(Note to readers: This article was originally published on this blog May 6, 2017. It applies as much today as at that time- This time let's add Personal Value, the Value of People. I was reminded of this article when reading the groundbreaking book "The Value of Everything" by Mariana Mazzucato- Highly Recommended reading for you if you want to think seriously about the future of our economy and capitalism)
Value Is Everything
Value- It is a word we have used hundreds of times. The definition of value (there are several) as it relates to economics: “a measure of the benefit that may be gained from goods or service” or for marketing: “the difference between a customer’s evaluation of benefits and costs.”
It is significant that both definitions imply some finite mathematical calculation- “difference.” Or “measure.” In some cases this may be immediately quantifiable, in other cases true value can only be known after benefits are given or revealed.
Neither of these finite measurable is the case in the apparel world. Other than the difference of the same item from one store to the next (or one web site to the next), most of value perception in apparel purchase decisions is subjective. There are a lot of abstract comparisons to be made:
1. Price of not same but similar item in same shop- 2 pair of jeans, for example. Same content, different price. Based on what do you make purchase decision?
a. Brand perception
c. Aesthetics- hand feel, colour, FIT.
d. Whether this is a need purchase or impulse. If value comparison not clear in your mind, you can choose to do nothing.
2. Price of similar items in different shops-All of the above, plus the “believability” factor- Do you believe the sale is real, and will the price be reduced 5 minutes after you walk out the door?
3. Magnitude of discount or comparative price value- IF you felt the original price was a good value, a smaller discount will get your attention. IF you felt the original discount was too high or just a template for further discounts, you will need a higher discount to overcome your price objection.
4. Function/urgency for the purchase- Interview suit vs. sweatpants. Again, price will be a consideration, but there is much, much more in the decision based solely on PERCEPTION- of the brand, the item itself and how you perceive it makes you look, etc.
So yes, you can calculate the price difference in price between item a and b that you are considering to purchase, but is that the major factor in purchase decisions? It is not. I believe;
1. The final decision is based on VALUE, not PRICE. Price may figure in the decision, but in almost every case it is not the deal maker or breaker.
2. There is a complex set of PERCEPTIONS combined with calculations which tips the scale toward purchase. Most especially this is the case because pure mathematics cannot provide the answer. These perceptions are as strongly related to the seller as they are to the item itself.
Value is critical in another area: human resources. If you pay $100,000 per year to an individual that can run an entire business for you (virtually mistake-free), versus paying $50,000 to 3 individuals who do the same job (at that level, expect mistakes and omissions), you are not paying too much- you are creating VALUE. Now let’s say you populated an entire office with this type of individual, you have the perfect scenario: a. your business is run smoothly and efficiently b. your expense is minimized and c. your fixed cost is insulated for business downturns OR may not need to be increased when business grows.
Not everything takes a village, and, if you operate under the principle of Think Big but Be Small, you have every chance to have a low-cost, sustainable business and a damn good staff (whom, if you keep paying well and empowering to operate as they are capable of, will probably stick around)
All over the world today, companies are guilty of hiring lower-paid staff (maybe due to inexperience rather than incompetence) rather than spend more on someone who can do the job with maturity as well as anticipate or handle problems, thus reducing cost and risk. The consequences are far-reaching, and we see companies get into trouble and even disappear, but nobody changes the way things are done. Why?
The fish stinks from the head. Management is responsible and guilty. What is the main reason for this? As always, fear. Fear of change, fear of risk, fear of changing the way things have been done since forever. Clearly, this fear is brought on by the prospect of holding the bag if change doesn’t work. But, with all due respect, that makes no sense. Why? Because if you do nothing, you are holding a worse-smelling bag than if you tried and it didn’t work out as planned. That being said, if you think it through and hire the right people, simplify and streamline your procedures, there is no reason it shouldn’t work. I have done it repeatedly and it has never failed.
I always love the idea of Creative Destruction, which finds its roots in the Hindu Trinity: For something to be born, something must die (Hindu: typically Brahma the creator, Vishnu the preserver, and Shiva the destroyer/regenerator- see https://en.wikipedia.org/wiki/Trimurti ) What that means for us, for it is eternally true and we see it in our world and markets in vivid color, anybody or any business that fails to change with the markets or the world cannot be regenerated, thus dies (see: Sears). So the choice is simple: change or die. That is a no brainer for me-you?
Another relevant cliché: lead, follow, or get out of the way.