Today we are going to talk about a very important concept that only a few people understand: What's the actual value of your products or services?
When you have to come up with a price, which variable comes into play to maximize your gains and make sure that your business thrives?
We are going to explore this in today's episode
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I think interesting notion that people need to understand is that the value of an item is very subjective.
I don't know if you guys have read this book. It's called Candied in French. And in the book, these guys are kind of gullible and you don't know much about the world and stuff and everything amazes them. They end up in the city called El Dorado.
So El Dorado is a mystical city where, well, basically there is gold. I mean, everywhere wherever you look, there's gold. OK. So when they go there, they are like very amazed and they have this like gold rush and everything. Then they realized very quickly that these people in Eldorado, they actually don't care about gold. It has zero value. It doesn't have any value. You know why?
The reason why we attach that much value on gold is because it's rare. And for this reason, for us, it's very precious. But they are in a society where there is gold everywhere. It's as if you see the pebbles or the stones that you have on the floor. It's the same thing for us. Like a stone is really not valuable for us. But if some someone is in a country where there are no stones, they’ll find it super valuable.
So understand that the value that you assign to something is not necessarily the same value that everybody is going to assign to it. OK. Which is maybe something you already knew?
What's the actual value of your products or services?
Now, what I wanted to talk to you about is the two different values. So you as a business owner are a product owner, if you sell something anyway. And there are two different values you need to be aware of.
The first one is the perceived value. What's the perceived value? It’s the value in the eyes of whoever you're selling this stuff to. How much is that valuable to them?
Then the other value is the actual value. How much it costs to produce this, how much time, how much labour and all that stuff. So this has a value. And this is the actual value that you are the only person to know. OK.
So does the perceived value and the actual value match? No. Never. Like, they don't match. Man, that's crazy. So sometimes it can be to your advantage. Sometimes it can be to your disadvantage. But they don't match. And this is one thing that you need to understand.
People don't care about how much time, how much effort, how much money you spent to create a product. They don't care. What they care about is the perceived value of whatever it is that you're selling. If they feel like the perceived value is low, regardless how much time and effort you put in, it's not going to cut it. All right. I'll give you two examples.
One of a perceived value that's really not to your advantage and one that will be well to the advantage of the actual seller.
So there things that people have in their mind as a perceived value for something like a book. What's the perceived value of the book? People are used to paying like five bucks, 10 bucks or 15 bucks maximum. Regardless how much time you spent writing the book. The research, you went around the planet to talk to experts. You went to the moon. They don't care.
All they care about is the perceived value of a book. So in this case, it's really not to your advantage. The actual value is super high. Right. But the perceived value is insanely low. OK. So you'll have a hard time selling that book for like a thousand bucks for a million bucks. You have a very hard time doing it.
The second example is the opposite. And you might not be very happy about this, but you need to know. This is one of the biggest rip offs on this planet. Cable television. So you guys have cable, right? So a lot of you guys have cable. I want you to know something. So here's the thing. Putting the cable in, you know, the like the fibre optic and all that stuff, like pulling all the cables and everything to connect your house, that costs money.
But here's the thing. Once this is done, it costs pennies. And I mean pennies for that cable company to actually deliver the channels to your television. It doesn't cost anything. But how much do you pay for it? Sometimes you pay like a hundred bucks or something. Crazy stuff. Right.
Because in your mind, there is a high value on this. You know, you're getting all these channels. You have your sports channel. And then you have your cooking channel me, for example, I like the animal channel. If I can get animal channel, I'm willing to pay whatever. If I have National Geographic and the Animal Channel, I don't care. But the value of it. I mean, how much it costs to actually send me the data to see that is next to nothing.
What's the actual value of your products or services?
People are willing to spend a lot of money on this sort of thing because of the perceived value. So that's the thing when you can play with the perceived value. So if you make sure that the perceived value is high, you can sell any products super, super high.