Pricing

Cost and Value: A Matter of Perspective

By Christine Carragee
September 25, 2013

I came home from an extended road trip late on Sunday night and decided to put off unpacking until the morning. When I finally made it out to gather up my laundry and put away my climbing gear, I noticed that the latch on my truck topper was broken, and you guessed it, all my gear and clothes had been removed. In addition to making me extremely annoyed and disappointed, the experience of having my stuff stolen got me thinking about costs and value.

Why on earth would anyone else want my used climbing rope, or my dirty laundry, or my favorite pair of sensible black shoes? The answer is that no one probably does want those things, but they had to take them and rifle through them to figure that out; they are now probably in a dumpster prompting a disposal cost.

Thankfully, the value my insurance company puts on those items is more closely aligned with my valuation– the replacement value. I say that the insurance company isn’t fully aligned with my valuation because they don’t factor in the hassle (shoe leather) cost of replacing specific function technical gear or any sentimental value I might have, say for the mittens I knitted which were made of only ~$15 worth of wool. Another way to quantify the value of my lost items would be to tally up my receipts and establish the combined initial purchase cost. In all likelihood, the purchase cost would be lower than the replacement cost because I was able to acquire my gear over a number of years, mostly at sale prices.

In addition to the cathartic release I’m hoping to get by writing about this, I’m hoping to spark your thoughts as a Pricer on the differences between Value and Cost from various perspectives. Value is more conceptual and individual, bringing to mind all the marketing considerations of customer segmentation, value pricing, quality, durability, and so forth. Meanwhile, the word Cost just begs to be quantified, scrutinized and then minimized. If you’re interested in digging into these types of issues, delving into the philosophical side of pricing, I recommend Eduardo Porter’s book, “The Price of Everything: Solving the Mystery of Why We Pay What We Do”. It’s full of conundrums such as why we’re willing to donate blood for free, but not if we’re paid a nominal fee and how to deduce the value different societies place on women based on marriage markets.

As always, I’m open to hearing about what you’re reading and thinking about, to see another perspective on Cost and Value, so feel free to post your book recommendations and thoughts. I’ll even get you started with a quote:

“What is a cynic? A man who knows the price of everything and the value of nothing.
And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything, and doesn’t know the market place of any single thing.”
―    Oscar Wilde,  Lady Windermere’s Fan

  • cost , disposal cost , hassle cost , High Cost of Goods Sold , perspective , purchase cost , replacement value , sentimental value , value , Vendavo Profit Advisor

    Christine Carragee

    Christine has a diverse background in pricing analysis and implementation across industries. As a pricing practitioner, she has worked in both B2B and B2C environments and collaborated across functional areas to improve margin performance. Applying her passion for data analysis, Christine has helped Vendavo customers to anticipate their data and reporting needs during requirements gathering in anticipation of the on-going the value realization process. Another component of her work has focused on corporate education and training; ensuring strong project ROI through user adoption and increased pricing understanding.