"But $1 is worth a $1, and some items are commodities with fixed values right?" Well, without going into economics the value of $1 changes (mostly based on perception). Even commodities have markets. A cup of coffee is worth absolutely nothing until somebody is willing to trade $3 for it.



The following comes from Judgment in Managerial Decision Making by Max Bazerman: Read this scenario twice - first with the words parentheses and excluding words in brackets, and second with words in brackets and excluding the words in parentheses.

You are lying on the beach on a hot day. All you have to drink is ice water. For the last hour you have been thinking about how much you would enjoy a nice cold bottle of your favorite beer. A companion gets up to go make a phone call and offers to bring back a beer from the only nearby place where beer is sold (a fancy resort hotel) [a small, rundown grocery store]. He says that the beer might be expensive and asks how much you are willing to pay for it. He says that he will buy the beer if it costs as much as or less than the price you state. But if it costs more than the price you state, he will not buy it. You trust your friend, and there is no possibility of bargaining with the (bartender) [store owner]. What price do you tell him?

20 years ago, the median prices were $2.65 for a beer from the resort and $1.50 for a beer bought from a store. Same thirst, same beer - 76% price difference. In Bazerman's book he is speaking about a concept called transactional utility - the value you place on the deal you are getting as opposed to the value you place on the commodity.

Why is this important to small business marketing? It shows clearly that controllable factors can affect what people are willing to pay for your products or services. Obviously, you would like to be able to maximize what you can charge - while still keeping your customers.

If you have a retail storefront - keeping it clean, comfortable, and in good repair can affect how people perceive the value of what you are selling. Your packaging is important, so are your business cards, web site, and everything else your customers see. Investing in a polished, congruent image is a good idea.

I still like the $3.95 pork fried rice from the hole-in the wall Chinese takeout, but I won't pay $8.95 for it. However, when I go to the sit-down Chinese restaurant with the white tablecloths, the nice decor, and the waiters in bow ties - I have no problem paying $11 for fried rice. The quality of the food might be better, but is it 178% better? It doesn't matter - because I'm not even making that calculation when I choose to eat there.

What can you do to increase the perceived value of what you are offering?