Written by: Dr Shreekant Vijaykar
About the author: Director of Asia Operations at COPC Inc.
Knowing the difference between price and value, and finding your purpose
A new year brings 365 new opportunities. To do more. To make mistakes. And to learn from them and grow. While this is certainly what I wish for you, dear reader, there is one mistake I hope you stay away from this year, which is to take some of the social myths on their face value. This is concerning because most of these social myths are out there, without people knowing them to be false and without anyone calling them out.
There is a post, for example, that is making the rounds on social media these days, about how a bottle of mineral water costs differently at different places. It goes something like this (forgive the terrible English. Most forwards and viral posts have that tell): “A bottle of liter of water [sic] at Amazon is Rs. 18. The same bottle in a supermarket is worth about Rs. 20. The same bottle in a bar costs Rs. 50. In a good restaurant or hotel, it can be worth up to Rs. 100. At an airport, you may be charged Rs. 100-150”.
While all this may be, the thread does nothing to lament the challenges in supply chain that drive the prices to ridiculous levels, or to reprimand the airports for cashing in on the traveler’s lack of choice, or at least to sympathize with the poor traveler. What it does is that it goes on to draw an erroneous and cringe-worthy conclusion that you need to “go to a place where you are given the value you deserve”. The post even advises you to “surround yourselves with people who appreciate you” and not to “settle for less”. Way to go, Inspector Lestrade!
Price vs Value
What is wrong with this? Let’s decode this thread further, as it illustrates the typical fallacies embedded in several social posts, WhatsApp forwards, FB stories, and (unfortunately) some LinkedIn articles too.
Among many other things, what is the key fallacy in this thread? It is mixing the words ‘cost’, ‘price’, and ‘value’, which leads to a wrong conclusion, and further, to an abject myth creation. This is a terrible and explosive mixture that everyone, especially folks in sales and marketing, should stay away from. The bottle of water is the same. The value has not gone up; only the price has. The price is a function of demand and supply. The ‘value’ is the worth that the bottle of water is to the consumer.
A consumer who has no choice will buy your exorbitant bottle of water, but that is not something worth celebrating, contrary to what the post makes you believe. In some cases, the restaurants push the expensive bottles to their consumers without their knowledge, even when there are cheaper and equally hygienic and nourishing options available. This is misleading the customers, and certainly not something worth celebrating.
So why is that a problem?
The problem is the purpose. The purpose of the water bottle is to quench thirst, not to sell at the highest price. The post makes it sound like the same water, which is only worth Rs. 18, being sold at Rs. 150 is a good thing. It is not.
There has been no change in the value or the worth, unless you make a case about the cost of transporting and storing the bottle at the airport, which brings back the supply chain issue we started with at the beginning.
And, if we consider that cost of transport and storage at the airports, then there is really no point to the thread. If the cost is more, the price will rise. It is that simple. It is not that the traveler at the airport or a diner in a fancy restaurant considers the worth of the water bottle more than a shopper in a supermarket. The worth is the same. The price has gone up. This is what makes it a terrible analogy.
Here’s an alternative
If you really are looking for a simple and crowd-pleasing analogy of price and worth, consider the following:
“Coffee, sold as beans or a commodity, would sell for Rs. 1.5 a cup. The same coffee, when you make into a product and a brand, can be sold in a way that each cup of coffee will sell at Rs. 18. The product brings in additional value of consistency of taste, texture, packaging, safety, and longevity.
If you now sell it as a service, you can sell it at an average of Rs. 112 per cup. You can charge that because the consumer does not need to go through the effort of making the coffee. You are easing the effort for the consumer, making the coffee, and serving it, and thus adding value.
If you also add an experience to it, then you can sell it at Rs. 320 per cup (numbers based on various sources of research done in India in 2021). Now you are not just making the coffee for the consumer, but providing the consumer a place to sit, create fresh memories, meet up with someone, or complete this post, as in my case. You are now providing an overall experience, along with safety, environment, and a certain mood, which enhances the value of what you are selling.”
In summary, what is the difference between the example of mineral water and coffee here? It is the value. At each stage in the coffee example, you are adding value. The value creation is the key, which is being missed out in the thread related to mineral water. Without it, the thread is an empty propaganda of blatant capitalism.
What is your purpose?
You are not a bottle of water. You are not a product. You are a living, breathing, contributing part of an ecosystem. Your purpose is not to sell at the highest price. Find your purpose. Stay away from blatant consumerism paraded in front of you in the form of cute-sounding anecdotes. What you read, even casually, affects your wiring and that can go a long way in damaging without knowing.
Different people have different answers to the question about purpose. Some are contributing to the economy by creating jobs. Some are making their customers’ lives better. Some are spreading joy. Some are reducing efforts for others. Some are preparing the next generations of humans. Some are finding answers to the mysteries of the world. Some of making lives healthier; enhancing lives; saving lives. And while doing so, we are all becoming successful in what we do.
The thread about the bottle of water expects you to take the analogy to the job market. Even then, it falls flat. Even if you are a bottle of water or a cup of coffee, which you are not, you would want to create value for the society that you live in. Quench thirst. Give a memorable experience. Solve a problem. Help someone. Add value to the system. Get skills that people value. Then your “worth”, not “price”, will go up. Because you are fulfilling your purpose.
When you find your purpose, you are unwavering in your focus and that gives you an edge in the marketplace too. The road to purpose fulfillment is difficult and strenuous, but it is good.
