Task (26.02.2010): Is there a relationship between price, value and cost?

1. Definitions

Price:

• "The amount as of money or goods, asked for or given in exchange for something else."

http://www.thefreedictionary.com/Price

• "The price is your financial reward for providing the product or service"

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790695

• Price depends on the market

• "Price is defined as what we pay for something. We write a check, use cash or a credit card, and our account is debited."

http://ezinearticles.com/?The-Price,-Cost-Value-Relationship&id=321066

Cost:

• "The cost of your product or service is the amount you spend to produce it"

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790695

• "The total money, time and resources associated with a purchase or activity."

http://www.investorwords.com/1148/cost.html

• "Cost is what we pay for what we have bought over time. In other words, buy a cheap car and you will have bigger service bills and inconvenience. You have a higher cost over time than the lower price you paid."

http://ezinearticles.com/?The-Price,-Cost-Value-Relationship&id=321066

Value:

• the value is what your customer believes the product or service is worth to them

http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790695

• "An amount, as of goods, services, or money, considered to be a fair and suitable equivalent for something else."

http://www.answers.com/topic/value

• Value depends on the individual customer
  

2. Interpretation

Interpreting these definitions it appears that there is in deed a relationship between the different elements:

• The price that can be charged for a service or a product depends rather on the value perceived by the customer than on the costs that emerge during production. But also it is of course important to keep in mind the costs because if they are lower than the value there is no win margin left.

• In the end it's all about the definition and the usage of the different expressions. If we use the definitions of cost and price (written in green) we can get to the result that in the end, even if customers say they want a low price, what they really want is a low cost. So in the end it's important to look at the (subjective) "perceived" value to the customer. Because if we lower the price, if we have to reduce costs, or if we have to provide better quality completely depends on the perceived value of the customers which we need to learn to understand first.

Looking at it this way the cost and the price a customer wants (and therefore we shoud offer) depend on the perceived value of the customer.

http://ezinearticles.com/?The-Price,-Cost-Value-Relationship&id=321066