Value-Based Pricing

Recently, I took issue with a piece of coffee equipment that I purchased.  My issue was not so much tied to what the item did, which has a high value, but rather what the item was physically, to which I assigned a very low value.  Or to put it another way, the item delivered handsomely on what it was supposed to do, had an aesthetically pleasing design and so forth, but I felt that it was made of very cheap materials that were disproportionate to the price I paid for it.  I won’t go so far as to call my experience “Buyer’s remorse” as I really like the item and have used it very much over the past couple of days and fully intend to do so even more in the future. I was just unpleasantly surprised regarding the physical construction of the item.

In specific, I bought a Hario Buono kettle which is used to drip hot water over coffee grounds when brewing coffee manually with a dripper brewer like the one pictured.  Essentially, I had an issue with Hario’s use of what is known in business circles as a value-based pricing strategy.  It is a well accepted business strategy and for the sake of transparency, I should state that I use it all the time so my irritation was not at the usage overall, but my perception of the extent of their usage for this particular product (For the record, I do like much of Hario’s product line and have no issues with most of their products or pricing).  As a working definition taken from a British business site cited by Wikipedia, it can be summarized this way: [Value-based Pricing] sets selling prices on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitors prices, or the historical price. I won’t rehash the entire argument over again as I have nothing new to add, but if you are really interested, you can see the original thread over on coffeed.com.  So why bring it up again then?  If you read it, the thread seems to have ended with some sort of conclusion and the horse seems sufficiently beaten and has died.  True, true, but a thought struck me the other morning while I was doing my morning Bible reading and I haven’t been able to shake it.

If you are anything like me, your mind tends to wander sometimes when reading the Bible.  It’s something that I am not proud to admit and I actively work on it.  I know that for myself, if I do anything else like check E-mail or read the news before going straight to the Word, I inherently think about what I read while I’m supposed to be spending time with God.  Well, my friend Nick made a reply to a post that I had made and I happened to read it while I was pouring my morning coffee a few hours later and getting ready for my morning reading.

I have been reading through the Gospel of John again and if you didn’t know, John is written from the perspective of Jesus as God whereas the other Gospels are written from different perspectives1 and present Jesus differently to give us a whole picture of who Jesus really was.

One comment that was made in this particular post by Nick that summed the whole thread up stuck out and said:

“Value is in the eye of the beholder. Perceived value depends on your value system. If you don’t think it’s worth it, then it’s not worth it to you. If others think it’s worth it to them, then it’s worth it to them. That’s pretty much what it boils down to, isn’t it?”

Nick was spot-on.  Where I was placing various values to this kettle WAS the issue when it was boiled down.  Okay, fair enough.  I had planned to get back to him with a reply of my own after my Bible time even though I kept repeating it to myself.  So I’m reading the Gospel of John and this comment keeps coming into my head as I am reading.  It’s kind of annoying me because I’m trying to stick with the text now in front of me.  Jesus is repeatedly lambasting the elite religious establishment of the day, trying to tell how and why He came and I’m mentally wandering off into placed value systems.  And then the question strikes me: What was the value-based pricing structure of Jesus when he came to pay for the sins of the world?  Talk about a disconnect!  My heart almost stopped!  WOW!  You think about that while I take a different slant at this.

Not everyone who reads this blog is a Christian or has a Christian background, so let me try put this into a different context.  The US Secret Service is assigned to protect the life of the President of the United States and other high profile dignitaries, oftentimes visiting Heads of State.  That mission is their whole reason for existence.  Hypothetically, let’s say that President Obama is giving a speech dedicating a new community center in a high-crime neighborhood.  It would make sense that standing with him would be some kids who were now involved with the community center who used to either be gang-bangers or were statistically expected to follow that course in life, and for whatever reason, they had wisely started making choices that were going to lead them to a more productive life than thug life.  So, President Obama is talking and talking and before anyone knows it, a car slips through Secret Service checkpoints and a drive-by shooting takes place.  However, Obama is not the target.  The target is one of the kids who wanted to get out of gang-banging to make something better of himself who is up on the podium with the President.  Obama somehow makes a read of what is really going on and heroically ditches the Secret Service and places himself in front of the kid being targeted.  He takes two to the chest and later dies in a hospital.  Before being removed from the podium however, he tells the boy “I know that I’m not going to make it.  You better make something of yourself, son!”  Years later, the boy becomes a doctor who discovers the cure for all forms of cancer and millions of lives are saved around the world.  Now it could reasonably be argued that while yes, the initial price was very high, in the bigger picture, the price paid with Obama’s own blood was more than worth it.

Now apply that to a value based pricing scenario.  You had one person (President Obama) who society would say was a high-value individual.  This high-value person was replaced with someone who later became another high-value person.  The price Obama paid would be compounded upward by who he was when he made the sacrifice (A U.S. President) vs. who he saved was (an unproven kid with an uncertain destiny).  Effectively, the high initial cost of Obama’s life was maintained with the value that was later realized in the benefit to the entire human race.  Culturally, this value placement assignment works for us and while the event would always be considered tragic, as a society that loves happy endings, this would qualify as such and everyone in general would be better off for it according to the value system of many people.

