What The Market Deems As “Value”
It’s interesting to note that this concept isn’t readily explainable and understood at the forefront of everyone’s mind. I’m sure many business owners and finance majors get the principle but the general populace doesn’t always seem to understand this concept.
The market is a place where things are purchased and sold, thus the supermarket recieved its name ages ago as a central location to purchase household goods for your family. As such, vendors of canned corn, fresh produce and fine meats made a deal to sell their goods in the market.
For all of time, we have worked on a bartering system. Essentially showing that we are willing to exchange one thing we see as lower value for another thing that we perceive as higher value. There are really no set values for things, just what we as the market are willing to pay.
Then a few years ago we decided that instead of carrying chickens around to trade for wheat, that we could just use a universal currency, aka money, and “trade” with those coins and decorated paper.
That money had value, as it was worth something, but only because we as humans decided that a piece of paper with a 20 on it was worth 20, and we then would trade that piece of paper for goods or services.
I find this principle pretty basic, but based on some recent conversation and most of everything I hear about from the media, I find that most people don’t understand this.
We are only willing to pay so much for any one time. For example, a book costs about $20, and a DVD cost about $20. A pack of gum costs about $2, and a gallon of milk is about $3. Sure there are fluctuations, but if someone tried to sell you a pack of gum for $50 there is no way you’d tolerate it… That is, unless it had some crazy valuable difference that made it worth 16x more than the average pack of gum.
Thus the market moves and flows and prices change based on what someone is willing to pay for it, and it is all a game of perception. So the marketer slash business owner tends to think about these trends and want to figure out what is the highest perceived value I can create for someone, at the lowest cost to myself. The if I can at scale sell that thing for a sustained period of time, I can create enough wealth and income to do anything I’d want, from vacationing to research.
This brings me to an interesting but important lesson. When someone tries to persuade me that one product is better than another similar product I tend to think in the following terms. It’s really quite simple actually.
Let’s take iPhone vs Android for example.
Clearly iPhone is better. Not just because I’m an Apple fanatic, but because of the cold hard facts. I’d like you to take a minute and go look up the stock value (which is a general overview of what the market thinks any one company is worth at that current time).
I nearly guarantee that Apple as a company is valued higher than any other smartphone producing company, and that includes any phones google is making, which if you are looking at “Alphabet” as the parent holding company I don’t think that really counts, even though Apple is still valued higher.
That is way #1 that you can determine which product is better, which one are people willing and able to pay more for, and do so consistently.
So even if it does cost more, isn’t that an indication that the market is willing to pay that amount for that thing? They are willing to exchange more things of lower value for that one thing that costs more.
People use this argument all the time, “but Macs are just so much more expensive…” and I merely smile and run the internal dialogue, “why yes of course, because it is a better product, thus valued at a higher price. So is it better? Yes, it costs more and the market is willing to pay more for that item.
The lifeblood of our community, society and nation is innovators who are willing to risk their time and resources to figure out how to make something that more people want and do so at a more reasonable price. Without them we never would have progressed to the amazingly advanced state we are at in this day and age.
Imagine for a moment if someone hadn’t really dialed in the process and creation of toilet paper? Imagine if you had to create that yourself at home… That would be terrible, and it would cost you a ton of money. It would take you even more time to take care of that business that already takes much of your time.
Rather simple products and ideas that have become common place are all because of innovators creating better systems and processes and allowing the general population more opportunity to have all the things they need at a lower cost.
That is the beauty of business, commerce and marketing. The more cost effective one can create a product, acquire a customer and continue to sell that product, the lower the price of that product can be and more people can have and use that product.
This is the exact reason I’m in such opposition to having to pay even more taxes. Sure we’ll continue to create and sell products but the real person that loses are all the consumers who would have been able to enjoy the benefit of that product but can’t because of the current cost. Which cost was derived by the necessity of increasing production costs due to more taxes on a profitable company. Seems silly right?
Then what happens is less people buy stuff becuse they can’t afford it, and companies have to raise the prices to maintain the necessary profit margins and it turns into a downward cycle.
All of this comes back to value, and as an entrepreneur value is what I am offering when I sell a product or service. I’ll leave that perceived worth in monetary numbers up to you, as the market for what’s that really worth to you.