Introduction: What is Value?
Melina Palmer: Welcome to episode eight of The Brainy Business, understanding the psychology of why people buy. This episode is called what is value?
Melina Palmer: Are you ready? Let’s jump in.
Announcer: You are listening to The Brainy Business podcast where we dig into the psychology of why people buy and help you incorporate behavioral economics into your business, making it more brain friendly. Now here’s your host, Melina Palmer.
Melina Palmer: Hello everyone. My name is Melina Palmer and I want to welcome you to The Brainy Business podcast. The past three episodes have been dedicated to my “it’s not about the cookie” framework, which show how the experience and.
Melina Palmer: All the things leading up to the.
Melina Palmer: Sale matter much more than whatever is being sold itself or the price you label it at. And as I showed last week in the episode on change management, money doesn’t.
Melina Palmer: Even need to exchange hands. One big reason for that is value. The smell of the cookies and all the steps in the framework are all about establishing value and I’ll get into.
Melina Palmer: That in a minute.
Podcast Milestones and Community Engagement
Melina Palmer: But first I need to do some shout outs. I just want to thank you all for your great feedback on the episodes. For everyone who has listened and downloaded freebies and shared. You are awesome and I appreciate you.
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Melina Palmer: Thank you.
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Melina Palmer: Media can provide tips for future episodes and let me know what they liked or didn’t. So it’s a great way to stay connected. Whatever brought you here, however you stay connected, I want you to know that I truly value each of you, and I’m glad you’re finding value in the podcast and that gets us to the.
Melina Palmer: Theme of this episode.
Defining Price, Worth, and Value
Melina Palmer: What is value anyway?
Melina Palmer: We use the term all the time, but do you really know what it means? Where does value come from, and who decides value? Before we dig too deep into this topic, we need to talk about definitions. People tend to use the words value.
Melina Palmer: Price, and worth interchangeably, but they.
Melina Palmer: Are not the same thing.
Melina Palmer: Again, price, value, and worth are not the same.
Melina Palmer: They work together, but they’re actually quite different. There’s a great article from The Human Condition which breaks this down in detail.
Melina Palmer: And I’m going to summarize the key.
Melina Palmer: Points that matter to you here in.
Melina Palmer: The episode, in case this is your.
Melina Palmer: First episode with The Brainy Business podcast. Even when I don’t mention it directly, most everything is linked in the show notes.
Melina Palmer: If you think I should look into that, check the show notes first, either in your app or by visiting thebrainybusiness.com.
Melina Palmer: Eight because this is episode eight.
Melina Palmer: I’ve probably linked it there to make.
Melina Palmer: It easy for you and free your.
Melina Palmer: Conscious brain’s capacity to listen and learn.
Understanding Price, Worth, and Value: Key Differences
Melina Palmer: Okay, getting back to price, worth, and value.
Melina Palmer: What do they mean and how do they work together?
Melina Palmer: I’ve already dug into price on episode five, The Truth About Pricing, but I.
Melina Palmer: Will explicitly state it here.
Melina Palmer: Price is what someone is willing to.
Melina Palmer: Pay
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Melina Palmer: for a good or a service. The article in The Human Condition also talks about the difference between the terms cost and price.
Melina Palmer: Because cost has a negative connotation, it.
Melina Palmer: Comes at a cost which activates loss.
Melina Palmer: Aversion in your mind.
Melina Palmer: Price, on the other hand, is simply how much it takes to purchase something. Items have price tags, not cost tags, for a reason.
Melina Palmer: Opportunity cost is something discussed fairly often in business, and, that kind of.
Melina Palmer: Gets at the difference between cost and price as well. If you have $100, you can only spend it once. When you use it to buy something, say a new microphone for the podcast, you give up the opportunity to acquire anything else with that hundred dollars and any profit that that new acquisition would hold.
Melina Palmer: The opportunity cost is greater than the.
Melina Palmer: Price of the individual item.
Melina Palmer: Worth is different because it’s the expected selling price of something, and why is.
Melina Palmer: That different than the actual price? Worth is what you get with an.
Melina Palmer: Appraisal and is how you would speculate a possible sale or what it might.
Melina Palmer: Take to replace a piece of property. This is long term and does not.
Melina Palmer: Mean the item is actually up. for sale, things have worth even.
Melina Palmer: If they do not have a selling price. Last week in episode seven on change.
Melina Palmer: Management, I talked about the endowment effect.
Melina Palmer: This is the phenomena in our brains.
Melina Palmer: Where simply owning something causes us to find more worth in it than what.