But what if the opposite had happened?  What if those same years later, it is discovered out that the targeted kid was so frightened by those who committed the shooting that he returned to the neighborhood gang and ended up dying in prison for crimes he committed while with this gang?  True, all life is considered precious and no one life is worth more than another when you boil it down, but as a society with our value system in general, I would argue this would not be found to be acceptable.  The initial price would be considered far too high considering the value or benefit that was returned to the country (never mind the world) that lost a President.  To even suggest a scenario with the latter ending is almost shocking to our sense of value.

How then, are we not even MORE shocked that the Bible clearly teaches that the Creator of the universe, before time began as we measure it, decided that it was an acceptable scenario that He Himself (highest value) would come to pay the price with His own blood to atone for us (low value, relatively speaking) and our sin?  Psalm 144 asks “LORD, what is man, that thou takest knowledge of him!”  Indeed!  There’s a reason that question is asked with an exclamation point instead of a question mark!  I can assure you that this event was a far, FAR bigger deal than some made-up Barack Obama hypothetical.

To compare it directly to my kettle, it is an item that has high value both aesthetically (great kettle design / man being made in the image of God2), and in potential function (highly controlled water dripping / the goal of glorifying God and enjoying Him forever3), yet is made of low value materials (low grade stainless steel and other metals / human flesh in which resides no good thing4) that will ultimately fail (this kettle won’t last as long as it physically could / man will physically die as recompense for sin) and return to dust?.

I don’t know about you, but thinking about that comparison messed me UP!  How did God Himself look at this as a value-based pricing scenario and decide that coming to earth in the person of Jesus Christ was worth it, paying the price with HIS own blood?  Don’t get me wrong, I am beyond grateful that He did, but how does that work for Him in how we assign value?  In what cost-benefit analysis would anyone agree that this is a good deal for the One of the highest value to do this?  And how do we respond?  Many times, the significance of this sacrifice is billed as some cosmic fairy tale and dismissed.  Worse, it is accepted by others and still dismissed on many levels, failing to have an impact on how we live daily life.  Failing to have an impact?  REALLY?!?

I had another friend, Jay, who I spoke with on this kettle issue via Facebook.  In his conclusion, he stated that regarding the price of this particular kettle

“Definitely the cost v. revenue is a major factor in my thinking the price isn’t too bad. It’s a necessary tool to accomplish our mission. Truth is, if I had to spend $125 on the Buono, I would – because it fulfills our mission.”

Jay makes the case that the price of this Hario Buono kettle, in his value assigning system, is not only reasonable, but that he would pay an even higher price than I did (I paid about $45 for mine) because if fulfills his mission of mak[ing] some of the best coffees available and making a profit off of them.That is his mission and one that he succeeds in quite admirably in.

So what is God’s mission?  Where does He make His “profit”?  What’s in it for Him?  Why would an all-powerful being bother to step into the history of flawed humans the way He did?  What is the benefit considering the cost?  On what planet does it make sense for Him to assign such value to us when He knows full well that we will fail Him?  How is His mission fulfilled through us?

These are monster questions.  Do they deserve to be answered?  Yes.  Are there answers?  Yes.  Is this post already too long?  Probably.  So you’re just going to leave me hanging?  No.  For the sake of space however, I will post this video that happens to be the start of a new series that one of my pastors just started this past Sunday (06.06.10) that deals with many of these questions directly.  Coincidentally, it is called “The Mission: God’s desire to restore His own image in lost man by means of salvation”.  The video below deals with “WHY the Mission?”  Most people believe that Jesus was at least a real man who lived 2000 years ago.  That point is rarely seriously disputed.  I will say this though: If Jesus Christ was not who He said He was, then what He did in life or in death doesn’t matter worth a darn.  I implore you to think about your system of assigning value to your own life on a larger scale than coffee kettles or some other frivolity.  What matters to you and why?  Where’s the benefit to your cost of time and/or money?  If, after reading this post and whether you watched this video or not, you want to talk about placed value systems on a larger scale, there is a big white “Call me” button at the top of every page.  Click it and Google Voice will connect you with my cell phone.  I’d love to talk with you more about it.  Heck, I’ll even use my fancy kettle to drip pour you a cup of great coffee at my house!  Maybe that will even out my perceived value based pricing gap a bit.

1 The Gospel of Matthew is written from the perspective of Jesus as King, Mark presents Jesus as a servant and Luke shows the humanity of Jesus, or, Jesus as a man.  Try reading through the Gospels again with this in mind, it will change some things for you!

2 Genesis 1:26-27 – “And God said, Let us make man in our image, after our likeness: and let them have dominion over the fish of the sea, and over the fowl of the air, and over the cattle, and over all the earth, and over every creeping thing that creepeth upon the earth.  So God created man in his own image, in the image of God created he him; male and female created he them.”

3 Thesis of John Piper’s book “Desiring God”

4 Romans 7:18 – “For I know that in me (that is, in my flesh,) dwelleth no good thing: for to will is present with me; but how to perform that which is good I find not.”

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