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PRICE VERSUS VALUE

Posted by Tim Bryce on August 26, 2013

BRYCE ON BUSINESS

– Are we really comparing apples to apples, or apples to oranges?

(Click for AUDIO VERSION)
To use this segment in a Radio broadcast or Podcast, send TIM a request.

In business, there seems to be a growing change in the perspective regarding purchasing. I am finding more and more people attracted to vendors who simply offer the lowest price. This is fine if you are genuinely comparing apples to apples, but not apples to oranges. Price is one thing, “value” is something else, and something people commonly overlook these days. By “value” I’m including the services above and beyond the cost of the product. For example, warranty and maintenance.

Long ago automotive companies realized cars were not sold by price comparison alone, but by the accompanying services, such as roadside assistance, waiving of finance charges, extended warranty on the power-train and body, etc. Adding such service is a testament to the confidence you have in your product. If you have a good quality product, you have little to worry about.

Not long ago, I selected a new cable provider for home, something it seems I do every three years now. I believe I have tried all of the providers in my area. On the surface, one looks better than another and are priced competitively. I suspect most people make their purchase decisions by price alone, but having used all of them I consider the overall value of each provider which is not just the specifications of the service but its reliability. Living in the lightning capital of America, I realize all providers will take an electrical surge from time to time, but I want a service that rarely goes down and has the fastest response to correcting problems. That’s “value.” I may have to pay a little more for it, but I will gladly do so to keep my televisions, telephones and computers up and running. I generally gravitate towards the vendor who offers the best value, but this is a trend that seems to be changing in the business world.

Here in the Tampa Bay area, a local distributor of manufacturing related accessories is experiencing a decline in their market share due to this cost vs. value phenomenon. For years, the distributor offered a wide variety of products at competitive prices. More importantly, they offered value to their clients by freely maintaining their inventory, auditing product consumption, and other miscellaneous services, all of which saved their clients considerable money. They also offered generous terms for payment. Unfortunately though, they are losing out to other vendors based on simple price comparisons. It seems the new purchasing people want to make a name for themselves by selecting the low-ball bid thereby seemingly saving money for the company. However, by overlooking value they are ultimately costing their companies more money in the long run. Some companies have the gall to ask the distributor to continue to freely maintain the inventory and do the audit. No, I’m afraid that ship has sailed. Only then do they realize the meaning of “value,” but it’s too late. A vital business relationship has been shattered.

Not long ago, I visited a local hardware store where I bought some new power tools to maintain my yard. I could have purchased them from the garden mega-stores, but I’ve been burned by them before where I had to deal with clods who knew nothing of the products they offered. At the local hardware store, even though I paid a little more for the tools, I did so gladly as I dealt with a salesman who knew his products intimately and guided me to the right solution based on my needs. In other words, he offered me “value” as opposed to just “price.”

It’s okay to take the low-ball approach when you are matching products purely of the same kind, but don’t be foolish and overlook the value of products where there may be long-term benefits to be considered. In other words, don’t try to match apples with oranges. It doesn’t work.

Keep the Faith!

Note: All trademarks both marked and unmarked belong to their respective companies.

Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com

For Tim’s columns, see:
timbryce.com

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Copyright © 2013 by Tim Bryce. All rights reserved.

NEXT UP:  DO NOT USE TRAVELOCITY! – Of course, if you can live without refunds and don’t mind talking to India…

LAST TIME:  HOW MUCH DO WE REALLY USE OUR HEAD? – Not as much as you may think.

Listen to Tim on WJTN-AM (News Talk 1240) “The Town Square” with host John Siggins (Mon, Wed, Fri, 12:30-3:00pm Eastern), KGAB-AM 650 “The Morning Zone” with host Dave Chaffin (weekdays, 6:00-10:00am Mountain), and KIT-AM 1280 in Yakima, Washington “The Morning News” with hosts Lance Tormey & Brian Teegarden (weekdays. 6:00-9:00am Pacific). Or tune-in to Tim’s channel on YouTube.

Also look for Tim’s postings in the Palm Harbor Patch, The Gentlemen’s Association, and throughout the Internet.

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6 Responses to “PRICE VERSUS VALUE”

  1. Tim Bryce said

    A B.L. of Boulder, Colorado wrote…

    “And, of course, our own government prizes “lowest cost, technically ACCEPTABLE” as a philosophy in deciding contracts (at least that’s what they say). Even when they say cost is not the primary driver, it ends up being the primary consideration.

    Then that provides the incentive for contractors to “buy in” or “low ball” their bids – secure in the knowledge that if crafted properly, they WILL get an RFC that will allow the selected contractor a monopoly on the resulting modification…allowing them to make up that “buy in” cost. This, in essence, is one of the main reasons why government contract costs balloon so dramatically. The other reason is congress – who constantly changes the rules in the middle of the game – by telling you that you are taking a budget cut this year, so you have to reprogram your effort and extend the period of performance…not really understanding that you are saving today, but raising the cost by extending the time you need the standing army to execute the program.”

    Like

  2. sirchristiantheheck@reagan.com said

    Here, here !!!! Couldn’t be more right.

    Like

  3. Tim Bryce said

    An R.M. of Tampa, Florida wrote…

    “Nice article. We had a customer come in right at 5pm (closing time) last Friday with a dead computer. We stayed late to diagnose the problem and ordered a replacement motherboard, which was delivered Monday morning and we returned the now working computer to the customer later that day. All under warranty in spite of the suspicion that the lightning scar on the oak tree in front of his house might somehow be related. Had he purchased a cheaper system from a big box store, he would likely still be waiting for word that his computer wasn’t covered under the warranty and that he would have to pay big bucks to have the motherboard replaced. Price versus Value indeed. “

    Like

  4. […] PRICE VERSUS VALUE […]

    Like

  5. Tim Bryce said

    An A.H. of Jacksonville, Florida wrote…

    “I love this. Have had multiple conversations on this topic in the past few weeks with real estate agents in Cincinnati. A lot of developers cut their standard finishes to the bare bones and use the sale of upgrades as a profit center. On my stuff I try to “pre-upgrade” the standard unit so that people walk in and do not feel the need to upgrade anything – I then use that as the sales tool.”

    Like

  6. Tim Bryce said

    An S.W. of Carlisle, United Kingdom wrote…

    “I’ll lay odds every geezer in here knows exactly what you’re talking about. But the younger generations are quite happy to replace rather than repair. Despite trying to teach our children not to be part of the throwaway generation, at least one of them seems determined to operate that way.

    Of course, it’s expensive doing that. I keep having to hide the smile while he learns for himself what we were trying to teach him all along…”

    Like

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