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Understanding The Difference Between Price And Value; Product And Benefit

from the let's-try-this-again dept

Earlier this year, in response to yet another editorial somewhere where someone insisted that if something has a price of zero, it means that people don't think it has any value, we pointed out that price and value are two different things. Price isn't determined by value -- it's determined by the intersection of supply and demand. Value plays into that, by determining what the demand part is. That is, if I value widget X at $10, then I'd be willing to pay anything less than $10 for it. If the intersection of supply and demand prices widget X at $5, it doesn't mean that I value it at $5, but it does make it likely that I'll buy it. The same is true if the market prices it at $0. It doesn't mean I place a $0 value on it. It just means it's worth getting at that price, since it's below what I value it at.

In the past few months, this discussion keeps coming up again and again -- and it's good to see folks pushing back and pointing out the difference between price and value. The latest is Amy Gahran, over at eMedia Tidbits, where she takes a journalism professor to task for asking whether journalism should even be done at all if people don't "find value in what we as journalists do." First, Gahran makes the point that, historically journalism has always been more supported by ads than people anyway, and then makes the price/value distinction:
just because people aren't willing to directly pay cash for something does not necessarily mean they don't "find value" in it. For instance, when was the last time you personally chipped in for a clinical trial? And how are you paying for that air you're breathing right now?

Some benefits are assumed to be part of the environment in which we exist. That's what it means to have an environment. If a benefit grows scarce to the point that people feel they must directly pay cash from their pocket to keep getting it, there's probably a far more dire calamity at hand than that single point of scarcity. Most people will almost always seek other free sources of a benefit first.
She then goes on to make another favorite point: too often, those in dying industries mistake the product they're selling with the benefit they're selling. The horse carriage makers mistakenly thought they were in the horse carriage business (product) rather than the transportation market (benefit). The best way to succeed is not to focus on the product, but the benefit you're providing your customers:
I think it's important to bear in mind that people value benefits, not necessarily forms. The key benefit that journalists and news organizations have provided has been relevant, timely, accurate information that helps people make decisions, take action, and form opinions. For over a century we've established an ad-supported business model around packaging that benefit in a form known as "journalism." But that's not the only form this benefit can take, and many parts of the "American public" (and the advertising industry) are figuring that out.
Good stuff.


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  1.  
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    Twinrova, Aug 21st, 2008 @ 4:07am

    Surprised?

    I'm not sure how people mistake value and price, but sadly, it happens.

    I wonder if I would place as much value on Techdirt if I had to pay to read its blogs.

     

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    Anonymous Coward, Aug 21st, 2008 @ 4:47am

    Good post.

    Very nice post, Mike. One of the best ones in recent days. Keep it up.

     

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    Anonymous Coward, Aug 21st, 2008 @ 4:48am

    Yeah I have tried to explain this myself for years

    I have always had this complaint with XBOXLive. Its very, very cheap, but it offers no real value and as such, is still over priced.

     

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    Q Hartman (profile), Aug 21st, 2008 @ 5:39am

    Far too few people realize this

    I've heard this phenomenon described using drill bits. People who buy a 3/8" drill bit, don't want a drill bit. They want a 3/8" hole...

    I think it's easy for one to lose sight of what value they actually provide as their products get more and more complex and ephemeral, I think that's why technology and media are having such hard times lately.

     

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    Anonymous Coward, Aug 21st, 2008 @ 5:45am

    What about inferior products?

     

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    Comboman, Aug 21st, 2008 @ 5:59am

    price and value

    Price and value may not be the same thing, but they do affect each other. Since many people assume that higher priced items are better, they value the lower priced items less. I know many people who assume that a freeware program is inferior to a similar commercial program just because it's free.

     

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    Anonymous Coward, Aug 21st, 2008 @ 6:25am

    Re: Far too few people realize this

    This is a good point. I think that's why attempts to bring about a change in these business models, and the way we think and talk about them, need to be careful, detailed, overly-vetted with facts/studies, and NOT antagonistic.

    That's one of my major critiques of this blog. Mike: I think you're attempting to do a good thing, a brave thing, and an important thing. Unfortunately, I think you often come across (on this blog) as arrogant and antagonistic, rarely conceding much of anything from opposing sides and often dismissing arguments as foolish without offering much help or recourse for the other side (which is why they just get pissed off and either leave or degenerate into name-calling).

    This particular post was balanced, level-headed, and invites consideration and discussion. I think you'll find much more success with your cause if you strive to come across this way in every post.

    This is not a personal critique, only a critique of the language used here in general.

    My 2 cents...

     

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    dave shemano, Aug 21st, 2008 @ 6:46am

    value vs price

    an example of this is that the gideons have been giving away free bibles for a very long time but most people in western society would never claim a bible has no value.

     

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    John Doe, Aug 21st, 2008 @ 6:50am

    And your point is?

