The Paradox of Value and Price

There's much more to value than just price

There’s a saying that about not being able to “see the forest for the trees”. In finance, it could certainly be argued that this axiom applies to we consumers who are not always able to see the proverbial forest (i.e., translated as “value”) for the trees (i.e., represented by “cost” or “price”).

Within the media and advertising we’re constantly bombarded by phrases like “rock bottom prices”, “low cost leader”, or “save 15% in 15 minutes”. Price is paramount, and we’re taught that it is our duty to be frugal with our dollars and to not overpay, wherever possible. And with the help of today’s tools on the internet, we can “shop” about any price and anywhere to find the best “deal”. That’s all good, so, what’s the problem? . . .

The rub really comes when price alone is used as the deciding factor on a purchasing decision. Yet sadly, it happens all of the time, and often with unexpected and disappointing consequences. . .

Why pay more? - Having worked in the cable and wire industry, I first discovered that the manufacturers offered various quality and price points for wire products that are used to connect with security cameras. One would think, come on, wire is wire, right? Why would anyone ever pay more than base price for this type of wire? As I later learned, the obvious answer would come to the bank manager, who when reviewing the security camera video tape of the robbery, finds that due to cable transmission quality, the picture clarity isn’t crisp enough to provide any facial details to the police. Chock that up as a life lesson with the old phrase, “Penny wise, pound foolish”.

In world of financial management (both business and personal), we often see this mistake made, i.e., where cost is used single-mindedly as the overriding factor in making a decision/choice. And in this arena the consequences can be disastrous, whether it’s lawsuits, cost overruns, tax bills, or squandered financial opportunities.

Deja vu all over again - It happens all the time, the tight-fisted and proud family patriarch frugally bypasses the attorney route to instead craft a DIY “do-it-yourself” trust. The sad byproduct is that his family’s estate value is subsequently decimated in the form of taxes, fees, and legal proceedings as the heirs after-the-fact try to rectify his naive errors, mistakes, and oversights.

As a financial professional who cares, it’s disheartening and heartbreaking to see the fallout that can happen when people innocently use price, cost, or fees as their sole “guiding star”.

Value: The (often overlooked) holy grail in dealing with money matters

When it comes to making financial decisions, there’s many factors involved, and all should be considered:

• Timing

• Convenience

• Price

• Quality

• Service

• Duration

• Risk

• Purpose

• Return on investment

Taken all together, these components yield “value”. Value is the ultimate goal, and notice that price is but one small piece of it.

The impact of value: Many years ago, there was a great commercial created by Bell, the manufacturer of high quality and relatively expensive motorcycle helmets. Their simple message read: “If you have a $10 head, get a $10 helmet.” When it comes to the importance of value over just price, they really summed it up!

So, next time we contemplate a financial decision, we shouldn’t stop at just “how much is this going to cost?”, but instead expand our thinking to “what value will we ultimately receive for the cost that is required for us to pay?” The results may be extremely surprising . . . sometimes you really do get what you pay for.