What is Value? It's Often a Lie.

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Publish date July 8, 2011 Views: 547 Comments: 18

“Buy now! A $2,000 value, only $79.95! This week only!”

What is value, really? When a product is on sale, why do we say that product is worth more than we pay? It’s psychological. We’re getting a deal. We presume the company is taking a loss in order to bring us a special offer, figuring that the company’s real goal is to get us to buy more. We think the company wants to sell more products with a profit to make up for the loss leader. That’s possible in many cases, but if the buyer is convinced that a deal is a good value, then it doesn’t matter whether it leads to more purchases.

A product’s value is whatever customers are willing to pay. If that’s $2,000, that’s the value. If sales aren’t moving well at $2,000 but there’s a market for the product at $79.95, I would say that the lower price, among the two options, is the canonical value. This concept has another level; there is a simple formula one can use that could take the frequency of buyers at a variety of price points into account to determine an overall average value.

When sellers advertise a product at the lower price point with a marketing tactic like the one used in this first line of this article, I tend to take the opposite viewpoint. I even feel bad for those who paid $2,000 for a product that is worth $79.95. And if customers who purchased the product for $2,000 find out that the identical product is now sold at the lower price point, I imagine they would be upset. They might feel swindled, and they wouldn’t entirely be wrong.

Prices for products change all the time. Today’s latest technology always costs a premium when compared to next year’s price for the same item. With technology, this premium is for the cachet of being an early adopter or the privilege of having the latest innovative product. With this rationalization, early adopters don’t have a problem with a product being sold later for a lower price. Most products don’t have this sort of psychological premium, though.

This is why I have a difficult time dealing with a lot of sales. I am fine paying a lower price for a product, and I’m often fine paying a higher price for a product if I think it’s a good value. I’m just not a fan of marketing messages that try to convince shoppers of the “real value” of a product.

Article comments

Anonymous says:

I think the most important factor when trying to determine true value is… “How much would somebody pay for this product/asset in an open market?” Marketers can make all kinds of value claims, but in reality often people would not be prepared to pay their valuation, therefore in my view it’s not a true valuation.

Anonymous says:

I’ve always thought it dumb when my grocery store receipt tells me how much I “saved”. The only thing I saved is what I didn’t spend! I get no joy out of gimmicks.

Bobka says:

In my mind, value is when you are able to buy something like airline travel during a promotional sale at a price that is below what is normally charged, and the price is expected after a short time to return to the higher level.

Anonymous says:

I do find it hard to buy a lot of items because I’m mad if I paid $69.95 for it and a week later it’s $19.99. You’re correct. This is sooo true at department stores.

Cejay says:

Interesting concept and it really made me think. I found myself a while back getting into the habit of thinking that purchases were better because they were from a “high end” retailer. When they usually were not. And like you, if I paid the $2,000.00 I would be angry and feel swindled.

Ceecee says:

A real estate agent once told me, “your house is worth exactly what someone will pay you for it, not what any “expert” says it is worth.” That has turned out to be so true these days, hasn’t it?

Donna Freedman says:

The idea of “real value” is an interesting one. If you were in the desert you’d probably pay $2,000 for a bottle of water. In your city apartment, water comes out of the tap for free.

Anonymous says:

I’m amazed that people are taken in by marketing messages. I completely ignore the messages and, first, try to determine if the item would be of any use to me. If I do think the item would be useful to me, I research the item and think about a lot of things I purchased in the past and use them as references for making the new purchase. Once I settle on a price, I will refrain from buying the item until it’s relatively close to my price. Finally, I don’t sweat it if the price drops at some point in the future after I’ve bought it.

With this strategy, I found one Groupon deal that by the time I decided to purchase it, it had expired. But it’s all good.

Anonymous says:

BUT WAIT! Pay now by credit card, and get a second set of ginzu knives absolutely FREE!

Anonymous says:

All you have to do is pay an additional shipping and handling charge! (which was very much inflated the first time, never mind paying it twice now)

tbork84 says:

A second set! How can I lose?

skylog says:

you can’t…but only if you call in the next 10 minutes. that is the one that makes me laugh the most, as if they are actually tracking the times and such. it saddend me that some actually believe that.

Anonymous says:

Thank you for the interesting read. This is a topic I find myself discussing with peers often. In my opinion, the value of something is only worth however much you’re willing to give in order to obtain it. Although I like to say price tags don’t play a role in my decision making, because we all know how real a financial budget can be on our lives, the reality is many times I can justify to myself that a given price for a luxury item is simply more than I’m willing to trade for the particular product at that particular point in time. Its really quite an interesting and beneficial way to view things every once in a while.

shellye says:

High-end cosmetic companies like Estee Lauder, Lancome, etc. have discovered that if you mark something on sale, that means it was overpriced to begin with, which is why you almost never see cosmetics go “on sale” in the department store. They have determined that there is value in a $24.95 lipstick or a $40 eyeshadow quad, so it will seldom, if ever, go on sale for less. I’ve even been to department store closings where everything is liquidated, and the cosmetics are still not marked down.

Luke Landes says:

Very interesting to see in practice how the word “value” can have different meanings, connotations, and senses

qixx says:

The first question on value is are you looking for something that is a value or something that has value.

Something is only a value once you decide what it is worth. Anything you can get for less than it’s worth is a value. Looking at things this way even free items might not be a value.

Something may still have value even if you over-paid (Paid the $2000 in the article example). It has value when you can still get usefulness out of it easily. If you get frustrated using it it likely has no value to you other than selling it to someone else.

Anonymous says:

Value as a noun can be expressed in terms of dollars and cents and as you point out, that number may conceal truth. Value as a verb is what the listener to this drivel must decide for themselves. I doubt I would value the widget for $2,000 just because I could get it for $79.95. The selling price doesn’t affect my valuation, only the product’s importance or usefulness can do that. Only if I value (v) that product due to its usefulness, can I assess what I consider its value (n) in the dollars and cents world.

Anonymous says:

I definitely agree about the pricing of products changing all the time, and that there is no real way to quantify value in terms of pricing and marketing. I do, however, think that there is more to value than marketing jargon. If I tell you that I’m going to do your taxes, but I also organize your documents into a neatly bookmarked pdf file as well, I am providing you value above what you expected. Now, to you that may be something that is spectacular and saves you a bunch of time and energy, so you would appreciate it but if I did the same for an elderly person who never touched a computer, the value I provided would be significantly lower. The value concept is probably more reasonably applied to services due to the psychological and emotional triggers.