Don’t focus on the price tag
After a longish period of stable prices, the news is now dominated by reports of double-digit inflation affecting everything from bread and butter to building products. One of the country’s major supermarkets is running an ad that mentions the ‘affordability’ of their traditional Christmas lunch. The usual messages about indulgence and luxury are absent. They’d be branded tone-deaf if they failed to recognise the strain increased prices are putting on household budgets.
It’s no different away from the domestic scene. When raw materials, labour and utility costs are rocketing, it’s obvious that more care is needed to balance the books. Savings must be found, overtime controlled and expenditure on non-essentials restricted. Investment decisions in the pipeline could be postponed. Projects could be reduced in scope or scale.
In this climate, it could seem insensitive to criticise anyone who’s making a purchase and using price as a deciding factor. If a low price tag allows a project to progress, everyone’s happy, aren’t they?
Well, no. Here’s why.
Penny pinching or flashing the cash
Unfortunately, it’s rarely the case that a purchasing decision driven by cost alone produces a result that satisfies in the long term. I can think of one example – the rare ‘luxury’ item where the inflated selling price is used as a marker of quality. But in those cases, the purchaser isn’t buying the product. They’re buying the status that ownership supposedly conveys.
When making a purchase, if we focus on price, we are forgetting the crucial factors that should inform our decision-making: quality and value. ?These fundamentals are so important they’ve made their way into countless sayings such as buy cheap, buy twice or penny wise, pound foolish. And when people do use positive terms about inexpensive items – for example saying something is cheap and cheerful – it’s highly unlikely that they are talking about anything that’s built to last or has all the features you need.
The bargain that’s anything but
It's also worth considering what’s included in the deal. No frills can sound okay, but if ‘no frills’ means no support, no advice and all you get is the bare minimum, is it really a good deal?
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I’ve heard about people who’ve bought machinery and then discovered they couldn’t get it set up and operational without paying separately for engineering support. Others have told me about relatively inexpensive kit that needs very expensive consumables and suppliers whose service engineers don’t know one end of their products from the other. You might secure a bargain price, but you’ve certainly not secured the all-important value for money.
Imagine you’ve had your new ‘bargain’ priced machine for a few weeks. You’ve paid for the installation, for the software, and for the extras that no one bothered to mention. Now your production figures are highlighting some worrying trends. Output has slowed and reworks are increasing. A few operatives have made complaints about noise and fatigue. Your costs per unit are increasing. You’re not seeing the desired efficiency savings.
Hard truths
Despite what advertisers would like us to believe, the truth is that these days, quality doesn’t come cheap. It’s simply not possible in this complicated global world to manufacture good stuff without inputs of materials, labour and energy – none of which come free. Resources are scarce. Manufacturers face a constant battle to source their inputs and control their costs. We might not like the final price tag, but if we were to break down all the costs – raw materials, machinery, depreciation, shipping, training, rent, rates, R&D, insurance, utilities and everything else – it becomes clear that we’re not simply buying a machining centre or saw but decades of expertise and experience.
People sometimes say, “You’re just paying for the name.”?To me, that’s nonsense. If a business has a good name it’s because they’ve worked for it. They’ve built the brand by delivering what their customers need, consistently.
Of course, the pricing of products is influenced by things other than cost. We’ve all seen how the price of last season’s smartphone models falls when the latest iteration hits the market. But in general terms, a supplier who tries to exploit buyers will find the ability to raise prices constrained by competition. ?What’s more, a supplier keen to ‘cash in’ won’t be seen as a good bet for a productive long-term relationship. Once trust has gone, it takes a lot to win it back.
Don’t focus on the price tag. It’s a small part of a big picture. Think quality. Think value. Think about the whole package.