Red planet

What Is Your Value Proposition?

What is your Value Proposition? How do you create perception of value? How do you set prices for your products or services?
Space capsule

What is your Value Proposition? How do you create perception of value? How do you set prices for your products or services?

In the fall of 1990, I learned a lesson that I use to this day. I was a human resources intern in the corporate offices of a regional department store whose primary profit center was jewelry. Today’s lesson was on “How to sell an engagement ring” and was being delivered to veteran salespeople.

The lesson sounded something like this…

“When a man inquires about an engagement ring, ask for the price range in which he is looking.” began the trainer. “Asking it this way encourages them to give you a high and a low number. At this point the shopper’s goal is to find something close to the low end of the price range and your goal is to sell them something near the high end of the range, while still feeling good about the experience.”

The shopper says, “Between $500 and $1000.”

You show the shopper a $500 ring and a $1000 ring. Side-by-side, they are both still quite small. The smaller diamond, perhaps .25 carat, and the bigger diamond, perhaps .50 carat. The shopper can see the value. If they spend twice as much money, they get a diamond twice as big.

Then you show the shopper another ring. Say something like “… or if she’s really special, you could put this on her finger.” Show the customer a $5000 ring.

A $5000 diamond, is five times more expensive, however the diamond itself is perhaps 1.00 carat, about twice as big. Explain how diamonds become exponentially more valuable as they increase in size.

Chances are the customer isn’t going to exceed their budget by 500%, but now they see the value in the $1000 diamond. Now the customer is focused less on price and more on value. The customer sees that, while he believes his girlfriend is exceptional, that a ½ carat diamond is nearly as impressive at a fraction of the cost.

Done properly, the customer should purchase a diamond at the top end of their range and still feel great about the value and the experience. Occasionally, they will even stretch their range a little further. Often the customer who tells you their top price is $1000 can actually afford $1500 or $2000. At this point they want to make sure they are getting maximum value and may ask to see another ring.

How Much Is Something Worth?

Many things are priced based on their function or by supply and demand. Diamonds are unique, however, because their intrinsic value is entirely based on perception.

Diamonds are the most valuable gemstone not because they are rare. Rubies and emeralds are both far more rare than diamonds. Of all gemstones, diamonds are among the greatest in supply. Their hardness gives it some intrinsic value, but also makes the diamond easier to shape. True, diamonds have industrial use, but industrial diamonds are a byproduct of gemstones rather than competing on the supply side.

So why is it that we pay 400% more for diamonds than emeralds, 1000% more than rubies and perhaps 10,000% more than other semi precious stones?

First, diamonds have been attached to two difficult to quantify qualities, love and prestige. They’ve become the stone symbolizing love for a majority of our culture. The largest and rarest diamonds have become symbols of prestige. Even for those individuals who can’t afford extremely valuable diamonds, they likely can afford a tiny bit of the prestige afforded to these gems.

What we learned from this is that true value is far more subjective than we would like to think. Additionally, that value can change by changing the perception. For example, for a single person diamonds have little to no value. For a person in love, their value can be immense. For a person whose relationship is ending, the value of a diamond may plummet to worthlessness.

Your product or service is worth whatever your customers are willing to pay, within a set of parameters. The more you can influence that set of parameters the more pricing power you will have.


Keeping PACE: Marketing tips and tech news for SMBs