The Sketch Artist: A Parable about Pricing

Paris, France, 1948: A young woman strolls along a downtown street and notices a man busily sketching a bowl of fruit. She stops.

“Do you sketch portraits?” she asks the man. “Yes, I do,” he replies, not looking up from the paper.

"Will you sketch a portrait of me, for me to take to my father? I am on my way to him now.”

The artist looks up from his drawing. “Yes. Have a seat.”

Three minutes later, the man presents a portrait to the young woman.

“It’s very good,” she says, not noticing the signature: Picasso. “How much do I owe you?” He replies, “Three thousand francs.”

“Three thousand!” she exclaims. “But it only took you three minutes!”

Looking into her eyes, the artist retorts, “No. It took me all of my life.”


The final line in this story: "No, it took me all of my life," perfectly, directly responds to any suggestion that the amount of time taken to perform a task ought to gauge the value provided.

Though a few readers might conclude that the fame of the artist determines his billing rate at 1,000 francs per minute, this is not the point.

Rather, a very good portrait drawn quickly can be worth a lot of money. If you question the price based on the short time spent, then you ought to consider that developing the talent and expertise that enable a very good portrait drawn quickly takes a much longer time than the time spent performing the task.

This shifts focus from time spent performing to value provided in the result of the performance.

When services are performed that depend on talent and expertise, the time spent performing is only an arbitrary gauge of the value provided. What is it worth to you to have a talented expert satisfy a need promptly?


This and the Joe's Hotdogs parable brought to you by
Glenn R Harrington of Articulate Consultants Inc
www.articulate.ca

The Carpenter’s Invoice: A Parable about Pricing

Winnipeg, Manitoba, 1975: A man owned a house with a squeaky dining room floor. He paced that floor listening intently for the location of the squeak.

Each time he believed that he had found it, he would pull up the carpet and drive a nail into the floorboards. Each time, the squeak eluded him.

Eventually, he called in a carpenter.

The carpenter paced the floor, pulled up the carpet, and drove a single nail into the floor. The squeak disappeared.

The carpenter billed the man $50. The invoice said, “Driving one nail: $3. Knowing where to drive the nail: $47.”

Having experienced how the problem had already caused him more than $50 worth of trouble, the man happily paid right away.

Just as many people prefer the do-it-yourself approach to many problems to avoid the uncertain - and possibly high - cost of getting expert help, so this man tried to fix the problem on his own. Like often happens when people try to fix problems on their own, this man succeeded only at getting more nails in his floor, rather than solving his problem. His frustration and repeated failure made calling in a carpenter more sensible.

The carpenter's invoice hit the nail on the head. Anybody can drive a nail. The value lies in knowing where to drive the nail. Thus, the carpenter's expertise solved the problem and was the source of value. It had nothing to do with the amount of time taken, except that there was value in the problem being solved quickly.

This and the Joe's Hotdogs parable brought to you by
Glenn R Harrington of Articulate Consultants Inc
www.articulate.ca

Understanding Value In Practice

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.

This and the Joe's Hotdogs parable brought to you by
Glenn R Harrington of 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?

This and the Joe's Hotdogs parable brought to you by
Glenn R Harrington of Articulate Consultants Inc
www.articulate.ca