    Let me get this straight, price and value are different but value affects demand which affects price? So in effect, value affects price. So they aren't as different as you make them out to be. Yea, something may be priced lower than its value, but usually the price will rise to match its value. Basically this argument is just splitting hairs. It is also used to argue that stealing music is ok but that is another issue.

     

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    Xanthir, FCD, Aug 21st, 2008 @ 7:16am

    Re: And your point is?

    Let me get this straight, price and value are different but value affects demand which affects price? So in effect, value affects price. So they aren't as different as you make them out to be.

    Let me explain this in very simple terms, because it's obvious that you have reading comprehension problems.

    Price and value affect each other. Price and value are not identical.

    See? That wasn't hard!

    Yea, something may be priced lower than its value, but usually the price will rise to match its value. Basically this argument is just splitting hairs.

    Wrong. In the presence of competition, price will lower to the marginal cost of producing the item (that is, the cost of making a copy). It is only when there is insufficient competition that price is allowed to rise until it hits the value ceiling.

    This is easy to see. Let's say someone values a chocolate cake at $10 - that is, they'll pay up to $10 for it, but no more. There's only one company making chocolate cakes, and they charge $5 (the cost of making the cake). The person will buy a cake for this amount. The company tries out some price increases, raising it to $6, and the person still buys it. So the company continues raising the price until it exceeds $10. The person stops buying chocolate cake (it's gotten too expensive) and instead buys ice cream, so the company lowers the price back to $10 and equilibrium is achieved.

    Now, you decide to start a company making chocolate cakes as well. You see that the other company has stabilized on $10 cakes, and you *could* copy them. Alternately, you could enter the marketplace charging $9 for a cake. People will flock to your cakes (assuming they are of equal quality), because they're cheaper. You make more money than the other company, even though you're charging less.

    Of course, now the other company might decide that it needs that business, and drop their price to $8. In return you lower your price, and this continues until both of you either reach the marginal cost of making a cake ($5) or you both decide that it's not worth it to undercut the other (you stop directly competing). Of course, if you take the latter option, you're just opening up the market for a third company to come in and make even cheaper cakes, thus stealing the customers from both businesses.

    As long as you can charge less and still make money, someone will charge less, because it gives them an easy upper hand. The price only ever rises above the marginal cost when competition disappears.

    It is also used to argue that stealing music is ok but that is another issue.

    There was absolutely nothing about infringing on the copyright of musical pieces in this post, and this blog has never said that infringing on the copyright of musical pieces is okay. Mike has specifically stated over and over again on this blog that he does not infringe on the copyright of musical pieces specifically because it is illegal.

     

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    John Doe, Aug 21st, 2008 @ 7:20am

    Re: Re: And your point is?

    Thanks for parroting my post; maybe you should work on your reading comprehension skills too. I stated that value affects price thus value and price aren't as different as the article states. Your turn around and and say "Price and value affect each other. Price and value are not identical.". Didn't I just say that?

     

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    Anonymous Coward, Aug 21st, 2008 @ 7:21am

    Re: value vs price

    It doesnt!

    Jesus was a false prophet and religion is superstition.

     

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    Anonymous Coward, Aug 21st, 2008 @ 7:37am

    Nice article, pity the comments degenerated so quickly.

     

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    Blaise Alleyne (profile), Aug 21st, 2008 @ 7:39am

    Re: And your point is?

    Let me get this straight, price and value are different but value affects demand which affects price? So in effect, value affects price. So they aren't as different as you make them out to be.

    I feel as if this is an obvious example, but... do you value oxygen? Do you pay for it? "Affects" doesn't imply that they're the same thing.

    Yea, something may be priced lower than its value, but usually the price will rise to match its value.

    No, price approaches the marginal cost of reproduction, it doesn't rise to match a products value. Whatever that is. Price can be the same for everyone, but everyone doesn't place the same value on everything.

    More importantly, you ignore the role supply plays in determining the price. That would explain the oxygen example. Sure, value is high (we all need to breathe), but the price doesn't somehow "rise to match its value" because the supply is infinite.


    I'm not going to accuse you of poor reading comprehension, but I think you're refusing to understand the basic economic distinction here because of preconceived notions and a misunderstanding of the arguments being made here ("it is also used to argue that stealing music is ok..."). The argument is not to "steal" other people's music or news articles or whatever, but to encourage creators to adopt business models that recognize the economics at play so that they can be more successful in a digital age. Confusing price and value is a barrier to understanding these business models.

     

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    Blaise Alleyne (profile), Aug 21st, 2008 @ 7:44am

    Re: Re: Re: And your point is?

    Didn't the article just say that?

    "... price and value are two different things. Price isn't determined by value -- it's determined by the intersection of supply and demand. Value plays into that, by determining what the demand part is."

