Say I was to put a $20 bill (or a £20 note for my UK friends) on the table and offer the highest bidder the chance to win it on the flip of a coin. How much would you be willing to wager on the chance?
Views on gambling aside, logic would suggest a reasonable answer would be somewhere in the neighborhood of 20 dollars as that evens the odds of you taking my 20 while keeping yours at 50/50.
But say all you had was $20 to carry you to your next paycheck and you needed that money to buy milk for the kids. Would you still make the bet?
Conversely, say you want to buy theater tickets that cost $40, but only have $25 in your pocket. The show runs tonight only and there is no other way for you to get the extra $15. Might you consider bidding a little higher for a chance at not missing the show?
My point is this: It’s not really the price or cost of things that drives consumer behavior, but rather the value they place on those things. Yet driven no doubt by the economic downturn, it would seem both companies and consumers alike are totally obsessed with cost cutting and have completely lost sight of the total value proposition.
While I appreciate that eliminating unnecessary spending often makes sense, becoming obsessed with cost cutting, be that on the provider or consumer side, can only lead to a reduction in quality, and therefore the value of goods and services available.
Inevitably, this decline in value will further stall our economic recovery, increased pressure on our fragile environment and in the end, actually drive up real costs. In other words, it will cause a world of long term pain and little if any short term gain.
By my way of thinking, the sooner we curb our obsession with cutting costs and get back to focusing on value, the more of it we will create and the better off we’ll all be.
I’d love to hear your thoughts on this one!
For more on this topic, see my colleague, Ade McCormack's blog on Money Verses Value then return to this site by clicking on the back button.
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