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
Not entirely, as the amount of content you receive changes, too. It is hard to accurately measure “value”, but it is another factor besides just the economical performance.
Though changing content goes both ways. Just this past week I was looking at the new releases on Netflix and saw they had added a new season of Harley Quinn and checked the info to see if it was the 3rd like I remembered and it seems that they simultaneously removed the earlier seasons.
And in general, I think there have been more good things lost than added, not to mention the way Netflix writes shows for people who aren’t paying attention is annoying as someone who does. Fuck off with repeating all the relevant information every single time it comes up.
Absolutely, if content gets removed, the value most likely lowers for any given client.
Netflix just follows the cash flow. Beautiful capitalism inside the art business — kinda ironic.
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.
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.
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.
And value is a perception, not an objective measure.
This is the key takeaway tbh. People tend to equate “price” with “value”, but only when they’re initially looking at the price of something. This “price≈value” thing is easy to explain for anyone who has become the de facto tech support person for their family. Your aunt calls you up one day. “Hey, you work with computers. Can you come take a look at mine? It started acting up…” You, being a good nibling, agree to come take a look. You’ll even do it for free. You troubleshoot your aunt’s computer, and get it working again. You uninstall all of the bloatware, nuke all of the adware toolbars, get her browser set up with uBlock Origin, run virus and malware scans, etc… It needs a pretty deep clean, but you get it done.
And here is the tricky part… Six months later, the computer starts acting up again. And instead of recognizing that maybe she needs to stop clicking on every “hot singles in your area” banner, your aunt blames you for breaking her computer. Because “you touched it last, so it must have been you.” Never mind the fact that she is the one who touches it every day.
The reason for this is because your expertise has no value in her mind. You did the work for free, so it is valueless. If you charged her a small amount and called it the Friends & Family Discount™️ then you’d get a lot more respect when it needs to be fixed again. Because she pays you for this, you clearly do this for a living, you know what you’re talking about, your expertise has value. But the issue is that if you try to charge her for it now, she’ll balk. Because your lack of value has already been cemented in her mind, so suddenly being asked to pay for it will be an extremely hard sell.
And that’s essentially what happens whenever streaming services increase their prices. The reason for the increase doesn’t actually matter. It could be a simple inflation adjustment. It could be rising licensing costs. It could be increased technology prices making server maintenance more expensive. It could be because the company is trying to create more original content to give viewers fresh stuff to watch. But none of that matters, because the value has already been locked into peoples’ minds. They’ll balk when the price increases, because they don’t see it as an immediate increase in value.
For the inverse of this, I’m reminded of an old story about computer mice… There was a computer shop that sold several different types of computer mice. Everyone in the store knew that one specific mouse was the king. It felt good, it was so durable it basically never got returned, and it had decent features. And it was also one of the cheapest mice that the store sold. Every single POS and computer in the store used this specific mouse, and most of the employees used it at home too, because it was simply the best value out of the entire selection. But the mouse sold really poorly.
The employees would watch people buy “premium” mice that were 20x the cost, and half the quality. And sure, that may be good for commission, but the store was tired of dealing with RMAs, customer complaints about bad mice, etc… And no matter how much they tried to push this cheap mouse, customers wouldn’t budge. They wanted their premium mouse, not some cheap imitation.
And so the store manager did something a little counterintuitive… They increased the price. By a lot. They put this cheap mouse juuuuust below the price of the premium mice that sold so well. And suddenly, it started flying off the shelves. The store could barely keep it stocked. Because now customers were seeing the high (but not quite premium) price, and equating it with a high value. They started to feel like they were getting a good deal, instead of potentially getting swindled by a cheap product. The mouse got good reviews and was easily able to compete with the more premium mice. But only because people’s first impressions for it came from the fact that its price made it seem like a good value.
Thinking through how “free” things fit into the equation is actually one of the things that cemented it for me. Your example about giving tech support is so familiar, and a great example of how people don’t value free things.
Well, you can’t divide by 0; so if cost is nothing, then there’s no value.
I’ve read the book Influence by Robert Cialdini a few times because it’s a fascinating take on what persuades people at a subconscious level. Your story about mice is spot on with some principles he shares.
I think the example in the book was about a person who sold jewelry at fairs. I’m going to make up details because I don’t remember them perfectly, but it’s close: Her $10 turquoise jewelry wasn’t selling, so she told one of her workers to reduce it by 20%. There was a miscommunication and instead the price was raised to $20, and she sold out that day.
People saw it as more valuable because of the higher cost.
Humans are unfortunately easy to manipulate.
Good point. There’s a subjective element to it too.
Only if the content doesn’t drop away.
Netflix would probably claim that consumers are getting more value due to increased original programming versus a decade ago. Also blaming inflation.
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.
Value is inherently subjective. Money, gold, products, services only have value because of people. An ant doesn’t care for a solid brick of gold, it serves no purpose for the ant, but humans see the shiny metal as incredibly valuable. And while the same ant might think that a small insect as valuable food, most humans do not see the same singular insect as all too worthwhile to eat.
What is valuable to you could be worthless to somebody else. In the context of Netflix, most people probably consider it to be decreasing in value as the content (or the quality of it) has not increased enough to compensate. However, there are some people that might be looking forward to a Netflix-exclusive show and believes that it adds a lot of value. In that case, the price increase might be worth it for them.
Something similar could be said for other streaming services. Spotify, Apple Music, etc. could have your favourite artist listed that can’t be listened anywhere, and you might consider that valuable.
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.