Melina Palmer: Other people see in it or its stated price.
Melina Palmer: The example from the study, which I’ve linked again in these show notes, talks.
Melina Palmer: About a group of participants. Half were given $2 cash, and the other half were given a lottery ticket worth $2. These were assigned completely at random.
Melina Palmer: After a period of time in which the lottery tickets were not cashed, the.
Melina Palmer: Participants were given the opportunity to switch, and very few did. Why? If you were given the lottery ticket, your brain has started to factor in the potential winnings into the calculation of how much that, item is worth. This potential means it exceeds the $2 price tag. If you were given the cash, you see that as a solid, stable amount. You know what you can do with $2 and what it can get for you. The lottery ticket has a very slim chance of being worth anything. It’s most likely a worthless piece of paper, whereas your cash has remained the same. So it wouldn’t be worth the gamble to give up the sure thing.
Melina Palmer: For the lottery ticket being endowed with something, owning it caused people to see value in its potential, which meant how.
Melina Palmer: Much it was worth, in their mind.
Melina Palmer: Exceeded the price, and the potential cost of giving it up and settling on.
Melina Palmer: The other item would be a loss.
Melina Palmer: And as we know, people are averse to losing things.
Value is Subjective: Personal Perception and Sentimental Worth
Melina Palmer: Now that we have covered price, cost.
Melina Palmer: And worth, it’s time to talk about value again. I link to the article from The Human Condition because it does a great job of breaking these concepts down in.
Melina Palmer: All sorts of everyday language versus economics versus business.
Melina Palmer: And as the article says, value is the usefulness or desirability of a good.
Melina Palmer: Or service, how much you love it, or what it is worth. To me, value is not a number.
Melina Palmer: But often we can compare the values of two things, especially if they are similar in use.
Melina Palmer: Value is not a number, and it’s.
Melina Palmer: Based on how much you love it. As humans, we tend to take value for granted, but things do not intrinsically carry or hold value. It’s all in our perception.
Melina Palmer: Value is subjective, dependent upon preferences of the individual and the social context at play. Value is in our minds. Value is also personal.
Melina Palmer: Think of all the things in your life you would not be willing to sell because they have sentimental value.
Melina Palmer: My office is full of these things. My gold octopus, which I have mentioned before on the show, which I bought.
Melina Palmer: Before embarking on this journey of entrepreneurship.
Melina Palmer: Was the first purchase of my new life. I
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Melina Palmer: think it cost me about $35. Honestly, I don’t remember, but I would.
Melina Palmer: Not be willing to sell it for that price.
Melina Palmer: I got it on sale, so maybe it’s worth $50 to someone else. But again, I would not be willing.
Melina Palmer: To sell it for that price.
Melina Palmer: As prices go up and up, I don’t know where the number is, how much the item is worth to me in dollars because I value it and what it represents so much. It has a story.
Melina Palmer: And, oh, our brains love stories. And those closest to me know how.
Melina Palmer: Much I value it. Let’s say someone broke into my office and stole the octopus. I can feel my heart twinge just thinking about it.
Melina Palmer: Could it be replaced?
Melina Palmer: I could go back to the gallery and see if they have another one. And maybe it would be from the.
Melina Palmer: Exact same mold, but it would not be the same.
Melina Palmer: And I would likely never value it.
Melina Palmer: As highly as I did the original, even though they’re worth the same to everyone else. When this gets to an extreme, you see tendencies like hoarding. Anyone else would walk into that house and see a bunch of junk.
Melina Palmer: Maybe there are few pieces and they’re worth something, but it wouldn’t be worth.
Melina Palmer: The time and effort to dig them out. The owner of those items would tell a very different story. All those items hold extreme value in.
Melina Palmer: Their minds, and in many cases, they.
Melina Palmer: Would not sell them for any price, especially not the pittance people would be willing to pay for them.
Melina Palmer: In real estate, you see this.
Melina Palmer: When people insist on overpricing their homes.
Melina Palmer: Far above what they appraise at or what they’re worth, they have memories in.
Melina Palmer: The home that make them value it so much more. This is where little Tommy took his first steps. Or where Susie learned to play the guitar.
Melina Palmer: Or where Chi Chi the dog used to curl up in front of the fire.
Melina Palmer: This home is filled with love and memories. Don’t those people care?
Melina Palmer: No, they don’t. Because in many cases, other people don’t value your memories.
Melina Palmer: Sometimes you can get them to with.
Melina Palmer: Stories, which I’ll get to later in the episode.
