Cost of Ownership

We live in a time with a race to the bottom in a lot of sectors.  The product with the lowest price, so goes conventional wisdom, wins.  As a marketer, I don’t like this approach, for obvious reasons, if price is king, you don’t need me.  But as a consumer I also don’t like this for many reasons of which I will focus on just a few for simplicity.  I can get a box of pens for 10 cents now, note books for the same price and a number of other products for equally low up front cost.  However, I’ve learned from experience that price is not king, but at best a usurper of what is truly important.  As a marketer and a consumer, I always focus on the cost of ownership for that is where you find the real gems.


I wrote many years ago in an article I once did on this very subject about the difference between US and China made bicycles.  The American bikes cost more up front yet they lasted longer and had fewer break downs, so over the 5 year life of the bike, they ended up actually costing less than the China made bike which had to be replaced entirely.  This as a marketer and a consumer is highly important!  If you are buying or selling a durable good, you want to focus on the cost of ownership as a key factor in the buying process.


The reason for cost of ownership focus for the marketer, are many.  For starters, it gets away from this ridiculous idea that price is king.  Now, quality is king and people will pay for good quality.  Those 10 cent pens I bought, they don’t work so great, but the $6.99 pens I bought the year before, I still have and use because they work!  When I need more pens, I’m skipping the cheaply made and cheaply sold pens and going for the ones that work.  As a marketer you have a great angle to use with that, quality means reliability.  It means you can be sure the product will last.  It also gives you more room other than price to work on and anyone who has tried to brand knows that price is a bad option to use as a selling point.  Someone can always under cut you, so find something that works better and is harder to counter by competitors.


As a consumer, cost of ownership is a far better measure than price to really determine the true value of a product.  We have a lot of cheap products flooding into the US these days.  We also see a lot of these cheap products being recalled.  The fact is, most people who are impacted by the recalls, will not get a refund, that’s just how the system works, we get busy and just throw away the product.  So you lost money, and now may have to go replace it or do without it, all because you went on price.  Price is a very easy way to look at a product, which is cheaper, that’s pretty much it.  Cost of ownership forces you to ask questions to learn about what you are buying and the value it will give you over the expected life of use.  Now we are talking!  Those questions help you learn, is that cheap product from China full of lead and going to go be thrown out in 6 months on a recall?  Sure, it is half of the domestically made product but if the cost of replacing the recall means spending more in the long run, it’s a waste.  Not to mention the time and indirect costs put into finding the replacement.


So you can see, cost of ownership is a far better way of looking at the world than price.  Unless you sell bad products cheaply, then price is what you want people to focus on.

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Filed under Branding, Business, Marketing

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