The missing ‘V’ factor

This post is about the missing ‘V’ factor – which we have not learnt or often fail to be aware of and which is also not taught to our children at schools. I am talking of the Value factor.

I would like to explain this with a few examples.

Most of us know this basic principle in economics.

Low price more demand. High price low demand and on the supply side – Low price low supply. High price more supply. Market is created when there is an agreement between the seller and buyer and the good/service is exchanged for money.

I am sure this is evident to us in the real world to a large extent. (I am saying large extent, because there are few exceptions which I am aware of). Fewer luxury cars than other varieties. More economy seats than business class seats in airlines. Fewer buy imported food than local produce.

I sense, you must be thinking that there are multiple reasons around this and that price is just one of the factors. I agree. I wanted you to get started and thinking about this. Good. Let’s discuss further now. Let’s create a situation.

As an example:

Product A is a tea bag box priced at Rs 1000/- for a pack of 10 tea bags.

Is this high priced? You may at first jump to say yes. But actually you need to probably know lot more about the environment to know if it’s high priced or not. Say about things like, price of other tea products, price of milk, sugar and labour in the place, price of bringing the product to the local store from the place of production and packing, etc. So let’s say, we don’t know the answer to the question if it’s high priced. I say this aspect doesn’t matter here.

We have three customer now – Customer X, Customer Y and Customer Z.

All three of them have equal purchasing power, good amount of earnings to spend on tea and all of them like tea. Yet they seem to decide differently about purchasing Product A.

Customer X – Buys because he/she finds its worth the money.

Customer Y- Does not buy because he/she finds it costly.

Customer Z – Buys after negotiating a discount of 10%.

A few days later, the Company selling the Product A, runs a add campaign that essentially says something like follows:

A sip of this refreshing tea, energises your morning self, aids detoxification and that the tea bags are bio-degradable.

(Please that these were always written on the packaging)

Customer X – No change. He buys the product. His value for the product is more that the price of the product. Value > Rs 100/-

Customer Y – No change. He still doesn’t buy the product. Value < Rs 1000/-

Customer Z – Is happy to buy the product with 5% discount offered by the shopkeeper. Value for the product > Product price at 950/-

While product and pricing is not in our control. value perception is our view and evaluation. We buy when our idea of value for the product > price of the product.

A few days later, the company runs an add campaign as follows:

Product A being sipped by a leader who is tall, handsome, addressing a group of people who seem to have a lot of admiration to this leader and are listening with rapt attention. Words like leader, power, grit, tenacity are prominent in this add.

Customer X: No change. His value for product > price of Rs 1000/-

Customer Y: Buys the product this time. His value for product > Rs 1000/-

Customer Z: Doesn’t negotiate for the discount. He buys the product. Value for him > Price of Rs 1000/-.

So you see. We buy not because something is high price or low price. We buy when we find our value for the product > (is greater than) price for the product.

A few days ago, last weekend, my sister in law booked a ticket for a play at Chowdeshwariah Hall for all of us. A 40 minute play had tickets priced at Rs 200/-, Rs 500/- and Rs 1000/- based on proximity to the stage.We were ok to pay Rs 500/- and go for this play. We felt it is worth paying Rs 500/- . Our value for the play > Rs 500/-. (The play was staged by children with autism)

I am hoping by now I have been able to convey my understanding to you the role Value perception plays in buying and selling.

What we don’t realise is that the society is constantly defining value for us. Someone else is creating and shaping our idea of value of something. Such that people take loan to buy iPhones !

We fall trap to this and at schools children are not taught to be aware of this concept. Economics teaching ends with price, supply and demand.

How else would you explain the disenchantment of the wealthy priest towards an iPhone, enchantment towards colour and arrangements for a poor artist, disenchantment to travel for a wealthy reader, enchantment to travel for others who can’t afford, etc. Ok to compromise to earn more. Not ok to compromise to earn more even if it means losing out on a lot. The value is not more than the price/cost of the action.

In conclusion, I recommend that the V factor is explicitly taught to children in Economics.

a) You buy when you find value for product > price of product. Not just because something is costly or cheap.

b) In multiple ways, the society, producers, etc define value for us. We should be aware of their efforts to influence us and make an independent choice out of our own understanding and self confidence.

Thank you for engaging with my blog post. I have attempted to express a very subtle aspect. Not sure if I have done justice. Your feedback, comments and observations would be wonderful to hear.

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