The Herding Effect and Its Influence on Value
Melina Palmer: But getting people to be realistic about the worth, price and value is very.
Melina Palmer: Important when you are trying to convince.
Melina Palmer: Them to sell an item, especially one.
Melina Palmer: As, sentimental as a home.
Melina Palmer: So how do you get from sentimental value to a greater market value?
Melina Palmer: One way is through a process called herding, which is built in our brain’s desire to be part of the crowd.
Melina Palmer: To create a market for something, someone needs to say an item has worth and get everyone else to buy in.
Melina Palmer: To create the price people will be willing to pay. Why does hurting occur and what does it have to do with value. Herding is one of those concepts that is rooted in our mindset as a.
Melina Palmer: Species and in reality, our inhabitants on.
Melina Palmer: This planet, because many species, including fish.
Melina Palmer: Sheep, and wasps, to name a few.
Melina Palmer: Exhibit this behavior as well.
Melina Palmer: Herding is something that keeps species alive.
Melina Palmer: And while it would be nice to.
Melina Palmer: Think this is motivated by a, power in numbers aspect, it actually has more selfish roots.
Melina Palmer: Individual protection.
Melina Palmer: If you are in the center of.
Melina Palmer: A group, you are less likely to.
Melina Palmer: Be eaten by a predator.
Melina Palmer: Those who go off on their own.
Melina Palmer: Generally do not make it back, and.
Melina Palmer: Our brains are trained to assume that.
Melina Palmer: The collective consciousness of the group must.
Melina Palmer: Know more than we do on our.
Melina Palmer: Own, or they must know something I don’t. And we buy in instinctively to the.
Melina Palmer: Value and worth of others expertise, whether it exists or not.
Melina Palmer: Herding value, perceived ownership, and loss aversion work together in things like bidding wars.
Melina Palmer: Which have been made more public thanks.
Melina Palmer: To sites like eBay in recent years. When you add scarcity into the mix, watch out. Here’s an example, and let me warn you in advance, this is a weird one.
Melina Palmer: If someone came up to you on the street and offered to sell you a kidney stone. Yes, I said a kidney stone. How much would you give them for it?
Melina Palmer: If you’re like me, you probably thought, gross, I would never pay anyone for a kidney stone. What if I told you it
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Melina Palmer: was.
Melina Palmer: Elvis’s kidney stone or Benjamin Franklin? Would you pay something for it?
Melina Palmer: Then maybe you would be more willing.
Melina Palmer: To chip in a couple bucks in.
Melina Palmer: Case you were able to resell it at some point. And I’m somewhat regretful to say this is not purely hypothetical.
Melina Palmer: Someone actually bought William Shatner’s kidney stone.
Melina Palmer: On eBay for $75,000 back in 2006. Why does that have any value at all?
Melina Palmer: Who would possibly want that?
Melina Palmer: Clearly a lot of people, because it had to bid its way up to that point.
Melina Palmer: And this is how herding loss aversion scarcity works.
Melina Palmer: Your brain might say, if others are willing to pay for it now, it will likely rise in value over time, and there might never be another one. I better jump on this and buy before it goes really crazy. This is something you see all the time with works of art. Art is a space where people constantly ask how much things are worth and.
Melina Palmer: What their value is, and sometimes we.
Melina Palmer: Might scratch our heads and say something like, they paid how much for this thing?
Melina Palmer: No way it’s worth that.
Melina Palmer: My five year old could have painted that. What happens when someone with a lot.
Melina Palmer: Of money really wants a piece of art, they buy it. What happens when two people with a.
Melina Palmer: Lot of money really want a piece of art because of the scarcity? Remember, there’s only one and perceived ownership.
Melina Palmer: They can see where it will go.
Melina Palmer: In their very large home and loss aversion, not wanting to give up this.
Melina Palmer: Vision of who they are.
Melina Palmer: If they own it, they get into a bidding war which will set a new value, worth and price forever.
Melina Palmer: And there’s a ripple effect that occurs as this translates through the herd.
Melina Palmer: We take it as fact that this.
Melina Palmer: Item is worth that much. It now holds a value we couldn’t see before. We assume it’s based on someone else’s.
Melina Palmer: Logic, scrutiny, or evaluation, when it actually.
Melina Palmer: Could be the whim of two billionaires.
Melina Palmer: Who each have equally bad taste. As an example, a couple weeks ago my husband and I went to see a painting by Jean-Michel Basquiat at the Seattle Art Museum, which recently sold at auction for $110 million.
Melina Palmer: The most for any American artist.
