Improving the Cost/Value Assessment

When we make decisions about resource allocation (how we spend money, time, energy, etc.), we are balancing the cost with the value. The value has to outweigh the comprehensive set of costs. The cost could be enormous, but if the value is also enormous it might very well justify the investment.

• If the cost is low and the value is high, of course we will do it.

• If the cost is high and the value is high, we absolutely still might do it because it’s literally worth it.

• If the cost is low and the value is low, again it might still be worthwhile.

• If the cost is high and the value is low, we’ll almost never do it, and actually we usually won’t even consider it because intuitively, the more out-of-whack that ratio is (higher cost and lower value) the more quickly and emphatically our gut will rule it out.

A few specific examples illustrate this nicely.

High cost and high value

This is where we acquire something at high cost, but we have frequent and regular use for it. Essentially, you get what you pay for! If you can afford it, you spend more, and gladly, because you’ll benefit from it constantly; but still, it’s expensive, so it’s just not an option for many folks. It’s simply out of reach. Sometimes we think about things this way: Get the most expensive version you can afford.

Housing and transportation (the car you buy) are great examples. College is as well. Famously, the cost of college education has increased extraordinarily. The consensus is that a college degree still pays. The college wage premium remains consistent, but it’s the college wealth premium (ratio of earnings to student debt) that has diminished dramatically. This is a literal example of how an experience that was once a low-cost/high-value effort became a high-cost/high-value effort and increasingly has shifted (at least perceptually) to a high-cost/low-value effort.

Even within higher education there are obvious examples where the high value still justifies the high cost. There are places where the value goes up (degree type leading to lucrative careers, institution type where it’s prestigious or highly networked), and places where the cost goes down (high scholarship, or living at home instead of in the residence halls).

High cost and low value

In this category there is value for sure because if you’re even considering it, it’s something that you’re already interested in.

Entertainment costs illustrate this category beautifully. You’re interested in the first place because you’re a fan, or the social or family experience is rewarding. On the other hand, tickets are expensive! It might be a live concert, an athletic event, even movie tickets (especially if you live in LA, the heart of the movie industry!).

It’s crucial to remember that the cost usually exceeds the price of the actual ticket alone. There is the time commitment of going, and going early enough to beat the traffic, not to mention the traffic coming home. There is the extra cost and hassle of parking. There is the time cost of having to make a commitment well in advance: for a playoff game, or a popular rock star, etc. These are announced well in advance, but do I know what my life is going to be like six months from now on a specific day at a specific hour? To a certain extent yes, if I’m willing to plan my life around it, which is part of the cost.

There are ways to raise the value, for instance increasing the social involvement or enjoying the buildup and hype. There are also ways to lower the cost, or said another way, lower the stakes, like where there is free parking (movie theaters) or alternative viewing experiences (streaming or non-live viewing). Ultimately we’re not saying, “This is a waste of money…” but rather, “That’s fine for you…”

Low cost and low value

This is where you find a true commodity, something that is basically interchangeable (even if not quite) with little or no notice or effect.

Halloween candy is a great example, because regardless of which end of trick or treating we find ourselves on, we usually don’t think twice about it. We’re grabbing a large bag of candy (or four) to pass out to the kids in our neighborhood, or we’re going out with the kids or when we were kids. The start always seems so daunting, those first couple of houses where you hear the hollow plunk of a single piece of candy dropping in your bucket and you think, “This is going to take forever!” And then just a few blocks later, your bucket is heavy and overflowing and you’re thinking instead, “Wow that was fast!”

We don’t spend time thinking about this because the cost is just so low. The value is low too though so it doesn’t really merit additional consideration. It’s just Halloween, we do this every year.

It’s relatively easy to improve this ratio because there are numerous ways to raise the value such as through candy quality (everyone has a favorite!), enjoyment of the event (costume buildup, party), etc.; and there are numerous ways to lower the cost such as with cheaper candy or candy in bulk, or less time trick or treating.

Low cost and high value

If you can find it, this is the sweet spot! Often something is in this category because something has already brought down the cost (such as coupons or discounts or scholarship). It’s not just the financial cost at play though, it’s the total cost that impacts the way you purchase and consume this.

Food is something that is incredibly valuable but that doesn’t cost very much. We usually don’t spend an inordinate amount of time thinking about what we’re going to eat—sometimes we do that as on special occasions, but not on a consistent meal to meal basis. Here too there are ample ways to raise the value, such as through the quality of the food and the company you eat with (notably, also a time investment!). There are also ample ways to lower the cost, such as through the availability of the food (if you’re picky about a specific brand or flavor and you have to drive out of your way to the other side of town to get it), the preparation time, and of course the literal cost (think: eating out).

So what’s the point?

In our promotional work, we need constantly to be thinking about both how to raise the value and lower the cost. We already (usually) offer a lot of value, that’s why we promote whatever it is we’re promoting. We’re constantly striving to offer more value in terms of improvements, better facilitation and coordination, bonus inclusion, and on and on. How can we lower cost without necessarily reducing the price tag and undercutting our revenue or the perception of value. We do that by making it easier for people to invest, or to be involved, or to purchase. We take less of their time. We educate about all of the value, the full value, of what they’re becoming involved with. We package things by scheduling them in a way that the trip or time involved allows for multiple purposes (kill more than one bird with one stone), or we include parking or other fees (how annoying is it ALWAYS to pay for something and ALSO be assessed multiple additional fees!). We give away promotional items that are decidedly not low value or cheap—sure, it doesn’t cost any money to pick up cheap tchotchkes, but there’s still a charge that you feel inherently knowing it’s going to lie around your house, clutter up your counter, or even just not last very long.

We’ll only be successful if our core audience can afford us, but at some point we literally can’t afford to reduce the financial cost any further so we constantly strive to balance cost and value.