depends if the price change is above or below inflation.
if prices rise quicker than inflation you get less value for money
This, and the measurement of the perception of “value” needs to be taken into account.
I’ve been taught:
Value = Benefits received / Costs incurred
Costs can be price, time, energy, etc.
Benefits can be a physical product, an experience, a feature, or less tangible like peace of mind or security.
If you increase price, other costs must go down OR benefits must go up; otherwise value is lost.
And yes, it’s all perception. Benefits don’t affect all customers equally, and people place different value on their time, etc.
Your comment is spot on. I have just found this equation consistently holds up.
Not to nit pick, but that is basically a variation of ROI. Return on investment, or very similar at least.
Value is not necessarily a formula but a metric. Exactly what you described as benefits. I think that is the practically the same since perception of value is based on the benefits. And it is indeed all subjective perception.
To make it even more interesting, perceived value could be totally manipulated up while actual received (quantified) value goes down. That’s marketing. ;)
But yes, fun to theorize on this! :)
You’re not wrong! I think ROI would be the business side, while value is the consumer side.
In another response, someone told about a store that raised price on inexpensive mice, and they sold much more than when the price was lower.
My partner and I tried a new restaurant a couple days ago. He had fajitas, which was only something like $12. Normally, fajitas are more like $20. It was pretty good, not great, but something he’d eat again.
The cost was lower so even though the benefit (food quality) wasn’t as high as some places, the value was equal to what he gets at many other places.
But clearly value isn’t all, because next time he wants fajitas, he might decide he wants really good fajitas and go spend more. Or he might decide the cheaper ones are good enough to fill the craving and go there.
Anyway, perception is key here, and no one person can decide that for anyone else!
This comment isn’t addressing the “digital shinkflation either.
It’s not like the price change means you get the same service - most of the time they make it shittier
Technically, no. However, in today’s society if you aren’t making more profit this quarter (line go up) than last quarter you are seen as failing to meet your fiduciary duty to shareholders. More accurately, if the rate at which your profit is increasing isn’t increasing (line describing line go up) you are likely seen as failing the shareholders.
It’s no longer acceptable to deliver to your customers, make a steady profit, and be sustainable. Now you must cut every possible corner, deliver as little value and use as little labor as possible, make more profit, and “stay competitive” or your company may as well be failing… in the eyes of investors.
Unless you claim you are working on a technology like AI that can eventually let the company fire all of its workers and make all the money without having to pay humans for labor… in which case ignorant investors will light money on fire for you until they think someone else is definitely going to do it better or they think you can’t deliver.
Inflation is a decrease in the value of money itself. If there’s a lot more money around today than there was yesterday, then money is less scarce than it was before. Scarcity is a major contributor to value by the theory of marginal utility:
Suppose you have no first aid kit. Gaining a first aid kit gives you a tremendous amount of value! Now suppose you get a second first aid kit. Still valuable, but not as much as the first.
Now you suppose you have a thousand first aid kits. What are you going to do with all of them? You can’t possibly use them all yourself! So you might as well give them away or try to sell them.
First aid kits have declining marginal utility. Having way more than one gives you very little value relative to the value you gained from the first one. On the other hand, those first aid kits will have much more value for other people who don’t have one yet. Thus it’s better to distribute first aid kits than to hoard them.
Most things work this way. One of the main exceptions is money itself. The more money you have, the more you can do with it! Of course, at large enough levels of wealth, what you can do for yourself personally (buy food, clothes, shelter, entertainment) shows the same diminishing marginal utility: being able to afford a steak dinner every day is one thing, but nobody is going to eat 10,000 steak dinners every day!
On the other hand, the other use of money is to hold power over others, and there’s no limit to that, unfortunately. The biggest problem is the existence of people who actually want that!
Excellent illustration. Thanks!
There’s an equation for value I learned from a boss of mine. Value equals:
Benefits received / Costs incurredCosts aren’t always monetary; your time and energy is also a cost. And benefits aren’t always tangible; it can include things like peace of mind.
In order to increase price, you have to also lower other costs OR increase benefits, otherwise you lower value.
And value is a perception, not an objective measure.
Did they change anything meaningful to you when they increased their price? If not, then their value decreased—at least for you.
But maybe they added some amazing kid safety controls at the same time as the price increase. If you don’t have kids, the value went down. But a parent who wants those features might have net neutral or even positive value perception.
Good point. There’s a subjective element to it too.
yes.
Theory, economics, etc., all have something to say about it. But at the end of the day, Netflix (and the rest) want to deliver as little as possible for dollar of revenue.
I see. Keeping with the Netflix example, and given the difficulty people seem to have moving to alternatives, service providers seem to have refined the balance of reducing offerings while retaining users.
Netflix would probably claim that consumers are getting more value due to increased original programming versus a decade ago. Also blaming inflation.
Only if the content doesn’t drop away.
One way they will get around this through consolidation of companies as they merge and strike deals. We’ve already seen Disney+ “add value” when they added Hulu to their package. Long history of this but streaming is scary cause it’s not just traditional tv media. The goal of Netflix isn’t to be a movie studio. All of these “streaming” companies all want to become an Amazon. Grow, grow, grow. Add gaming, add some shopping, add a built-in advertising and data aggregation tool, whatever it takes, then get bought out bigger fish. Become new product. I give it a decade before “big tech” controls Hollywood and most American media.
It does, even if they have a long list of things you want to watch, the opportunity cost rises for doing that over saving the money for something else. As well market segmentation removed a lot of various back logs for the different platforms so they have to produce more, newer work to keep interest.
