Does price matter?

How much more productive are you using a Blackberry compared to when you had to bring your lap top? How much happier are you when you are using your Ipod compared to your old CD player? Exactly how much better does a Starbucks latte tastes compared to an ordinary coffee?

Not easy to answer, is it. Well then it´s rather hard to define how much these new (once they were) ideas are worth, even compared to similar products we previously were using. Ideas, products and services that enhances quality, make us happy or more sexy are worth paying for. For the vendor that means: Superb margins!

Products that give measurable enhanced quality or are more effective in quantative terms, wouldn't they be even more valuble then? Nope. If they are positioned only around their measubable features they are doomed to compete with these. And that's bad.

All this pops up in my mind when reading Nicholas Carrs comments on the price of search-based ads. He argues that Google Adwords has, or at least soon will, reach the point where prices must drop. Only because customers can measure, they also will see they aren't getting as much value as they were expecting, and thus turn to other channels. "The ability of advertisers to precisely measure the value of a click makes search ads attractive. But it also ensures that, in the end, the price will come to rest at a rational level"

I can agree to a certain point. If something can be measured, it will. Which is why you shouldn't give that possibility to the customer.

But. Many advertisers don't really pay much attention to the real cost of advertising, that is: how much do I pay for a new customer or increased sales per customer.  Why? Two reasons:

1. There are other measures involved. How easy is it to manage and admininistrate? What's the quality of the audience (do they buy a lot, do they talk to other people)?  - Price per click doesn't reflect this. Someone searching for "sending flowers" on Google is probably much more valuable to an online florist than someone who just was exposed to an TV commercial on Hallmark.
2. Advertisers are quite often rather stupid or lazy. They never put two fingers across to figure out what kind of effectiveness their offline advertising had. Which means they haven't that much to compare with. That concerns especially an early majority which now start to invest in online ads.

My point is that even in some measurable businesses price doesn't matter that much we expect it to do. Which is a good lesson. Don't bother to much to show how effective you are. Because it will always be someone who is a little more effective to half the price.

Comments

[Jack Yan]

Excellent points, my friend. Plus, some of these technologies—like the iPod—depend upon users changing their habits. I am not sure if that is technology serving us, or our serving technology.

[Hans Eric Melin]

Jack, that's right. In fact, changing habits, which normally means some kind of disruptive innovation, is a key to high margins. Just because nobody cares to make comparisons as they haven´t anything to compare with.

On the other hand it´s not easy made.

Good to here from you!