Understanding Value

As the best-selling economist Henry George pointed out over 100 years ago, there are two basic types of value:

• exchange value - what something is worth in a simple buyer-seller transaction - measured in money.
• utility value - what something is worth to its user as it used - measured in money.

In this way, the exchange value of a painting by Picasso, for example, equals the amount it can fetch at an auction. Its utility value might lie in its ability to create prestige by contributing artistic merit to the room in which the painting is hung.

The market establishes the exchange value of manufactured goods through supply and demand.

• Supply comes from the ability of a manufacturer to satisfy demand profitably.
• Demand lies in the will and the ability of buyers to pay, based on their want and need; typically based on their perception of utility value.

Semantics notwithstanding, this list indicates the fundamental source of value (advantage) in 12 examples:

• reduced stress
• reduced cost
• reduced risk
• convenience
• pleasure
• increased profit
• importance or prestige
• entertainment or enjoyment
• respect or validation
• security
• comfort
• sense of advantage.

Awareness of the nature of value makes it easier to evaluate price.

Other articles posted to this blog discuss value, fees, and prices in the spirit of what's best for both buyer and seller, with particular focus on questioning the billable hour as a gauge of value.

- Glenn R Harrington
Articulate Consultants
www.articulate.ca

Custom Work for Standard Prices?

Robert was a professional writer, not of screenplays or magazine articles, but of original custom newsletters. Despite his ability as a wordsmith in a range of contexts, the market consistently regarded him as a newsletter specialist and brought that business to him. Robert decided to embrace this reputation. The rationale behind his business model was simple: Give people what they want.

He developed a business model that would always create original, authentic newsletters – best to maintain a credible connection between his clients and their readers. In an apparent paradox, he would always charge standardized fees and make a profit.

The reputation for newsletters that had driven demand for his writing was based on reliably good writing. His writing for any client always retained a degree of original authenticity that made his third-party authorship invisible. He trained and managed a small cohort of writers in his techniques also, so that readers would always assume the writing to be the issuer’s.

Robert ensured that each newsletter would have a look unique to the issuer, as well. Then, each issue would be laid out with client-approved text and images by the same person who designed the original template.

Robert paid his writers and designers fixed fees and had them work under a contract that protected the business interests of all parties. Likewise, he charged his clients fixed fees under a purchase agreement that both encouraged decisive collaboration on newsletter content and allowed the flexibility necessary to make each issue fulfil its potential as a timely reflection of the issuer:reader relationship. His purchase agreement even included a pay-upon-approval satisfaction guarantee.

Q1 If you could have original, custom work performed for you by a small team of creative people with the security of fixed fees and a satisfaction guarantee, would you bypass low-cost, off-the-shelf alternatives?

Q2 If you were to read a newsletter that seems to be a generic, impersonal product with the name and photo of an individual pasted in, would you consider it worth much more to that individual to issue an original, custom newsletter like those Robert and his team create?

- Glenn R Harrington
Articulate Consultants
www.articulate.ca

Is Faster Service Worth More?

Imagine this. Your computer is not working properly. You have tried to understand the problem and to find a solution that you can implement yourself. Yet, after trying, you are no closer to a solution, you find the situation aggravating, and you decide that there’s no point in continuing to attempt fixing the problem yourself. Your time and attention are better spent on productive activities and should not be wasted on this computer problem any more.

The computer technician that you call asks a few questions then says to bring the computer in to his shop. He charges $60 per hour and predicts the computer ready in two business days. Once he has the computer, he will diagnose the problem then call you with an estimate.

Q1 As you consider not having your computer on hand for two business days, and the opportunities to use it productively that you must forego, would you be willing to pay more to have it fixed and back in use much sooner?

Q2 If the computer technician offered to fix your computer within 24 hours, satisfaction guaranteed, for a fixed fee agreed in advance, how attractive would that be to you?

- Glenn R Harrington
Articulate Consultants Inc.
www.articulate.ca

Evaluating Your Next Car

You and your spouse are shopping for a new car. Having visited a few car dealers, conducted research on the web, and spoken to a trusted person at your usual auto-service shop, you and your spouse have narrowed your search to two cars, both of which you have taken on a test drive together.

Q1 As you consider the value of each car, do you care how quickly or slowly either car was built, or how much time the manufacturer put into design & engineering?

Q2 As you consider the asking prices of the cars, does it matter to you how much time the car salesperson has spent on the sales process with you?

- Glenn R Harrington
Articulate Consultants Inc.
www.articulate.ca

the Value of A Salad

At a restaurant, you order a supper salad. The menu says that the salad costs $7.99. As usual, you expect the salad to be served to you in a few minutes.

When your order reaches the kitchen, the manager finds that the supply of tomatoes has gone too low. She sends somebody out to buy tomatoes for your salad. The errand runner breaks a sweat to get the tomatoes to the kitchen in time for your salad to be served with the rest of the meal.

Your salad is served with the rest of the meal, and it is billed at $7.99.

Q1 As you sit at your table waiting for your meal to be served (unaware of the restaurant’s tomato supply) does it matter to you if the kitchen’s supply of tomatoes has gone too low, causing the manager to send somebody out to buy more?

Q2 If you knew about the low tomato supply and the decision to send somebody out to buy tomatoes, how would that affect your expectations about the timing of the meal being served or the amount billed?

- Glenn R Harrington
Articulate Consultants Inc.
www.articulate.ca