Melina Palmer: Art is subjective. Yes, and I have to say I don’t get it. I find the painting to be weird at best, and I have no idea why anyone would have paid that much for it. I’ve shared a picture of us with the painting on social media. Go check it out, the brainy biz and let me know if you see.
Melina Palmer: The value and think it’s worth the.
Melina Palmer: Price someone paid for it.
Melina Palmer: Again, $110 million.
Melina Palmer: Here’s the thing. Basquiat will never be the same.
Melina Palmer: American art will never be the same.
Melina Palmer: Graffiti style art will never be the same. The herd will catch on and people.
Melina Palmer: Assume this is a new value in painting.
Melina Palmer: Basquiat is a name I had never heard of before. Most probably hadn’t.
Melina Palmer: But now he holds a record.
The Power of Brands and Perceived Value
Melina Palmer: He has more value as an artist, and the price of all his other works will likely increase.
Melina Palmer: And as a note, as he has passed away, there aren’t more that can come about. So there is a lot of scarcity.
Melina Palmer: That is placed here on the art.
Melina Palmer: To prove my point that it only takes a few people to raise the price like this.
Melina Palmer: Here are some interesting points from an.
Melina Palmer: Article I have shared in the show.
Melina Palmer: Notes about the sale of the painting.
Melina Palmer: The man who bought it, Yusaku Maezawa, said, when I first encountered this painting.
Melina Palmer: I was struck with so much excitement and gratitude for my love of art. I wanted to share that experience with as many people as possible. Nothing about it stated value or worth or the price before. He wanted it and had a dream.
Melina Palmer: For it and had to have it.
Melina Palmer: When it went up for auction. There were four contenders for the painting.
Melina Palmer: And the bidding started at $57 million.
Melina Palmer: As a side note, four other works from Basquiat were sold at that same.
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Melina Palmer: Auction, ranging in price.
Melina Palmer: From 1.2 million to 6 million.
Melina Palmer: Why were those priced so low? Or perhaps the better. Why was the one painting’s initial price so high? The quote from the chairman at Sotheby’s.
Melina Palmer: Europe said, it really shows the strength of the market as well as a very determined group of buyers.
Melina Palmer: The people of Sotheby’s know how to.
Melina Palmer: Start a bidding war because it’s valuable.
Melina Palmer: For their business in both the short term as they make a percentage of the bid, and in the long run because it increases the overall value of art. Getting interested parties to raise the visibility of Basquiat, the artist is good for Sotheby’s. Consider the buyers of the other four Basquiats that day. Their investments have probably already increased in value, even though nothing about those paintings has changed at all. Why is that? This is where it all comes together and how this can be replicated in your business. This is the power of a brand. Brands are, what give companies value, or in this case, artists. Basquiat is now a brand and all of his paintings are tied and associated with that brand. Brands give you loyal followers which create herds. And when you can incorporate scarcity, loss.
Melina Palmer: Aversion and stories, then your value increases.
Melina Palmer: Beyond the price others are able to charge. Why do brands matter?
Melina Palmer: Anyone who knows me knows I could talk about this forever, but I will.
Melina Palmer: Do a small summary here.
Melina Palmer: Expect more episodes about behavioral economics and brand building, which, in truth, that’s what this whole podcast is about in many ways, because brands are why people buy. Brands are, why it’s not about the price or the item itself, and.
Melina Palmer: Why it’s not about the cookie. Brands bring value to companies and the widgets they provide. A phone is just a phone.
Brand Loyalty: From Apple to Starbucks
Melina Palmer: Until brand loyalty comes into play. Apple is the second most valuable brand, not company brand, in 2018 at, $146 billion.
Melina Palmer: That’s far above its longtime rival, Microsoft.
Melina Palmer: With a brand value of 81 billion. And it’s also higher than Samsung and Google. I am one of the 700 or so million iPhone users in the world today. I’m on an old model and it.
Melina Palmer: Actually tends to frustrate me a lot. It can be slow, and I know I don’t have all the best features, but I don’t hold that against iPhones in general or Apple.
Melina Palmer: I know it’s because I’m living with my old version when I upgrade. Do you think I’m going to be.
Melina Palmer: Looking at Samsung or any other type of device. No, I won’t. I know I want the next iPhone.
Melina Palmer: I have loyalty to the brand.
Melina Palmer: I am an iPhone user. This says something about me, and it.
Melina Palmer: Has become part of my identity that I don’t want to lose. That is the power of a brand.
Melina Palmer: Where a commodity becomes a statement and.
