moneyFYI
Financial Freedom Is Merely Organized Common Sense
Cost, Price, and Value
Some people are price sensitive. Smart people don’t care what the price is so long as they get value that equals or exceeds the value they place on the money the spent. They will only shop price for identical product and then only with some careful consideration of other factors.
Sometimes a lower price results in value that is less than the dollar price to buy. 2-day old sushi has a low price.
Value
Value includes many things. The principle ones, in no particular order, include:
- fair return policy,
- warranty,
- durability,
- safety,
- ease of use,
- low operating costs
- ease of access to the vender,
- training and advice,
- suitability for the purpose,
- fashion,
- ability to buy just one if that’s all you need,
- ethical considerations like child labour and green issues
Price
Price is usually thought of as the money you pay to get the product or service you want. A simple decision implicitly says the product is worth more to me than the money is worth to me. Price is scalar, it has no depth. It is just a number.
Cost has depth.
Cost includes the price but it also assesses price in context of value received. If you have a premium product that hits all your value considerations while another meets only some of them, the decision is harder.
Price alone will be a poor indicator for the decision. Cost is the thing that compares to value. Cost includes the money you must give up and any values you don’t receive. Giving up a value is part of what you paid. If the best price for all the values is $500, how much should pay if durability is questionable and child labour is involved?
Sometimes a premium product includes things you don’t care about. If you can live without the fashion value, you can usually get a better price.
A good purchase balances what you get with what you give up.
Vendor’s costs
Do you care how much it costs to build what you buy? Not really, so long as you get the value you want. If an iPhone has a price to you of $1,000 and you think the value is acceptable at that price, would it really matter if it cost Apple $300, or $900, or $1,900 to build and deliver it? I hope not $1,900 because they might not be around to fulfill any warranty claims and customer service would suffer.
Think in depth on important purchases. Learn to think of dollar price as a superficial feature.
Factory second drugs and brakes and parachutes are never a bargain.
I help people understand and manage risk and other financial issues. To help them achieve and exceed their goals, I use tax efficiencies and design advantages. The result: more security, more efficient income, larger and more liquid estates. Please be in touch if I can help you. don@moneyfyi.com 705-927-4770
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