Are bargains actually a waste of money?
How many times have you bought something that you considered to be a great deal at the time, only to find that it was poor quality or didn’t fulfil the purpose that you purchased it for?
The Black Friday sales have got me thinking about the conundrum of suitability vs price. This year, more than ever, businesses will undoubtedly be taking advantage of the American-inspired shopping bonanza to shift stock – and fair play to them if they have retail premises that have been forced to close for two or more lockdowns in recent months, with all the negative implications that has brought.
For the shopper, this could either mean bargains galore, or a tempting array of cheap products that are too good to be true. The problem is, how do you tell the difference?
What is good value?
Good value is a personal perception. One person’s ‘extortionate price’ is another person’s ‘reassuringly expensive’. One person’s ‘bargain buy’ is another person’s ‘cheap tat’. So how do you decide which is which?
I believe that there are two main things to consider before making a purchase:
- The product itself;
- The reasons why you are considering buying it.
Forgive me if that sounds obvious, but it is actually more complex than it seems. Consider, for example, that you were thinking of buying a cake. How much would you pay for it?
That’s a deceptively tricky question. I’ve not told you anything about the cake (what flavour it is, how many people it serves, who it was made by or what ingredients were used), or your reason for considering buying a cake (perhaps a special occasion or simply that you feel in need of a sugar fix). All of these factors, and plenty more, will influence how much you might pay for the cake, and whether you would consider it to be good value.
How do businesses set their prices?
Setting the right price point for an item is not an easy exercise for a business – price it too high and you might put off potential customers who think it’s too expensive; price it too low and you might put off potential customers who think it’s cheap for a reason. Good value is when the customer is happy that they have paid the right price for the item they have bought.
Let’s stick with the example of our cake. The business selling it needs to consider the cost of the necessary ingredients, equipment and utilities to make the cake, along with staff costs, packaging costs, marketing costs and other overheads. This provides the unit cost of the cake – the total cost to the business of baking it and preparing it for sale. In order to make any profit and ensure the business is viable, a margin then needs to be added on top to give the retail price for the customer.
These costs and margins are unlikely to be the same for different businesses, even if, to all intents and purposes, they are selling identical cakes. It will cost a lone baker far more to bake a single celebration cake to order than it will for a supermarket to mass manufacture a similar cake as part of a large batch using bulk ingredients. This is why customers are often puzzled about why extremely similar products can vary so much in price.
What is a good price?
Ultimately, this comes down to the consumer and what they value. Most people would be happy to spend more on something bespoke to their requirements than something mass produced, but it depends upon the occasion and their reason for buying. The considerations for commissioning a wedding cake would be very different to buying impromptu cakes for the office (remember those days?!).
Unfortunately, in shopping, as in life, you can’t have your cake and eat it too. Whatever you purchase, you will inevitably end up compromising on something – your budget, the quality, or how quickly you can receive the item.
I can’t take any credit for this, but there is a useful formula that sums this up neatly:
Cheap + quick ≠ good (You can buy something cheap and get it quickly, but it’s unlikely to be good)
Good + cheap ≠ quick (You can buy something good and cheaply, but you’ll probably have to wait for it)
Quick + good ≠ cheap (You can get something that is good quickly, but it’s unlikely to be cheap)
Whether you are shopping for friends, relatives or your business, think twice before you click ‘Buy Now’. Seek out whatever ‘good value’ means to you, and what will leave you happy that you have paid the right price, for the right product, from the right place.
And if reading this has given you a craving for cake, make sure it’s a good one!
Until next time,