     

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    John Doe, Aug 21st, 2008 @ 7:56am

    Re: Re: Re: Re: And your point is?

    Try to keep up here. I am not disagreeing with the article, just saying that they are more related than the article states.

     

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    John Doe, Aug 21st, 2008 @ 7:57am

    Re:

    Are you calling me a degenerate? ;>)

     

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    Anonymous Coward, Aug 21st, 2008 @ 8:04am

    Re: Far too few people realize this

    I've heard this phenomenon described using drill bits. People who buy a 3/8" drill bit, don't want a drill bit. They want a 3/8" hole...


    Thats good im stealin that one . . .

     

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    Amy Gahran, Aug 21st, 2008 @ 8:04am

    Glad you liked my article

    Thanks for sharing your thoughts on this, Mike. I'm glad my article resonated with you.

    It's surprisingly hard for people who have spent years or decades investing themselves in a particular kind of business, product, or industry to see past it. Some folks in the journalism business are making that switch based on where the value is, but others aren't. The thing is, though, audiences and communities *are* making that switch, regardless of what journalists and news organizations do.

    - Amy Gahran

     

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    Anonymous Coward, Aug 21st, 2008 @ 8:07am

    While I appreciate the thoughts of Xanthir, FCD and Blaise, I would suggest that we're being a bit one-dimensional here.

    Assumption: That people can determine value.

    This is rarely the case. I know of many cases where the exact same product was put in several different bubble-wraps, each with a different brand-name. Then it was sold for a wide variety of prices (the most expensive was 3x the price of the cheapest). It was the exact same product, produced by the exact same company, people were purchasing based on brand.

    There is a force at work that alters the simple economic view of supply and demand. I'll call it "marketing." Marketing attempts to affect the opinions people have of the value of something. It has been my experience that they wield more power on economics than a simple view of supply and demand.

    You suggest that competition would drive down the price of a chocolate cake. It would... if there were no marketing. A marketing person could put out an ad that says: "Made from FRENCH chocolate, unlike those cheap $9 cakes." (or something much smarter, I'm not in marketing). Public opinion of the value could be swayed, and the first company could continue to charge $10 for chocolate cake (or possibly even raise the price).

    It is an interesting truth, that people tend to think that they are logical, and make rational decisions, but the vast majority of our actions are determined a great deal more by emotion than based on facts. This is why companies put so much money into advertising. They aren't changing the real value of a product, they are changing people's opinions of it.

    Premise: The idea that price will fall to a point that is marginal above the production cost is over-simplistic.

    I would suggest that fads, fashions, or "what's cool" will have as much (if not more so) of an influence on the "value" that people associate with a product (and thus the price they are willing to pay), as do the engineers that create the features.

     

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    John Doe, Aug 21st, 2008 @ 8:20am

    Re:

    Very well put and I think very true. This is why value affects price much more than the article states. It is never as simple as supply and demand as things never work out in the real world as well as they do on paper.

     

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    Anonymous Coward, Aug 21st, 2008 @ 9:05am

    Value and price.....

    Interesting discussion!!

    Bloggers provide free information and they get paid by advertisers. A simple model would suggest that if the blogs are useful, more people visit and blogger would get more advertising money.

    Well...... I am using adblocker. So none of you suckers would benefit from my visit. The value of my visit=0 and that reflects value of your content.

     

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    Hal Bredbener, Aug 21st, 2008 @ 9:24am

    The value of stock

    120 years ago Henry Ward Beecher (Harriet beecher Stowe's father) warned young men to stay away from speculation and the stock market.

    He said anyone could place a value on a lump of coal in their hand. It was worth something when you were cold. It meant warmth and you might be willing to part with a dollar to buy a night's sleep in a warm house.

    But that same $1 invested in the coal mines stock held only a relative value. It was just a peice of paper that someone else said had value - nothing intrinsic, like warmth, could be seen or felt in the stock certificate.

    His warning was that if you go too long trying to assess the value of intangible things, you eventually lose the ability to assess the value of tangible things. He got it right.

    Our current society seems unable to place true value on anything. We pay ball players millions and teachers a pitance. We gripe about the poor who cannot afford medicine, and instead spend our money on movie tickets, MP3 players and XBoxes. We say we want fuel-efficent cars, but insist they have GPS, lots of chrome, and 5-speaker sound systems.

    For example, many new cars are now engineered to include LED turn signals. These assemblies often include 5-10 high-powered LEDS that will last 10 years or more.

    But the car probably will not be around in 10 years. And the $760 replacement of a LED turn signal assembly that was hit during a fender-bender should be compared with the $75 tail light assembly that used older technology.

    Everywhere I look it seems there are examples of how illogical and emotional we get when trying to assess value. The reason the web is so burdened with SPAM, ad rotators, pop-ups, and banners is because Beecher was right. We've lost the ability to judge value, and unless we can learn again to assess that properly, price will just be a tool that slick marketers and Walmarts use to trick us out of our money.

