The Spanish Olive Paradox: Know Your Value

by Roy Atkinson on May 10, 2010

an olive tree in Spain

When I was very young, I heard Joe, a friend of my older brother, talking about his job at the local grocery store. Joe had opened a case of Spanish olives, checked the price list, set his price marker (called ‘rotators’ back then), and marked each jar $.95. They sold out in a couple of days. The next case came in, and my brother’s friend checked the price again, and realized his mistake. The olives should have been marked $.59. He put the lower price on the jars of olives, and they sat on the shelves. Feeling experimental, he marked them back up to $.95 each, and they again sold out. Even at the age of 17, Joe was able to extract a business lesson from this incident: People will pay according to their perception of value. Spanish olives must be worth more than just plain olives, and if they cost the same as—or less than—other olives, they must not be anything special.

We see this every day in the marketplace: Brands with some cachet are priced higher. Value is subjective. Price is set by what the market will bear.

This is very basic, but sometimes we lose perspective when we start valuing our own products or services. We know what raw materials went into the product and exactly what it cost to produce. We incorrectly assume that some standard markup percentage will suffice to price the item. If we sell services, we might think it’s better to bid low rather than risk losing the work.  If we look deeper, however, what we find is that a premium product or service often attracts more business. This is the basis of the concepts of differentiation and value-added.

Here are some steps to take to make sure you are not undervaluing your product or service:

  • Know your market – If you have a basic understanding of what your customers consider a fair price, you are halfway home
  • Differentiate your product or service – You should be able to clearly articulate why your customers should choose you as opposed to your competition, even if you cost more
  • Brand yourself appropriately – If you are a Spanish (i.e., special) olive, make sure your customers can clearly see that, and will know they are getting a premium product or service

The next time you are pricing your products or services, remember the Spanish Olive Paradox, and price accordingly.

Photo Credit: Graham Colm

{ 2 comments… read them below or add one }

Matthew Hooper May 11, 2010 at 6:04 pm

Really great article. I hope you don’t mind, but I am going to steal some of this for my presentation on building and creating sustainable enterprise value.

On Branding, I believe in the 5 principles of effective branding which are :
Awareness – people have a sense for who your are.
Recognition – people have a sense for what you are
Action – people know how to engage you
retention – people know that you are the go to person
referral – people are so happy to work with you they talk about you.

Like anything each stage is critical in it’s own way. Some have ROI, some do not, but all are necessary and must be actively managed.

Roy Atkinson May 11, 2010 at 10:02 pm

Matthew – Thanks so much for your remarks. Well said. I’m thrilled that you want to “steal” from it for your presentation. I’m glad it’s a fit. Come visit TME again. – Roy

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