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Tuesday, March 16, 2010

Yours or Mine?


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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4 comments:

  1. Hi Jim,

    Thanks for sharing this.

    A little confidence in oneself goes a long way to offering value to a customer inspite of the current fear that drives the need to cut costs.

    Best regards,

    Al

    ReplyDelete
  2. Agree Jim that increasing value is an essential part of regeneration, but so is cutting of wasteful costs and those which should not/must not be a priority during the regeneration process.

    Sometimes, that inevitably includes people, and as long as it's done with sensitivity and in a transparently fair process, I'm OK with this.

    The only thing we should be obsessive about is always doing our best, and if that isn't good enough, check out why not, and try again.

    ReplyDelete
  3. And of course you know the definition of a cynic: Someone who knows the price of everything but does not know the value of anything.

    I think there will always be a focus on cost control and cost cutting as we try to squeeze more money out of the increasingly dry well (to mix a bunch of metaphors) but you are right that we should not lose sight of value and customer experience. You could even argue that now, when everybody is so "tight" and feeling the pinch, is actually the time to be focusing on value/relationships - people will remember you and be more loyal to you in the long run if you stuck it out with them through the hard times.

    For a lot of companies/businesses/people, it is hard at the moment because of economic slowdown but a ray of hope might be, as I mentioned, trying to find those customers to whom you can add value and for which you will get increased payback in the long run. Good luck to all out there who are trying to do just that while making ends meet.

    ReplyDelete
  4. While I agree with Zephyr about the cutting of wasteful and low priority costs being essential, what I'm seeing goes well beyond that. Many of the companies I deal with are well beyond the trimming of excess fat having cut the legs, arms and even brains of the organization. As a survival technique, I find this bizarre. If you can't make money in this economy, rather than mutilate the organization, why not reinvent it by finding new ways to add value.

    ReplyDelete