A Different Way To Measure Things

As a real estate broker, when some one calls about a For Sale sign, I’m always asked, “What is the asking Price?” Usually, they expect a price based on cash to the seller. But lately my thinking has changed. Maybe the answer to this question should be, “It will cost you $$$ per month to own this property.”

This brings up the very interesting concept of price vs. value. Price is the measurement in dollars of something, whereas value is the actual benefit of your purchase. Let me give you an example. When I was a kid, my dad, an Air Force Colonel, enjoyed having a rum cocktail after a hard day at the base. I remember his explanation of how he had developed a system of converting price into value. Back then, he could purchase a bottle of rum for $5.00, and this bottle provided a benefit. Then when he went to buy a pair of shoes, he would compare the benefit or value of a pair of shoes priced at $10, converted to the benefit of two bottles of rum. So, when he went to buy something for $100, it translated to a value greater than 20 bottles of rum. (Needless to say, back in those times, he did not buy a lot of things for $100.)

This way of thinking about measurements applies to a lot of situations. A cruise ship is not 600 long, it can be better described as being as long as two football fields. A building is not 1,250’ tall, but is described as being as tall as the Empire State Building. When we travel by air, the trip is not described as being 1,000 miles, but as a trip of 3 hours. Think about the things we consume. Coca-Cola ads never show the price, it shows the benefit of satisfying your thirst.

Another way to measure something is to describe the cost or benefit in terms that are more understandable. For example, comparing the mileage of one car to another. Let’s say you drive a car 20,000 miles per year. If one car gets 20 miles per gallon and another gets 25 per gallon, what does this really mean? Over a distance of 20,000 miles, this will be an additional 200 gallons of gas. At $4.00 per gallon, this will be $800 more per year for the car with the lower mileage/gallon. Maybe this is the reason more expensive, super-economical cars with fewer creature comforts are not as popular as we think they should be.

Then there is the strange benefit of ownership satisfaction. Consider the difference in the price of watches. They all do the same thing, with the same degree of accuracy; yet sell from $20 to $20,000. There must be an emotional benefit of possessing a watch costing $20,000. The price is $20,000 – but for someone to buy the watch – they must receive a benefit equal to or greater than $20,000.

Call us we know how to measure the difference between price and value.