     

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    Grant Hamilton, Aug 21st, 2008 @ 9:28am

    So how does this apply to healthcare?

    It is certainly valuable but nobody ever wants to pay for it. Are price and value unrelated here?

     

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    Anonymous Coward, Aug 21st, 2008 @ 9:49am

    Re: price and value

    I'd disagree: price may affect people's perception of value, but I don't think it changes the value of a thing. A well-done freeware program is still valuable even if someone doesn't think so because of personal bias.

     

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    John Doe 2, Aug 21st, 2008 @ 9:53am

    Re: Re: Re: Re: Re: And your point is?

    But the article states that they're related. What is it you're complaining about?

     

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    Anonymous Coward, Aug 21st, 2008 @ 9:57am

    one of the problems here is that people assume value has to be the same for people.

    look at a steak. a steak is pretty valuable, it provides lots of sustenance, many people think it tastes good, and are willing to pay $20 or more for a nice steak, they place a high amount of value in it.

    but you put that same steak in front of a Vegetarian or a vegan and they will see no value in it, depending on how extreme they are, they may even assign a negative value, they won't eat at places that serve steak even if said place offers vegetarian or vegan friendly food.

    so really, there are two sets of value points. the first set is the service, how important is it for someone to eat? extremely important and of high-value for pretty much everyone. but how much value is it to eat a particular product (in this case the steak)? it depends on the person.

     

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    Anonymous Coward, Aug 21st, 2008 @ 9:58am

    Re: Re:

    I think he just argued that value has less influence on price, and it's marketting that has the real power. In his view, the $9 cake and the $10 cake have the same value, but the $10 cake sells for more because of marketting.

     

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    Anonymous Coward, Aug 21st, 2008 @ 10:04am

    Re: The value of stock

    You make a lot of good points, Hal. A few days ago, Steven Colbert presented a humorous take on the Oil Speculation Market.

    When looking at Oil specifically, few know is that in 2000 Enron lobbied policy makers to permit some U.S. commodities exchanges to operate without normal oversight. This allowed speculators to dodge public disclosure rules that would normally limit the number of trades an investor can make.

    This is important because oil can be traded up to 20 times (on a certificate) before it is actually sold, this also leads to higher prices at the pump.

    When speaking about Oil, this speculation market seems to bring little tangible value, just inflated prices based on public perception and news of the day on what gas should cost.

     

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    Anonymous Coward, Aug 21st, 2008 @ 10:06am

    Re: So how does this apply to healthcare?

    When your sick, healthcare is very valuable. When you're healthy, it's just another drain on your account. Most people are healthy most of the time.

    What's more, different factors have allowed the price of healthcare rise and the value of that healthcare fall. Most people complain of poor service and high costs even when their sick, which proves nothing but is at least symptomatic. One wonders if the fact that someone with little stake in the healthcare (insurance companies) are footing the bill doesn't have something to do with this.

     

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    Anonymous Coward, Aug 21st, 2008 @ 10:24am

    Re: Re: So how does this apply to healthcare?

    Healthcare comes back to the insurance companies. Insurance companies by their nature and size, can dictate the value of healthcare, by what they will and will not pay for, this can be difficult if you are in need of emergency care. Many doctors loathe working with them and happily will offer a discount if you paid in cash. Sometimes it takes months to get reimbursed by the insurance companies. I have a few Drs in the family.

     

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    Blaise Alleyne (profile), Aug 21st, 2008 @ 10:31am

    Re: Re:

    Marketing fits with the supply and demand model. Successful marketing increases demand.

     

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    Blaise Alleyne (profile), Aug 21st, 2008 @ 10:31am

    Re:

    Agreed. I don't think I suggested that people can determine value, I certainly agree with your comment. In the face of competition, people can differentiate their products based on price (i.e. cutting prices) or perceived benefits (doesn't have to be actual, could be the effect of marketing).

    The point about the marginal cost is that, in a competitive market, that's where prices naturally tend to (not towards some "actual value" as John Doe suggested). That doesn't mean that you can't sell something about the marginal cost, you just need to give people a reason to buy it.

    The effect of marketing on stimulating demand is even more reason that price is not so heavily dependent on value, but is determined by a variety of different factors.

     

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    mobiGeek, Aug 21st, 2008 @ 11:18am

    Re: Re: Far too few people realize this

    I disagree with your assessment of the sentiment of the posts on this blog. I find them well-reasoned and level-headed. Sure, after a reply or two to someone blatantly insulting the article and/or personally attacking Mike then some of the retorts become a bit terse. But more often then not Mike's replies are asking for valid criticism and/or evidence of the insults thrust Mike's way or against his articles.

    Mike is more than willing to accept input from "the other side", but only when it is brought forward with actual valid points. Too often, there are none other than one-off anecdotes, innuendo and strawmen.

