d listen, and I definitely know I wouldn’t act on it.”

Our brains are wired to value things which require us to make a sacrifice of opportunity. Since our brains value variety, things that diminish that capability are in fact considered scarce, and thus, we place a higher value and expectation on the benefit they will provide. The entire notion of “one-of-a-kind” is the extreme position where the opportunity cost of ownership is essentially infinite.

The strangest secret about pricing, and value, and answering the question of “how much should I charge?” is this – you need to charge enough so that your price matches the expected value of your customer. Your profit margins matter, but what matters even more is that you don’t under charge your customer because you (the producer) undervalue the value you create for him.

Here’s an obvious example from real life. Cuban cigars are highly valued by cigar aficionados residing in the United States. I used to travel all over the world – most often to London and Geneva. In both places, Cuban cigars of the highest quality are not only legal, but plentiful. Many US citizens enjoy Cuban cigars while traveling to such areas (purchase abroad is potentially unlawful under both the Helms-Burton Act as well as the Trading with the Enemy Act of 1917; as a practical matter, however, US citizens routinely consume Cuban cigars abroad, without risk of prosecution, so long as they do not attempt to possess or import such goods back into the United States). In large measure, since Cuban cigars have such a mystique, the cigars are often triple or quadruple cigars of equal quality made in Honduras, Nicaragua, or the Philippines.

Then, oddly enough, I found a brand of cigar, recommended to me by a vendor’s representative, called Camacho. The smell, the taste, the aroma, and even the “punch” was distinctively Cuban-esque. To boot, the cigars were only $14 each – a far cry from the ones I routinely smoked when on business –  $50 dollars a piece (Montecristo). As much as I like Camacho, and as much as I can smoke four for the price of one Montecristo from Cuba, there’s no doubt in my mind which one I valued more.

Price affects your experience greatly. I paid a lot, therefore I expect a lot. If you deliver on that expectation – that can go a long way to cementing a relationship than if you offered a free trial. Sometimes, the best way to make the sale is to make the customer pay for it.

Can I help you think through problems of creating and capturing more value in your business? Perhaps we should chat. Take a look at the consulting that I offer, as well as pick up the phone and contact me.