How much for your body? How’s five bucks!? Believe it or not, that’s what you’re worth. Don’t take it personally. It’s not a reflection of the value placed on your life. The price of five dollars is actually a direct calculation of the price for your body when reduced to its molecular elements. When considered as a set of “parts” sold on the black market, then the price dramatically increases closer to $45 million. However, if your loved ones are asked the price for your life and your associated body, the price should move closer to priceless.
How can this be? How can we see such dramatically different prices for the same ultimate object?
IT COMES DOWN TO ONE THING… PERCEIVED VALUE!
Whether in oil and gas, agriculture, professional services or any other industry, the price one pays for a product or service is the ultimate gauge of its perceived value.
Consider coffee beans. Although being the world’s second most valuable traded commodity behind petroleum products, green coffee beans are considered a true commodity. As such, they are traded on international commodity exchanges and currently have a price around $1.35 USD/ lb. Roast, blend, and grind those beans into specific flavor profiles, and the price dramatically increases to $10 or $15/lb. Brew up that coffee, and serve it to a morning commuter in desperate need of a cup of energy, and the price increases to over $100/lb. Call it Kona, and serve it to an Albertan on vacation in Hawaii, and the price will be over $150/lb. Now, consider the influence of alternatives and competitors. Having a cup of coffee is important to most of us, but is there a difference in the value we place on the cup of coffee from our favorite coffee shop? Do you pay more for a Starbucks or a cup of Timmies? How about a pour-over from the local café or a quick-brew vending machine? What’s the price you’d pay to the only coffee shop open when you need a late-night cup for the long drive home? Shouldn’t all cups of coffee have the same price?
As human beings, we are greatly influenced by the perceptions we have of the products and services we buy. We’ll happily pay more for a cup of coffee when our demand is higher than the supply of a lone late-night open store. Or, when there’s an abundance of suppliers (coffee shops), we’ll easily part with a few extra coins to get that special cup of joe from our favorite vendor just because it’s better. Sure it is! It’s better in your opinion at the time you want it, and as such, you’ll pay a higher price without any issue. Only when we remove the value we received in our cup and take it back to the commoditized product of undifferentiated green coffee beans will price become the strongest purchasing factor.
The same consistent human behavior is seen in buyers across B2B industries, including today’s oil and gas world. The prices paid by buyers reflect the value they perceive. And, it’s our experience the price paid directly corresponds to how unique and valued the buyers perceive some suppliers to be.
Over 20 years, we’ve interviewed thousands of B2B buyers to see how pricing and value fit within their buying decisions. With the exception of a few short lived extraordinary economic cycles, we’ve seen common human behaviors lead buying decisions in every case. From our research, the deciding factor used to choose one non-commoditized offering over another is based purely on the buyers perception of value and seldom, if ever, determined primarily by price.
When a company can clearly present something about their offering that is perceived as highly valued and unique, they will almost always have a higher corresponding price. When a company presents their offering to be the same as everyone else’s (lower value), you’ll find a corresponding low price. In nearly every case, price is the ultimate gauge of a buyer’s perceived value.
So, why do we see such low, unsustainable prices offered today by oil and gas service providers? It goes to the point of our recent extraordinary economic cycle. To say we recently encountered an extraordinary economic cycle would be an understatement. Since early 2015, the price per barrel of oil has been collapsed, and producers and their suppliers have struggled to make due with much less. Businesses across the industry stepped up and worked together to temporarily reduce prices to keep the industry alive. But, with forecasts predicting an improvement across the industry, prices will return to realistic levels that reflect the true value buyers receive.
While this may seem like great news, it will be only for some. For those who present very little value in their offerings beyond that provided by their competitors, change, or perish. Look to uncover and present what it is that truly makes your offering unique and valued or be ready to accept a ridiculously low price model. For those wise enough to present some element of uniqueness in their offering that is truly valued by your market, now will be the time to return your prices to be more reflective of the value you provide. For as long as your market understands the uniqueness and value of your offering, the more they will accept and support a corresponding sustainable pricing model.