Melina Palmer: It’s no longer about the price.
Melina Palmer: Similarly, I love chai tea lattes, but not just any chai tea latte. It’s all about Starbucks for me. In a pinch, I would get one from another company, but I will relate it back to how much it isn’t like my regular Starbucks Chai.
Melina Palmer: This experience actually builds up my love.
Melina Palmer: Of the brand I am loyal to because I expect it to be worse.
Melina Palmer: And so my brain thinks it is. In episode two of the podcast the.
Melina Palmer: Top five wording mistakes businesses make, I read a quote about expectations from Dan Ariely’s book Predictably Irrational, which I’m going to paraphrase here. Our brains get what they expect. If they are set up to believe something is amazing, it will often interpret.
Melina Palmer: The thing as amazing. If something is explained as bad, you get that too. Here’s an example of a restaurant putting all this to work to elevate themselves above all the other restaurants in the world. If you were going to have a.
Melina Palmer: Grilled cheese sandwich with tomato soup and.
Melina Palmer: A, vanilla sundae for dessert, how.
Melina Palmer: Much do you think that would cost?
Melina Palmer: If we’re talking basic ingredients made at.
Melina Palmer: Home, maybe a dollar. If you were out at a basic.
Melina Palmer: Restaurant
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Melina Palmer: or cafeteria, maybe it would be around $10.
Melina Palmer: Can you imagine anyone making grilled cheese.
Melina Palmer: Or a vanilla sundae any more valuable.
Melina Palmer: And exciting than that?
Melina Palmer: At, Serendipity 3 in New York City, their quintessential grilled cheese sandwich has the Guinness World Record of the most expensive sandwich in the world.
Melina Palmer: The bread is baked with Dom Perignon champagne and flecked with 23 karat gold.
Melina Palmer: It’s brushed with white truffle butter before going into the panini press. It uses the creme de la creme.
Melina Palmer: Of cheese from some special cows in Italy. Apparently there are only 25,000 of them, which sounds like a lot of cows to me, but I’m not a bovine expert. When asked, the owner said the cheese has a cross in flavor between a Manchego and a Parmesan cheese you could.
Melina Palmer: Buy for under $10 and theoretically get a similar flavor. And it’s served with African lobster tail.
Melina Palmer: Bisque for a total price tag of $214. For your grilled cheese and tomato soup? I’m sure it’s delicious, but is there any reason to pay that much for a sandwich? Do you kind of want to know what the fuss is about?
Melina Palmer: What does it say about the restaurant as a whole? How did they create that value and.
Melina Palmer: Make people want to pay that much.
Melina Palmer: For a grilled cheese? And how expensive are the other items now that this high anchor has been set? Listen to episode five for more information on anchoring and adjustment.
Melina Palmer: Even with the expensive ingredients, the value.
Melina Palmer: They paid for them is not what customers pay.
Melina Palmer: And is it really more than 20,000% better than the grilled cheese they make at home? I’m guessing no, but they were able to establish value and make people feel like it’s worth paying for. They got a lot of press and notoriety and have established their brand as.
Melina Palmer: Being upscale and different than everyone else.
Melina Palmer: If someone else was to make a really expensive grilled cheese now, it would not have the same value because they’re.
Melina Palmer: Simply copying Serendipity 3.
Melina Palmer: And second place is not worth anywhere.
Melina Palmer: Near as much, even if the ingredients or taste were actually better because the herd has spoken.
Melina Palmer: By the way, there is a link.
Melina Palmer: In the show notes to the Buzzfeed.
Melina Palmer: Video of three average people trying the quintessential grilled cheese. If you would like to watch it.
Scarcity, Exclusivity, and Framing: Driving Perceived Value
Melina Palmer: Serendipity 3 combines scarcity and exclusivity to create brand value. Exclusivity is the celebrity factor, and it.
Melina Palmer: Has a large impact on value and price.
Melina Palmer: Think back to the famous kidney stone. Again, I’m not sure why anyone would want that, but it is truly something no one else can get, and people value uniqueness. Tie that to a celebrity, and people will buy a lot of things. Does this actually have any value physically, in what it actually is? Of course not, but in its scarcity and ability to be tied back to a celebrity.
Melina Palmer: Apparently it does. Similarly, why are autographs worth anything?
Melina Palmer: They’re just ink on paper. After all, why is a, Marilyn Monroe worth more than a Melina Palmer? By the way, I’ll give you a great deal on my autograph if you’re in the market.
Melina Palmer: These values are all made up in our brains.