     

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    mobiGeek, Aug 21st, 2008 @ 11:19am

    Re: Re: Re: Far too few people realize this

    BTW: do you care to point out some of the articles that you find "arrogant and antagonistic"?

     

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    mobiGeek, Aug 21st, 2008 @ 11:29am

    Re: Value and price.....

    No, that reflects the income from your one visit. However, your comment has brought others to view this article (or more accurately, they will view future articles because of your contribution) and that in turn will bring in income.

    Neither of these says anything about the value of this article. If you saw no value in it, why did you spend resources on it (reading it, replying to it)?

     

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    mobiGeek, Aug 21st, 2008 @ 11:36am

    Re: The value of stock

    Why would a car not be around in 10 years? Most cars today will last well beyond that (negative comments about Detroit aside).

    What percentage of vehicles will need to replace that $760 tail light over 10 years? Compare that to the cost and danger factor of all the burnt out lights over the 10 years for the "old style" bulbs.

    And I question your numbers altogether. Auto manufacturers are not in the habit of adding cost to the production of a vehicle without good economic reasoning. Their products are already a Big Ticket Item for most customers, they do what they can to keep costs down (as does any manufacturer).

     

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    Victem of zero pricing., Aug 21st, 2008 @ 2:55pm

    Zero pricing - it really works.

    Thanks Mike, I'm slowly starting to understand all this businees stuff.

    I was looking around our house the other day looking for examples of zero pricing and how I've shelled out money for it.

    I'd have to congratulate the Disney channel for the best example I could find.

    High School Musical. - It was free to watch (we get the Disney channel anyway), we recorded it on video so my daughter could watch it any time.

    Yet we (myself and my daughter) have forked out good cash for the 3 different HSM DVDs and also, hand bag, writing set, plastic figures, the stage show, HSM on ice and various other HSM stuff that now graces my daughter's room. I've never paid so much for a free movie...

    And of course HSM 2 DVDs and things and now the horror HSM3 is coming!

    Oh, and what my daughter has done with HSM, my son has done with Doctor Who!!!

     

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    Mike (profile), Aug 21st, 2008 @ 5:04pm

    Re:

    Assumption: That people can determine value.

    Hmm. Actually, I think the statement that's implicit in your statement is that there is some sort of "universal" value that they can determine. That's not the case. Value is different to everyone -- and, yes, they CAN determine the value to them. They make that decision every time they make a buy/no-buy decision, as they decide whether they value the good more than the money or less than the money.

    So, yes, people can determine the value *to* them at that moment, and they do it all the time.

    I know of many cases where the exact same product was put in several different bubble-wraps, each with a different brand-name. Then it was sold for a wide variety of prices (the most expensive was 3x the price of the cheapest). It was the exact same product, produced by the exact same company, people were purchasing based on brand.

    Again, you're assuming value is universal constant. People "value" things in different ways. If they *value* the brand name, then they're willing to pay more for it. That may seem silly to YOU, but it's perfectly legitimate to them. They value the brand. That's not so crazy.

    There is a force at work that alters the simple economic view of supply and demand. I'll call it "marketing." Marketing attempts to affect the opinions people have of the value of something. It has been my experience that they wield more power on economics than a simple view of supply and demand.

    Marketing impacts demand. It's not outside of supply and demand, it's a part of it.

    You suggest that competition would drive down the price of a chocolate cake. It would... if there were no marketing. A marketing person could put out an ad that says: "Made from FRENCH chocolate, unlike those cheap $9 cakes." (or something much smarter, I'm not in marketing).

    No, that fits exactly with the model, because the MARKETING is creating a DIFFERENTIATION, so that the competition is no longer of equals. That's exactly what should happen. That's innovation at work, increasing the benefit. People who are willing to pay more for that French chocolate get *increased benefit* by knowing about it.

    That's a good thing.

    It is an interesting truth, that people tend to think that they are logical, and make rational decisions, but the vast majority of our actions are determined a great deal more by emotion than based on facts

    That's all taken into account. Again, we're not talking about a universal "value" that is concrete. Value fluctuates on a variety of factors, including *perceived benefit*. The marketing you describe is just increasing perceived benefit. But if that increases the value to the buying individual, what's wrong with that?

    Premise: The idea that price will fall to a point that is marginal above the production cost is over-simplistic.

    Hmm. I think you're saying that price = marginal cost is false, not "marginal above production cost" which means something entirely different?

    But, this is where it helps to delve a bit more into the economics. Price will be driven to marginal cost when there's perfect competition (identical products, identical benefit). What innovation is about is creating a differentiation where there's no longer perfect competition -- so that you CAN charge above and beyond the marginal cost. You need differentiation to do so. THat differentiation CAN be a newer, better product, or it CAN be a *perceived* benefit. Perceived benefit is a real benefit to the user. So if they value French chocolate, they're willing to pay more for it. It's a differentiation, and they are willing to pay above the marginal cost.

