#014: The Difference Between Value and Price
Focus on the added value when taking purchase decisions
Remember that experience from your childhood when you absolutely wanted to get that toy — for Christmas or your birthday or any other occasion.
You tried hard to convince your parents to buy it for you.
Then you got it.
A few days later you stopped playing with it.
You regretted it and thought “I should have asked for something else“.
That’s because you failed to focus on the added value of a purchase (e.g. the toy you got for your birthday).
There was little value yet there was a price.
The price you paid for choosing the wrong birthday present was equivalent to the amount of $$ that you could have spent on another toy.
Distinguish value and price
The value of something can be measured by how much an item makes your everyday life easier.
Thus, by value we actually mean added value.
The price — well — is measured by how much $$ you pay for it.
Example: Having access to a time indicator a.k.a. watch.
The (added) value of a watch compared to having no watch is being able to be on time.
On time to go to work, on time to pick up somebody, on time to catch a train, on time to meet your friends, on time to get the groceries before the supermarket closes, on time for your doctor appointment.
In short, your day is a mess without having (access to) a watch or time indicator.
But what’s the value of a $5,000 Rolex watch compared to the watch you have on your smartphone anyway? It is close to zero. Yet the price is $5,000.
High price for little value
There are typical situations where the price adds little added value to something:
- The “2 for 1“ spending situation where you buy 2 things while you are only able to physically use 1, e.g.,
- 2 pairs of running shoes
- 2 cars for 1 person
- 2 watches
These examples are not to be confused with the situation where yo actually do need two items of the same kind even though you can only use one at a time, such as buying multiple pairs of trousers, etc.
2. The extra price only adds incremental instead of transformational added value:
- Buying the latest smartphone every 6 months
- Business class flight vs economy class: the massive added value is the flight itself. Your back will hurt anyway; even after the business class flight.
If you don’t trick yourself by confounding price with value you can take more intentional purchase decisions while spending your money on things that really matter to you.
A personal example
I like to go for a run once or twice per week.
I usually run for about 50 minutes through the neighborhood.
For almost one year I used to believe that I can only go for a run with my toddler if I get an off-road stroller.
I’ve been told by many people that those strollers are amazing and they have been recommended to me over and over again.
As I was hesitating to buy one, I used to run by myself while my wife was taking care of our son.
…Until I figured out that I can perfectly run through the neighborhood with the stroller (with little wheels) that we already have.
No need for big wheels and camping-style design.
No need to buy and store a second stroller.
Instead,
I can run and spend more time with my son while my wife can take a rest.
My son greatly enjoys those runs as on the way we always pass by a small animal farm.
Priceless added value for 3 people for 0$$.
Should have figured it out a year earlier.
Key takeaways
- Value and price are not the same thing.
- Something of high value makes your life easier; a high price makes you less wealthy.
- Understand both value and price when you make purchase decisions to increase the quality of your spending.
Don’t miss the next newsletter if you want to get more actionable insights on how I optimize my life.
