A simple value equation

A simple value equation

Marketers put a price on something and call that its value. They arrive at that amount through a bunch of internal references – cost, margin, goodwill, disbursements … Then they talk about that value as if it is real. It isn’t of course. Value is simply an ongoing judgment call based on this equation:

Value = Perception divided by price.

When a consumer judges something as over-valued, the perception of what it is worth is less than the price being asked for it. And when something is seen as undervalued, the perception of what it is worth is more than the price being asked for it.

The mechanics of determining an asking price are exactly that. The questions marketers need to keep answering to determine value are different. They are also disarmingly simple.

“Why should I buy this from you?” and

“Why should I feel it’s worth what you’re asking for it?”


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