Melina Palmer: If an alien landed on the planet.
Melina Palmer: And was looking at a bunch of autographs, they wouldn’t know Babe Ruth from John Doe. So why does it hold value in our minds? How did the value get there? As with so many applications of using.
Melina Palmer: Behavioral economics in your business, framing is the key.
Melina Palmer: In the case of the quintessential grilled cheese at, Serendipity 3, I’m sure it’s good, but what in the explanation made it sound better to the brain and built the anticipation, which I also talked about in episode two. If the tasters had not been told it was a $214 sandwich, would they.
Melina Palmer: Have liked it as much in a blind taste test?
Melina Palmer: Would they have attributed the same value? How much did the owners expect? Explanation and framing of the making of the sandwich and the high quality ingredients have to do with the perceived value? He was confident in his explanation and said the price without hesitation, which is also key when establishing value and justifying a price.
Melina Palmer: What
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Melina Palmer: if, when someone asked about the sandwich, he said, well, we know it’s kind of expensive, but, you know, we think it’s pretty good. It kind of tastes like Parmesan. It has metal shavings throughout. I’ll give it to you for $200. Want one? I’d be willing to bet no one is buying that sandwich, even for $2. Honestly, a Parmesan grilled cheese sandwich sounds.
Melina Palmer: Pretty unpleasant, even without the shaved metal. But when the cheese came from special cows in a select region of Italy, where they only eat the greens of strawberries and licorice to produce a limited amount of cheese each year, and you.
Melina Palmer: Have to order it 48 hours in advance because it’s so special and it.
Melina Palmer: Has flecks of gold and is accompanied.
Melina Palmer: By not just lobster bisque, but African lobster tail bisque. It sounds special.
Melina Palmer: Speaking of which, do they even have lobsters in Africa?
Melina Palmer: Are they better than the ones in Maine? Are they more like crawfish? I don’t know. But our, herding brains have built up an expectation that this guy must know something about lobster, which is why he picked it, which means it must be better and worth money. So our expectation is it will be amazing. And miraculously, it is. And, in case you were wondering where the vanilla sundae comes in, Serendipity 3 also offers a $1,000 Tahitian vanilla sundae, which is also covered in gold leaf.
Melina Palmer: Did you notice there?
Melina Palmer: It isn’t just regular vanilla? Personally, I don’t know what gold tastes like, but apparently putting it on food is a ticket to attention media coverage and high price tags for basic meal meals.
Melina Palmer: Because it has been used in currencies and we know the history of gold, we expect the meal now must be worth the exorbitant price tag. And we will want to be able to tell the story.
Melina Palmer: To brag about that time we ate.
Melina Palmer: A grilled cheese sandwich flaked with gold.
Melina Palmer: Leaf, because, like the chai tea, latte or iPhone.
Melina Palmer: It says something about who we are, and our brains love stories.
Melina Palmer: They help people remember concepts more than bullet points or features or anything like that, which is why my podcast episodes or videos or live presentations are filled with them. stories are memorable. Stories make brands.
Creating Value from Thin Air: The Tahitian Black Pearl Example
Melina Palmer: Speaking of which, let me tell you, another story about how someone created.
Melina Palmer: Value out of thin air, and a lot of it.
Melina Palmer: Have you ever heard of Tahitian black pearls? They cost much more than white pearls.
Melina Palmer: About ten times more, according to my research.
Melina Palmer: And people say it’s because it takes.
Melina Palmer: A special black lipped oyster in a.
Melina Palmer: Special part of, French Polynesia to create these little beauties. As you know, from scarcity, less available should equal the ability to demand a higher price, which justifies the tag.
Melina Palmer: But it wasn’t always that way. According to Dan Ariely, also in the.
Melina Palmer: Book, Predictably Irrational, Tahitian black pearls almost.
Melina Palmer: Didn’t make it out to the world at all.
Melina Palmer: In 1973, there was no market for black pearls. And when a renowned dealer known as the pearl King went into business with a Frenchman to sell the pearls, there.
Melina Palmer: Was absolutely no interest. All his initial marketing efforts failed.
Melina Palmer: And remember, this was a man who had a reputation and distribution chain for pearls. He was the pearl king. He did not sell a single black pearl in his first trips. He could have declared them worthless, mixed.
Melina Palmer: Them in with white pearls, and tried to grow their value that way or.
Melina Palmer: Sold them at a deep discount. But he did not do any of these things.
Melina Palmer: Instead, he waited a full year, during.
Melina Palmer: Which time they collected the best of.
