Understanding Value: Perception vs Reality

The generally accepted definition of Value is simply,

‘value is what people perceive it to be, and nothing more’.

I prefer Warren Buffett’s more rounded and concise definition which is,

“Price is what you pay. Value is what you get.”

Chiming in with Warren Buffett and from my perspective, the value of your brand or product hinges on two equally important principles that require a balance: The first is how your brand is perceived by potential and existing customers and the second is the actual delivery on your promise to paying customers.

The first is how your brand is perceived by potential and existing customers and the second is the actual delivery on your promise to paying customers.

The perception of your brand is the effect of all of the marketing that you do. So it is really the amplification of your brand story and the reinforcement of the benefits and features of the products that you sell in advertising, your website, etc.

High value perception + underwhelming value received spells a bad product

The illustration above depicts a business that focuses more on marketing than product improvements. They have in essence hyped up their supposed brand value through marketing and have failed to come through with an equally positively stimulating product to their customers. The fix really would lie in either reducing their obviously exaggerated claims in their marketing or to improve their product — it might involve both.

value perception and value received at an equilibrium

If they succeed, then they will manage to strike a product/market fit balance as exemplified in the illustration above. In this scenario, their perceived value through marketing, matches the utility their customers receive from their product. It really is an ever changing balancing act.

Further product improvements without changes in marketing or pricing could lead to a situation where the product actually over-delivers on its promise. Although this is a desirable position by companies on the other end of the spectrum, it is not exactly optimal. In order to strike a balance, adjustments need to me made in marketing and maybe even pricing (pricing is a key element in the 4Ps of marketing).

So, whilst one-half of the concept of Value involves honing in on your promise and the second half is the effective delivery of your promise.