Cost versus Price

Zig Ziglar tells a story of when he was buying a bicycle for his son. There were two bicycle stores in town; the first was a cycle shop, which had a starter bicycle for a higher price, say $79. The second was a discount shop, whose starter bicycle was, say, $39. Mr. Ziglar bought the cheaper bicycle. A month later, a pedal had to be replaced, for $10. Two months later, the handle bars needed to be fixed, for $15. Then the seat needed repairs, the chain had to be corrected, and on and on it went. Eventually, according to the story, Mr. Ziglar went and bought the more expensive bicycle for his son, and it lasted over six years without repairs. While the discount bicycle had the better price, the more expensive cycle had the better cost.

Over and over again, we are told to get value for our money, our time, and our effort. Yet value is a relative term. Value is based on our judgment of the worth of something, not an objective measure we can point to. What we can point to is the cost of getting something or doing something. We can point to how much money, how much time, and how much effort we expend to acquire something. But what we spend is not the value of the object, it is the cost.

When we are looking at choices, we want to make the best choice; choices can be rated on their cost (what we have to expend) and value (what we get in return). The best choice is the one which brings in the best value for the cost that we can afford. That is definitely not always the cheapest price.

When we are selling something, we should not be competing on price, but on this ratio of cost to value. Find what the customer/client/boss is looking for, provide it at the lowest cost you can, and you will succeed in the market place. The difficulty is making the customer aware of the cost and value, rather than just the price.

Too many people make their judgments based on price, without looking ahead to the overall cost and expected value. You need to make your judgments on cost and value, not price. That does not mean to always buy the most expensive item you can; it means you buy the item with the best cost to value ratio. When you are selling something, make sure the customer is aware of the total costs and sources of value; do not leave it up to the customer to figure it out. Most will not go to the effort, unless you have gone there first.

If someone wants a better price, and that is all they are looking at, move on to the next customer/boss/client. Do not reduce your value by playing the price war. A transaction should, according to Stephen Covey, be a win-win situation. Otherwise, walk away.