Melina Palmer: The black pearls and brought a,
Melina Palmer: Strand to his friend Harry Winston. Winston agreed to place the strand prominently in a Fifth Avenue window display with.
Melina Palmer: An astronomical price tag similar to the.
Melina Palmer: High minimum bid price on the Basquiat.
Melina Palmer: This price was completely arbitrary.
Melina Palmer: The pearl King concurrently ran one advertisement in the glossiest pages of a high end magazine with a strand of Tahitian.
Melina Palmer: Black pearls surrounded by diamonds, rubies, and emeralds.
Melina Palmer: What had happened to the pearls themselves? Nothing, of course.
Melina Palmer: They were still the same black pearls.
Melina Palmer: No one wanted a year earlier.
Melina Palmer: Putting an arbitrary number on a display does not change the value, nor does proximity to a precious stone, right? I mean, if a lump of coal.
Melina Palmer: Had been sat next to the rubies.
Melina Palmer: And emeralds, it wouldn’t be worth more, right? That is, of course, a joke.
Melina Palmer: As we all know where diamonds come from.
Melina Palmer: And as you know, that is not what happened here.
Melina Palmer: This scheme, which was very inexpensive in the long run, considering how much the.
Melina Palmer: Pearls sell for now, worked because our.
Melina Palmer: Brains aren’t that logical.
Melina Palmer: The price tag set an anchor.
Melina Palmer: The Winston name had exclusivity and scarcity. The glossy advertisement instilled confidence to the herd.
Melina Palmer: Tell the salespeople what to say and boom. Instant value.
Melina Palmer: Why the change of heart or brain?
Melina Palmer: In addition to scarcity, anchoring and relativity.
Melina Palmer: Comes one other aspect of herding. Our brains are trained to believe what they learn first. Until proven otherwise. Our brains believe what they are told.
Melina Palmer: And hold those things as fact, especially when it sounds really convincing or appealing. Are black pearls only naturally occurring in.
Melina Palmer: The 1500 square miles of French Polynesia?
Melina Palmer: I don’t know for sure because I.
Melina Palmer: Haven’t searched the whole ocean.
Melina Palmer: Does that $200 grilled cheese actually use.
Melina Palmer: The fanciest of cheese from the most select cows?
Melina Palmer: Or is there a Manchego Parm blend in the back room? I don’t know. Is Tahitian vanilla better than Madagascar vanilla? Where does the other vanilla come from?
Melina Palmer: Who does the tasting?
Melina Palmer: I don’t know, but my brain believes it to be true when it is.
Melina Palmer: Framed as a positive thing and these.
Melina Palmer: Nuances surround us everywhere every day. Yes, I used some extreme examples in this episode to get the point across.
Melina Palmer: But this does not only apply to high fashion or very expensive sandwiches.
Melina Palmer: Like I said, my brand loyalty to Starbucks was built one chai tea latte at a time.
Melina Palmer: Starbucks is a four dollar empire.
Melina Palmer: Well, $5 depending on what store you go to.
Building Brand Value: Differentiation and the Placebo Effect of Price
Melina Palmer: How do you build this value for your own brand? Good news.
Melina Palmer: The foundation for that is already built.
Melina Palmer: In the last three episodes.
Melina Palmer: It’s not about the cookie because it.
Melina Palmer: Is about the perceived value of the cookie. How can you build value in your brand?
Melina Palmer: For one thing, check out those freebie worksheets for episodes five, six and seven.
Melina Palmer: Which you can get on thebrainybusiness.com/five.
Melina Palmer: Or six or seven, and then work on your differentiation. And there is a reason companies are.
Melina Palmer: Built around their values.
Melina Palmer: What is at your core?
Melina Palmer: Why are you different? How can you translate that into what.
Melina Palmer: You offer and align that with the.
Melina Palmer: Values of your current and potential customers? Whether you’re selling checking accounts or homes, executive coaching or $200 grilled cheese sandwiches, brand value matters.
Melina Palmer: In business, establishing brand value is the.
Melina Palmer: Key to loyal customers who are willing to pay premium prices.
Melina Palmer: And you may not believe it, but.
Melina Palmer: People get more value when they pay more. I’m sure you’ve heard of the placebo.
Melina Palmer: Effect, but did you know price can.
Melina Palmer: Be a factor in how much people.
Melina Palmer: Think a pill or cure worked for them?
Melina Palmer: Ariely and his team did a series of tests where a brochure claimed the power of a pill called Velodone.