    That's a good thing. That's a part of the model and fits right in with basic economics, as opposed to what you claim.

    I would suggest that fads, fashions, or "what's cool" will have as much (if not more so) of an influence on the "value" that people associate with a product (and thus the price they are willing to pay), as do the engineers that create the features.

    Again, that's completely factored into basic economics. It's only a problem if you assume that there's an intrinsic concrete value. That's not true.

     

    reply to this | link to this | view in thread ]

  40.  
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    Allen (profile), Aug 21st, 2008 @ 7:43pm

    Zero Price or Zero Cost?

    I agree with the sentiment of the post, but I disagree with the opening position that price and value are different. I think that you are confusing price with cost.

    Money has been used as the primary proxy for value for a long time. Instead of saying "I think three of your pigs is worth one of my cows", you can say "one pig is $100 and one cow is $300". Of course the swineherd can always disagree and say "cow shit! My pigs are worth $150!" and agree not to trade/sell.

    To get to my point, the value you place on something is exactly equal to the price you are willing to pay (or sell at). The things being overlooked are:

    • the buyer and seller do not have to agree on a value/price; and
    • the price or value need not be measured only in monetary terms.

    Now with the internet to distribute certain types of goods, the incremental cost of producing additional items approaches zero. Intelligent people understand this and are understandably reluctant to pay money. Zero cost of production does affect how people value things.

    Those that are producing these type of goods need to get a handle on it, and quick! They need to unlearn the idea that a direct exchange of money is the only way of exchanging value. When the buyers fundamentally disagree with the sellers on the value, its generally the seller that will loose in the long run.

     

    reply to this | link to this | view in thread ]

  41.  
    identicon
    Eldakka, Aug 21st, 2008 @ 9:38pm

    Re: Re: Re: So how does this apply to healthcare?

    Healthcare comes back to the insurance companies. Insurance companies by their nature and size, can dictate the value of healthcare, by what they will and will not pay for, this can be difficult if you are in need of emergency care. Many doctors loathe working with them and happily will offer a discount if you paid in cash. Sometimes it takes months to get reimbursed by the insurance companies. I have a few Drs in the family.

    No, the insurance companies dictate the cost of healthcare, not the value.

     

    reply to this | link to this | view in thread ]

  42.  
    identicon
    Anonymous Coward, Aug 22nd, 2008 @ 2:38pm

    Re: Re:

    Mike I think you misunderstood some parts of my previous post about the idea of price being driven down to a marginal cost as being over simplistic. "Actually, I think the statement that's implicit in your statement is that there is some sort of "universal" value that they can determine. That's not the case. Value is different to everyone" I do agree that values will vary from one person to another. This point is obvious. Now, let's say we take all of the values of people, paint then in a big spectrum of opinion, and then group them into something called "market segments." The idea is that for a given market segment the "values" are relatively the same. Even between market segments, we have a lot more in common as far as values than most people will admit. Price is a common value, for example. There is very few people that price doesn't matter to. "Life, liberty and the pursuit of happiness" are other values that I would suggest that we all hold in common. Thus by definition any given market segment does share the same values. "yes, they CAN determine the value to them. They make that decision every time they make a buy/no-buy decision, as they decide whether they value the good more than the money or less than the money." You state that people "CAN determine the value." That people can make a decision, I agree, but that THEY decide for themselves or by themselves, or even logically... that is where we might disagree. My point was that THEY do very little of the deciding. (A lot less than they think they do). "Again, you're assuming value is universal constant. People "value" things in different ways." Nope, not assuming a single person's values or even a group as a collective are a constant. People change their minds (or at least I hope they do). "If they *value* the brand name, then they're willing to pay more for it. That may seem silly to YOU, but it's perfectly legitimate to them. They value the brand. That's not so crazy." Some people do value brand names, but I'm assuming that is only because they believe it means higher quality (or "value"). If they knew that it was exactly the same product but with a different sticker painted on the outside would they still buy it? "Marketing impacts demand. It's not outside of supply and demand, it's a part of it." Thus the statement that the price will be driven to a marginal cost in a competitive situation is oversimplistic, it doesn't take into account things like... marketing. "No, that fits exactly with the model, because the MARKETING is creating a DIFFERENTIATION, so that the competition is no longer of equals. That's exactly what should happen. That's innovation at work, increasing the benefit. People who are willing to pay more for that French chocolate get *increased benefit* by knowing about it." Marketing didn't create a difference, it only caused people to have a perception of a difference, thus marketing was altering peoples values. And no, I don't think marketing is "innovation at work," I (a nerdy engineer) reserve the word innovation for an actual change in a product. I also disagree that marketing was "increasing the benefit." Assuming that they were the same cakes, they were causing a change in perception. The only increased benefit to the customer in this fictional example was an intentional misleading of the customer. What is French chocolate? Is it better than German? "That's a good thing." For whom? For the company selling the $10 cakes, yes. For the company trying to sell a cake that was just as good but was $1 less... no. For the ultimate customer who was not getting as much actual value... no. "Hmm. I think you're saying that price = marginal cost is false, not "marginal above production cost" which means something entirely different?" This is probably my mistake in not using the same terms. 'Price = marginal cost" didn't make as much sense to me, as there are typically several layers of "marginal cost" as something passes from the point of creation to the point of consumption. But, this is where it helps to delve a bit more into the economics. Price will be driven to marginal cost when there's perfect competition (identical products, identical benefit). Well said, I agree. "when there's perfect competition" = you're simplifying in order to illustrate. "What innovation is about is creating a differentiation where there's no longer perfect competition -- so that you CAN charge above and beyond the marginal cost." Again the use of that word "innovation." I'll admit, it takes some great creativity to come up with 'spin' for how to present the exact same product. Since this is cheaper than actually changing the product, it seems here you agree that this happens, and as such, the price will not be just slightly above marginal cost.

