Price vs Cost and Their Impact on Perceived Value

The Difference Between Price and Cost

Although the terms “price” and “cost” are often regarded as having the same meaning, they are actually different. Price is one component of cost; the price is what is paid upfront to acquire something. Cost is a culmination of the price paid to acquire, plus additional expenditures made throughout the period that item is used.

For example, assume the price of two comparable automobiles is $50,000, one of them is American made and the other is made in Europe. Both vehicles require the same maintenance. Let us assume that is two oil changes a year, as well as replacing air filters, brake pads, and wiper blades every three years. As well as, replacing the tires and tune-up service every five years.?The price for each of these services is as follows:

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At the end of the fifth year (the average term for an automobile loan) the European automobile total cost was $53,175, while the American automobile total cost was $51,435. While both vehicles have the same price, the total cost is not the same.

Value may be Priceless

However, the European automobile in this example offers two benefits that may negate the higher overall cost. The first is that it may have a higher resale value, and the second is that it has a higher “Vehicle Safety Rating”.

If the resale value of the American vehicle is $25,000 after five years and the European vehicle is $30,000 then the tables have turned.?

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But what about the Vehicle Safety Rating, how do we put a price on that?

There is no valid method to assign a price to safety. However, the value of safety is relative to the circumstances. If the vehicle owner has a family with children, the value of a higher safety rating may be priceless. The value of safety also increases in areas where weather and other environmental conditions such as snow and ice are common.

As you can see, in this scenario, the value increases as risk increases. Value is perceived, it is hypothetical. We assumed the resale values of the automobiles based on historical data. However, the actual resale value is dependent upon the buyers’ perception.

The impact of value on a purchasing decision is tremendous. It is a leading reason why specific brands and products are chosen. Since value is perceived, it is important to target the right audience with the right message which exemplifies the features and benefits that add value to that audience.