Understanding the Power of Price and Value

Pricing is one of the most important aspects of business. It can determine whether a company succeeds or fails. But what makes people buy? Is it the price or the value? In this article, we will explore the power of price and value in shaping consumer behaviour.

The Importance of Value

Providing value to customers has become increasingly important in today’s competitive business environment. It helps companies differentiate themselves from their competitors and command higher prices for their products or services.

One notable example of a company that prioritizes value is Disney. They charge more for their theme parks compared to their nearby competitors like SeaWorld and Universal Studios. However, they have managed to maintain their high prices and continued growth due to their unwavering commitment to delivering value to their customers.

To illustrate, here are some ways Disney provides value to their customers:

1. Unique customer experience:

Disney creates a unique customer experience through their themed lands, immersive attractions, and iconic characters. They are known for their exceptional attention to detail, which helps to create a magical experience for their customers.

2. Exceptional customer service:

Disney cast members are trained to deliver exceptional customer service, which includes personalized interactions, attentive listening, and problem-solving skills.

3. Innovative technologies:

Disney uses innovative technologies to enhance the customer experience. For example, their MagicBands allow customers to access their hotel room, park tickets, and fast passes, all with a simple tap.

4. Family-friendly environment:

Disney provides a family-friendly environment with attractions and activities suitable for all ages. They have also created quiet areas and baby care centres for parents with young children.

By delivering value to its customers in these ways, Disney has managed to build a loyal customer base that is willing to pay a premium for its products and services.

Disney castle

The Fallacy of Cost-Plus Pricing

The fallacy of cost-plus pricing is a pricing strategy that many businesses use to determine the selling price of their products or services. Cost-plus pricing is the process of adding a markup to the cost of a product or service to determine the selling price. The problem with this approach is that it doesn’t take into account the value that the product or service provides to the customer.

For example, let’s say a company produces a widget that costs $10 to manufacture. They add a 20% markup to the cost, bringing the selling price to $12. This approach assumes that the customer is willing to pay $12 for the widget because that’s what it costs to produce. However, if a competitor produces a similar widget that provides more value to the customer, the customer is likely to choose the competitor’s product, even if it’s priced higher than $12.

A better approach to pricing is value-based pricing. Value-based pricing is a pricing strategy that takes into account the value that the product or service provides to the customer. This approach focuses on the benefits that the customer receives from using the product or service, rather than the cost of production.

For example, Apple is known for using value-based pricing. Their products are priced higher than their competitors, but they provide more value to the customer in terms of design, user experience, and functionality. Customers are willing to pay a premium for Apple’s products because they believe they provide more value.

Apple Products


  1. Harvard Business Review “A Quick Guide to Value-Based Pricing” – https://hbr.org/2016/08/a-quick-guide-to-value-based-pricing
  2. Price Intelligently “What is Cost Plus Pricing: Advantages & Disadvantages” – https://www.priceintelligently.com/blog/cost-plus-pricing

The Subjective Theory of Value

The value of a good or service is not determined by its inherent characteristics or cost of production, but rather by the subjective preferences of individual consumers.

One of the most well-known proponents of this theory was Austrian economist Carl Menger, who argued that the value of a good or service is determined by its utility to the consumer. This means that the value of a product is not based on the amount of labour or resources that went into producing it, but rather on how much the consumer is willing to pay for it based on their own individual needs and preferences.

Understanding the subjective theory of value can be helpful for businesses when it comes to pricing their products and services. Rather than focusing solely on the cost of production or the perceived value of the product, businesses can focus on delivering a unique and valuable experience to the customer. This can involve creating products that meet specific customer needs or desires or providing high-quality customer service that enhances the overall experience.

The Power of Branding

Branding is an essential aspect of business that can have a significant impact on a company’s success. A strong brand helps build customer loyalty, creates a memorable impression, and can command higher prices.

Example 1

Nike is a sports apparel brand that has become synonymous with quality and innovation. Their “swoosh” logo and “Just Do It” slogan are instantly recognizable around the world. Nike products are generally priced higher than their competitors, but customers are willing to pay for the quality and the association with the brand.

Nike ad

Example 2

Coca-Cola is a well-established brand that has been around for over a century. Their logo and packaging have remained consistent throughout the years, creating a sense of familiarity and trust in consumers. Despite being priced higher than generic or store-brand sodas, Coca-Cola continues to command a significant market share due to their strong brand recognition.

Coke ad

For small businesses, branding can be just as important. Creating a unique brand identity can help small businesses stand out from their competitors and build customer loyalty. Social media platforms like Instagram, Facebook, and Twitter can be powerful tools for building a brand and engaging with customers.

  1. Forbes “The Importance Of Branding In Business – https://www.forbes.com/sites/forbesagencycouncil/2021/03/24/the-importance-of-branding-in-business/
  2. Bynder “Brand management: The psychology behind brands we love” – https://www.bynder.com/en/blog/psychology-behind-brands/

The Ethics of Pricing

It’s essential to avoid taking advantage of customers by charging them excessively or manipulating them through deceptive pricing strategies. Companies that prioritize ethical pricing build long-term trust with their customers and maintain a positive reputation.

The traditional way to ensure ethical pricing is to adopt a cost-based pricing approach, which considers the cost of production, overheads, and other expenses before determining a reasonable profit margin.

As mentioned before, you can also value-based pricing, which considers the perceived value of the product or service to the customer. This approach ensures that the price is fair and reasonable based on the value that the customer receives.

Overall, ethical pricing is about being transparent, fair, and honest with your customers. Here are some useful resources on the ethics of pricing:

  1. Harvard Business Review “The Good-Better-Best Approach to Pricing” – https://hbr.org/2018/09/the-good-better-best-approach-to-pricing
  2. Shopify “How To Price a Product in 3 Simple Steps” – https://www.shopify.com/uk/blog/how-to-price-your-product


In conclusion, pricing is a complex subject that requires a deep understanding of the customer’s needs and desires. The power of price and value is inextricably linked, and businesses that focus on providing value to the customer tend to command higher prices.

Understanding the subjective theory of value, the importance of branding, and the ethics of pricing are all critical to success in the marketplace. By approaching pricing with a customer-centric mindset, businesses can create value for both themselves and their customers.

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