Cost, Price, and Value

Value-Cost-Price (2)

By Mike Cronin

One of the ways some businesses try to do your thinking for you is through misuse of the word “value.” Have you ever seen an advertisement that says something along the lines of “Item X, normally a $200.00 value, now just $149.99?”  Well, the company is trying to tell you what the value of the item is, and that they are selling it at less than that. You’re supposed to think: “Wow, what a bargain! Let me run right out and get one!”  The problem:  Value is subjective, and it’s not determined by the business, it’s determined by you.  If you don’t want that item, it has no value to you at all. If you want it so bad that you would pay twice as much as they are asking, it has great value to you.  Advertising often tries to blur the line between “price” and value.  Price is the amount the business charges for their product. In some cases, price is negotiable, such as when purchasing a car, a home, or a used item at a garage sale.  Sometimes price is not negotiable, such as for most groceries or on-line purchases.  Cost is the total amount of money, in design, labor, time, effort, parts, materials, energy, infrastructure, management, marketing, advertising, sales, transportation, etc. that the business had to spend in order to grow, obtain, or make the thing they are selling. In order for a business to make a profit, the amount of money they take in from sales has to exceed their total costs. In short:

Price – how much the business is charging

Cost – how much the business had to spend

Value – how much it’s worth to you