Know the Difference Between Cost and Value
In casual conversation we use the terms cost, price
and value almost interchangeably. That might seem to be just semantics, but I
think we send mixed messages or act inappropriately when we start believing these
concepts are identical.
Anyone who has a teenager probably knows all too well how they
are guided by peer pressure. All the girls tend to wear the same fashion. Young people of
both genders hanker for the latest “trendy” shoes, gadget or new toy. To many
the cost does not matter and the sellers (knowing the demand) over-charge accordingly.
A friend of mine told me his son who is unemployed
borrowed $200 to acquire a pair of sneakers because they were the “it” shoes of
his generation. I have driven a luxury car for the past few years but as it
aged the repairs became never-ending and very expensive. So I traded it in for
a sturdy, dependable Japanese car and am shocked at the many comments I have
received. You would think condolences are in order because I have been “reduced”
to a non-luxury car with much less status.
OK, so that gets me back to the various terms I
started this blog with. I am writing this not only because of recent experiences, but because I believe they have
significance to all our personal lives and also our professional lives. How do
you value yourself, your colleagues and your profession?
Let’s just define those key terms simply, instead of using the formal economic definitions.
whatever is spent to produce goods and services. So it might be what Toyota spends
to make a car, how much Apple pays a worker in Asia to make an i-phone, or how
much your employer is out of pocket to have you work for them (recruitment,
salary, benefits etc).
Price: is the what is charged
or received by a seller. Again, using the car/employer analogy, it’s what someone
pays the dealer for a Camry, or what your employer pays you to do a job as a
phlebotomist, MLT or MLS for them.
is whatever the customer believes a certain good
or service is worth. Value is a much more subjective quality, but it is what
really drives the price. The perceived value of "it" sneakers or an I-phone have very little to do with their respective cost of production. You can look at various professionals and realize that pay
is not commensurate with education, work ethic, competence, service provided and so on.
neighbor was willing to go into debt and pay hundreds of dollars for a pair of
sneakers because of the value he assigned to those shoes. Employers will pay certain employees more because of their perceived value in the organization.
We tend to regard anything with a high price tag as
being valuable, or more significant and important. The converse is also true:
if we can convince a customer or employer that we are valuable, important,
critical, crucial to their success, then our value increases.
These might appear to be subtle differences, but not
knowing the difference often results in being undervalued and underpaid.
Here’s to recognizing and explaining your value (and
fetching an appropriate price) as you move into the New Year