I wrote a blog for Boards Magazine last week. Typically I keep my writing for them separate from this blog. However, Dennis Ryan wrote a post yesterday that picked up one of the thoughts from a slightly different perspective, and made me think it would be valuable to link them together.
The underlying theme to both pieces is that how we value something depends on many things.
One of which is not whether it actually exsts.
A thought to ponder as you think about how to improve your business.
Dennis' post is here.
My post from Boards is here.
Make a product. Provide a service. Exchange them for money.
The foundations of commerce.
Except on the web. Where new definitions of value are throwing traditional models under the bus.
In 2009, Lady Gaga sold more digital music than any other artist. 15.3 million tracks. She also gave away hundreds of millions more. On MySpace alone her songs were played 321.5 million times. All for free.
Today, many see her business model as a blueprint for the future. Give away the music and sell concert tickets, merchandise and anything else that the artist’s brand associates with. In Lady Gaga’s case this includes Polaroid and Estee Lauder. The high rent district indeed.
The magazine and newspaper industries, by comparison, look like scruffy kids playing stick ball in a derelict neighborhood. If you’re wondering what print real estate is worth these days pick up a copy of Time and feel for yourself. A business illness created by the willingness of those industries to jump in to the digital revolution before they understood what it meant to them. And proof that innovation is a kissing cousin to professional suicide if you don’t understand what makes your business valuable to your customers.
After all, what any of us are willing to pay for something is defined by two criteria. Its price. And our perception of its value.
When the price is zero, are we really going to argue the seller is wrong? That they have underestimated the value of what they are selling. More likely is that we will come to believe that our perception of its value was misinformed. That in the future we should expect more for less. Else we be taken for fools.
Value is a delicate balance. One that readers of Boards are involved with articulating every day. Choose this versus that because...? Take your pick. It works better, looks better, feels better, defines you better, is priced better.
Indeed, every piece of marketing ever created has been an articulation of value. A statement I invite you to challenge.
The problem comes when we ourselves undermine our own value proposition by letting others define what our stuff is worth. As 41 production companies who signed the P&G Preferred Vendors agreement recently discovered when P&G then hired someone else to shoot their Winter Olympics opening Anthem spot.
Or by giving away our stuff for free without a plan to make money on the back end. A problem that some in the print industries are now trying to correct.
Subscribers to The Wall Street Journal are mostly unwilling to pay for the newspaper’s web-based version. Since a lot of it has always been free, they don’t see why they should now pay for the rest.
By contrast, few have an issue paying an additional fee for the smartphone version of the Journal.
Because they were never told they could have it for free.
The perversity of this is that we expect that the medium in which the Wall Street Journal works best - desktops and laptops, complete with screen sizes and bandwidth that optimize the experience - should cost nothing.
But reduce the type to 4pt helvetica, and the download speed to the vagaries of AT&T and Verizon’s wireless networks, and we’re only too willing to add $4.99 a month to our bill.
A definition of value based entirely on perception.
Indeed value is so much about perception that if we limit our own company’s pricing structure to simply cost plus profit, we define ourselves as a commodity based business long before our customers see us that way.
Enduring business models are based instead on the understanding that people make buying decisions that are subjective. That is, as consumers we are motivated as much by how a purchase makes us feel as by an analysis of how efficiently it fills a need.
Which explains why in 2009, in the midst of economic catastrophe, U.S. consumers spent more than $1 billion on virtual goods and services.
Virtual, as in they don’t exist. Except in online worlds. Like FooPets, where you pay to adopt and care for a virtual pet. http://www.foopets.com/
FooPets has four million members. And is adding 20,000 new members a day.
Which is great news for Purina.
After all, they sell bags of virtual Purina Puppy Chow for $3.
That’s three real dollars. For digital dog food. Eaten by digital dogs.
So the next time you wonder why your customers want to pay you less, consider this.
Is it their perception of the value of what you’re selling that’s the problem.