     

    reply to this | link to this | view in thread ]

  43.  
    identicon
    Anonymous Coward, Aug 22nd, 2008 @ 2:43pm

    Re: Re: Re:

    Mike I think you misunderstood some parts of my previous post about the idea of price being driven down to a marginal cost as being over simplistic.

    "Actually, I think the statement that's implicit in your statement is that there is some sort of "universal" value that they can determine. That's not the case. Value is different to everyone"

    I do agree that values will vary from one person to another. This point is obvious.

    Now, let's say we take all of the values of people, paint then in a big spectrum of opinion, and then group them into something called "market segments." The idea is that for a given market segment the "values" are relatively the same. Even between market segments, we have a lot more in common as far as values than most people will admit. Price is a common value, for example. There is very few people that price doesn't matter to. "Life, liberty and the pursuit of happiness" are other values that I would suggest that we all hold in common. Thus by definition any given market segment does share the same values.

    "yes, they CAN determine the value to them. They make that decision every time they make a buy/no-buy decision, as they decide whether they value the good more than the money or less than the money."

    You state that people "CAN determine the value." That people can make a decision, I agree, but that THEY decide for themselves or by themselves, or even logically... that is where we might disagree. My point was that THEY do very little of the deciding. (A lot less than they think they do).

    "Again, you're assuming value is universal constant. People "value" things in different ways."

    Nope, not assuming a single person's values or even a group as a collective are a constant. People change their minds (or at least I hope they do).

    "If they *value* the brand name, then they're willing to pay more for it. That may seem silly to YOU, but it's perfectly legitimate to them. They value the brand. That's not so crazy."

    Some people do value brand names, but I'm assuming that is only because they believe it means higher quality (or "value"). If they knew that it was exactly the same product but with a different sticker painted on the outside would they still buy it?

    "Marketing impacts demand. It's not outside of supply and demand, it's a part of it."

    Thus the statement that the price will be driven to a marginal cost in a competitive situation is over-simplistic, it doesn't take into account things like... marketing.

    "No, that fits exactly with the model, because the MARKETING is creating a DIFFERENTIATION, so that the competition is no longer of equals. That's exactly what should happen. That's innovation at work, increasing the benefit. People who are willing to pay more for that French chocolate get *increased benefit* by knowing about it."

    Marketing didn't create a difference, it only caused people to have a perception of a difference, thus marketing was altering peoples values. And no, I don't think marketing is "innovation at work," I (a nerdy engineer) reserve the word innovation for an actual change in a product. I also disagree that marketing was "increasing the benefit." Assuming that they were the same cakes, they were causing a change in perception. The only increased benefit to the customer in this fictional example was an intentional misleading of the customer. What is French chocolate? Is it better than German?

    "That's a good thing."

    For whom? For the company selling the $10 cakes, yes. For the company trying to sell a cake that was just as good but was $1 less... no. For the ultimate customer who was not getting as much actual value... no.

    "Hmm. I think you're saying that price = marginal cost is false, not "marginal above production cost" which means something entirely different?"

    This is probably my mistake in not using the same terms. 'Price = marginal cost" didn't make as much sense to me, as there are typically several layers of "marginal cost" as something passes from the point of creation to the point of consumption.

    But, this is where it helps to delve a bit more into the economics. Price will be driven to marginal cost when there's perfect competition (identical products, identical benefit).

    Well said, I agree. "when there's perfect competition" = you're simplifying in order to illustrate.

    "What innovation is about is creating a differentiation where there's no longer perfect competition -- so that you CAN charge above and beyond the marginal cost."

