Price is what you pay and value is what you get. When it comes to getting your financial life in order, it pays to know the difference.
I recently saw a lovely sign in front of one of those old candy-cane barber shops, where men smell of Old Spice and you can still hear the gentle click of scissors and combs. ‘$10 haircuts’ the sign proclaimed in big bold red letters. Underneath in black fine print, it simply read ‘fixed for $20.’
It’s a clever bit of marketing that pokes fun at our attitude to price.
It’s also a cautionary warning about being careful what you wish for: that $10 haircut just cost you $30. In the game of money, price is what you pay and value is what you get.
It took Covid lockdowns to show us the price and value of everything. Aussies pulled together to ward off job losses. We bought takeaway meals from our local café, kept gym memberships open and met virtually with our financial advisers and psychologists.
We saw the value in the small businesses that served us, and we wanted them to remain open – even if it meant paying a little bit more for our shepherd’s pie or reducing our number of gym visits.
Our response to Covid made me wonder: why do things cost what they do? And what is real value?
Price is what you pay
First pricing. The rough version of the law of economics goes something like this. Prices are set partly by the market (or what people are willing to pay) and partly by the laws of supply and demand (scarcity attracts a higher price, abundance lower). Competition drives up the quality of goods while innovation drives down the cost of producing (and buying) those goods.
What a beautiful system.
But pricing goods is also determined by other factors like the cost of stock, transport, wages, regulations. Pricing pressure comes with too much competition or too little willingness to pay- just ask struggling café owners buckling under Australian’s love affair with $4 lattes. When the price becomes too low margins become razor thin.
The seller either goes out of business or desperately tries to undercut the opposition by flogging $10 haircuts.
… value is what you get
If price is what you pay and value is what you get, what does that look like?
Value is much more difficult to measure than price – especially when it comes to intangibles like paying for advice.
Some lawyers, psychologists or financial advisers are simply better than others. Paying for great advice might mean settling a tricky legal matter without hassle, gaining new skills to better cope with life’s challenges or achieving financial peace of mind while growing and protecting your assets.
But value is not simply in the eye of the beholder. It just takes longer to establish than price.
Selling services are much trickier to price than goods. How do you price the accumulated experience and knowledge of a trusted professional to help you really meet your goals?
Finding value often results in long term benefits that outlast the warranty of the latest widget you picked up on sale. You have more control over your finances, your weight is moving in the right direction, and your level of mindfulness is elevating you to Zen like status. What price can you put on these?
Picking price is for the stock markets, but finding value is about building something for the long term.
Food for thought next time you get a haircut.