Melina Palmer: In one brochure, it cost $2.50 per pill, and everyone felt the effects almost.
Melina Palmer: Immediately, reporting positive results.
Melina Palmer: When the brochure listed the price of the pill at just $0.10, only about half of them felt the effects. Oh, and for the record, it was a simple vitamin C tablet, so it didn’t actually have any impact on the.
Melina Palmer: Ailment it was supposed to be curing.
Melina Palmer: This has been tested with aspirin.
Melina Palmer: When you have the brand name of.
Melina Palmer: Aspirin, people feel like it cures their.
Melina Palmer: Ailments better than if it’s a generic.
Melina Palmer: And price comes into play there as well. It works with energy drinks and a.
Melina Palmer: Whole host of other items.
Melina Palmer: And this shows how price and perceived.
Melina Palmer: Value are linked in
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Melina Palmer: the human brain. Higher price means it must be better and have more value.
The Fluidity of Value: From Currency to Stories
Melina Palmer: Before I wrap things up, I want to talk a little about measuring sticks for value, like currency. Here in the US, this is the.
Melina Palmer: Paper or coin money attributed to dollars.
Melina Palmer: But why is that worth more than.
Melina Palmer: The paper it’s printed on? We believe value will stay consistent, but currencies have shifted a lot over time.
Melina Palmer: I, talked about gold and how we know the value of that because.
Melina Palmer: It’s been used as currency. The value of items goes in and out of fashion. And as scarcity drove prices of various.
Melina Palmer: Items up, many of the things we.
Melina Palmer: Take for granted today were once recognized forms of currency.
Melina Palmer: For example, if your employer or one of your clients was to come to you tomorrow and say, I’m gonna start paying you in salt and pepper, would you feel that was a good thing.
Melina Palmer: Or a bad thing?
Melina Palmer: What about small beads or puka shells? Or a giant four ton rock with.
Melina Palmer: A hole in the middle?
Melina Palmer: Or one of my personal favorites from.
Melina Palmer: Ancient China, knife money, which were actual.
Melina Palmer: Knives inscribed with words like fish or sheep to indicate their value, or perhaps dolphin teeth or squirrel pelts, all of these have been recognized forms of currency at one time or another, valued due.
Melina Palmer: To their scarcity, and some more recently than you would think.
Melina Palmer: So remember, value is subjective. Value is in our heads. Value changes. Value can be created and built up, sometimes very quickly.
Melina Palmer: And often the right stories or pictures.
Melina Palmer: Are all that is needed to make those changes.
Melina Palmer: To get the herd to accept value, you only need a few passionate people who are willing to pay what you think the item is worth or could be worth.
Melina Palmer: Descriptions and associations, the framing are, what make value what it is.
Melina Palmer: And you should remember this when you are positioning your brand messaging what is.
Melina Palmer: Your Tahitian black pearl or quintessential grilled cheese or Basquiat? I would love to hear about it.
Melina Palmer: So please share with me on social.
Melina Palmer: Media by reaching out to the brainy biz that’s b I z instead of the full spelling of, business like on the website. And thanks again for joining me for.
Conclusion and What’s Next
Melina Palmer: Episode eight of The Brainy Business podcast.
Melina Palmer: Today to learn all about what value really is and how you can create.
Melina Palmer: It in your business. Messaging to build brand value is one.
Melina Palmer: Of my favorite things to help clients with, and I would love to help.
Melina Palmer: You with this too.
Melina Palmer: If you would like to create more value in your company, visit thebrainybusiness.com and.
Melina Palmer: Click on work with me to schedule your free consultation.
Melina Palmer: You can also email me Melina@thebrainybusiness.com if you would prefer to chat that way. I look forward to chatting with you again next week on episode nine, where I will be starting to dig a.
Melina Palmer: Little deeper into the individual concepts behavioral economics.
Melina Palmer: Now that you know a little about.
Melina Palmer: How you can use them to your.
Melina Palmer: Advantage and how they work together, I’m going to start to break them down.
Melina Palmer: So you can really grasp the ins.
Melina Palmer: And outs of each, and I promise it will not feel like a boring lecture hall.
Melina Palmer: Up first, something I talked about a lot in this episode, loss aversion. You’re going to love it, so don’t miss out until then.
Melina Palmer: Thanks again for listening and learning with.
Melina Palmer: Me, and remember to be thoughtful.
Announcer: Thank you for listening to The Brainy Business podcast. Melina offers virtual strategy sessions, workshops, and other services to help businesses be more brain friendly. For more free resources, visit thebrainybusiness.com.
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