    Again the use of that word "innovation." I'll admit, it takes some great creativity to come up with 'spin' for how to present the exact same product. Since this is cheaper than actually changing the product, it seems here you agree that this happens, and as such, the price will not be just slightly above marginal cost.

     

    reply to this | link to this | view in thread ]

  44.  
    icon
    Mike (profile), Aug 24th, 2008 @ 4:06pm

    Re: Re: Re: Re:

    You state that people "CAN determine the value." That people can make a decision, I agree, but that THEY decide for themselves or by themselves, or even logically... that is where we might disagree. My point was that THEY do very little of the deciding. (A lot less than they think they do).

    I'm not sure what you're getting at? That people are influenced by marketing? So what?

    Some people do value brand names, but I'm assuming that is only because they believe it means higher quality (or "value"). If they knew that it was exactly the same product but with a different sticker painted on the outside would they still buy it?

    So what? That's a marketing issue. You are being elitist to claim that someone is wrong for valuing a brand name over a nonbrand name. If it's such a concern to you, then go educate people that the products are the same. Btw, that "education" is *marketing*. Just because sometimes it happens in a way you dislike doesn't make a difference.

    Marketing didn't create a difference, it only caused people to have a perception of a difference, thus marketing was altering peoples values.

    Same thing. It creates a difference in how someone values a product. That's exactly what I said. You seem to have this "ideal" that doesn't exist.

    And no, I don't think marketing is "innovation at work," I (a nerdy engineer) reserve the word innovation for an actual change in a product.

    Ok. While plenty of engineers think that, it's wrong. It's also why so many brilliantly engineered products fail.

    Don't be an elitist. Learn why marketing is important.

    I also disagree that marketing was "increasing the benefit." Assuming that they were the same cakes, they were causing a change in perception. The only increased benefit to the customer in this fictional example was an intentional misleading of the customer.

    If the customer values it more, then, yes, there IS a benefit. The customer has made a decision, and he or she values it more. Who are you to say they're wrong?

    For whom? For the company selling the $10 cakes, yes. For the company trying to sell a cake that was just as good but was $1 less... no. For the ultimate customer who was not getting as much actual value... no.

    Yes, for the customer, because they MADE THE DECISION. They FELT the value, otherwise they wouldn't have made the purchase.

    Again the use of that word "innovation." I'll admit, it takes some great creativity to come up with 'spin' for how to present the exact same product. Since this is cheaper than actually changing the product, it seems here you agree that this happens, and as such, the price will not be just slightly above marginal cost.

    Yes, if marketed properly. The problem is that you seem to believe that marketing something properly is somehow outside of normal economics. It's not.

     

    reply to this | link to this | view in thread ]

  45.  
    identicon
    Big Broccoli, Oct 21st, 2009 @ 10:45am

    Re: Re:

    If people don't determine value then who does?

    Is price one of the inputs in determining value?

     

    reply to this | link to this | view in thread ]

  46.  
    identicon
    Zoe Winters, Jan 23rd, 2010 @ 11:47am

    I'm going to have to disagree.

    The MONETARY value of something is what people are willing to pay for it. If you're only WILLING to pay $5 for something then that is it's monetary value. Now it may have more intrinsic worth to some people, it may have value that goes beyond money, but monetary value is determined by what people are willing to pay. And when people are talking about value and price they are speaking about monetary value. The fact that others want to extrapolate the conversation onto "intrinsic" value has nothing to do with the facts.

    If some people are willing to pay $50 and some are only willing to pay $5, then you have to decide which clientele you are going to cater to. (I say go with the $50 crowd. The more a customer has to pay for something, the less they generally whine about it later.)

    But FREE indefinitely for everything WILL devalue your work. It won't devalue everyone's but it will devalue yours, because when you train people to believe what you are providing has no monetary value outside of a hard copy of whatever it is, i.e. the story/information/entertainment has no inherent monetary value, then they will never buy it from you.

    I believe in the power of free, but I also believe in too much of a good thing. But I suspect eventually those who are such "information wants to be free" proselytizers will see the light when it doesn't work out for them well enough in a real-world financial sense, or when hard goods are such a minority percentage of sales that you have to be able to sell digital to survive. (i.e. sometime in the next 10-20 years.)

     

    reply to this | link to this | view in thread ]

  47.  
    identicon
    Tim, Apr 2nd, 2010 @ 5:30pm

    Re: Re: value vs price

    God loves you anyway. He knows you cant comprehend what created the Earth and the Sea's so he sent his son Jesus to wash away your sins, such as that silly comment you made. God loves you, find him, you find love. Love is kind and gentle. You'll never think and write such sillyness again. Thank you

     

    reply to this | link to this | view in thread ]

  48.  
    identicon
    Elvis, Jan 31st, 2011 @ 11:16am

    difference between price and value

    i think it is a very useful stuff. kudos and keep up the good work

     

    reply to this | link to this | view in thread ]


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