A topic I’ve been wondering about since forever.
How does a product acquire its price?
Haven’t you wondered at some point, when you were very little maybe, why this thing costs this much? I was sure, maybe because of the culture I grew up in, that there’s surely an institution that defines prices. This one is worth that much because of quality and this and that, and therefore that’s the price.
But, it turns out, that’s not the case! Maybe when you were small and had this question, you asked where the prices come from. And they told you something about a free market, offer and demand and things like this?
Seems more or less fine for, say, dishwashing soap. It’s a product that has been around for a long time, there’s lots of experience as to up to what price people will buy the product, competition is established, all of that.
Anyone with a bit more of economic education than me can probably explain it, I can’t.
So now me, not understanding how the prices of things I buy in the supermarket come together, from time to time have to decide prices for things I offer. Usually non-material things, services, facilitation. What is that worth?
A price by the hour? How much is my hour worth? If I work in a bar, let’s say that’s 10€ an hour. Working in a bar is often tougher work than facilitation is, especially since I usually enjoy facilitation (apart from the fact that I usually enjoy work in general). So the price of a 5 hour facilitation could be 50€.
Now, actually there’s a bit more than the pure facilitation time. There’s the acquisition, conversation, interviews, e-mails and the design of the process. If we count all these hours, say we add 10h, at least, and get 100€. +50€ and we have 150€.
Did you ever see a graphic designer design a website or catalogue? It’s fast, undescribably faster than if I did it. And obviously, undescribably better quality than if I did it.
And then this person charges hundreds of € for maybe an hour of work.
Same a doctor. A psychiatrist. A lawyer.
So that’s not by the hour. That’s being paid for the years of training they have undergone before, in order to deliver what you are buying from them.
Now how in the world do you measure that, the value of it, and translate it into a certain currency?
Current assumption: It’s arbitrary, orienting more or less by the prices of the competition.
Curious if someone has ideas about this one. I’ll write more tomorrow.