How much for that shiny new cog in the window?

by Grumpy on September 24, 2013

Hello All,

So for today’s post I’d like to talk about value. Why you might ask, well to put it bluntly I believe our value system is all screwed up. Ponder this if you will, you wake up for work & rush out the door as you’re late for work. On your way to the office your stomach starts growling & you pull into Starbucks for a latte & a scone, or perhaps their equivalent of a McMuffin (Oh, sorry is that blasphemy… OK for that Artisan breakfast sandwich) and you plop down your credit card get your food and rush on into the office. So, how much did you spend on breakfast, well let’s just start with that $4 latte & then add the $3 sandwich. Wait, what… hold on a cup a joe that has water, milk & some coffee beans cost more then the sandwich which has bread, cheese, & eggs? So let’s look think about this for a minute, that fancy bread used for the sandwich started off in a farm somewhere as wheat, had to be transported for processing, was mixed in with water & flour and baked & then distributed, etc.. What about the egg, hmm farm->chickens->processing->distribution. Ok and the cheese, same formula right… Now that latte has essentially three ingredients water, which should be free next is milk at $6/gal (Oh & I bet you noticed that isn’t what you normally pay at the market, right?) & lastly coffee beans which a quick Google led me to a price of $1.18/lb. Hmm how many pounds of beans does it take to make that latte (how about 1/20 or about 6 cents)? Oh but wait we forgot labor ok so lets add about 50 cents/cup for the Barista’s time. Now a little arithmetic .50 (labor & capex) + .6 (coffee) + .37 (milk) = $1.47. Oh but wait it gets better, so you spent seven bucks on breakfast, probably consumed it in five minutes or less and are off to work…

Ok great, now you arrive at your office, boot up that PC and and in walks your buddy who says “Hey Grumpy, you have to check out this great new time management app that let’s you schedule meetings, video conference, chat & updates your online calendar!” “Cool, you say how much is it?” Your buddy replies, “that’s the best part it’s just $0.99!” Then off you go and download an app that took 2 developers 3 months of work to complete. In addition those developers purchased art & sound effects to make that app be really cool and modern. Do you see anything wrong with this picture? No, well lets break this down a little. In case you aren’t familiar with the industry the going rate for a programmer is about $25-40/hour. So let’s just go with a mid figure of $30/hr with a 40 hour work week & 12 weeks X 2 programers… Hmm ok thats $28,000.00, now add 2K for art & sound and let’s make the figure a round 30K. Now factor in the 30% cut that most online App Stores take and those two developers would have to sell 43K copies just to break even. No sweat right, it’s the Internet those guys will sell millions of copies and be rolling in dough! Well that is the dream of most app developers and what drives them to take such a risk. However the sad truth is that there are VERY few who ever achieve such viral sales and most fall short of ever achieving the returns to cover the costs of their labor. Assuming of course that they are even tracking the labor they are putting into the product.

Now I hope you’re not thinking that it’s the app developers own fault for not charging a fair price. Their are plenty of other products out their that are either undervalued or grossly over inflated and sadly the over inflated ones seem to be the ones which are easy to find, things like beverages, clothing, jewelry, and many more but searching for the undervalued products and services become more challenging and takes some sleuthing. That said the garment industry has had some limelight as of late due to the Bangladesh incident this summer. This is one product which actually hits both the overinflated & undervalued points I brought up. When you goto a store and pay $14.00 for a t-shirt you may find that to be a fair price based in your perception of quality and might even presume that the workers are being fairly paid, however that $14.00 shirt may actually have cost about $4.50 to make of which the worker who spent time producing it got $0.12 cents and is trying to feed a family with that stipple. Can you imagine living on around $27.00/week or about $ 110/month? Well if you are reading this blog on a PC or mobile app my guess is that is a reality you can not even imagine. So, here we have workers who are completely undervalued and companies who take advantage of the third world labor practices to fool us and still charge us comparable rates for garments that are produced by workers who have much higher benefits (i.e. Local workers that get health care, etc). That and these companies are still making mega profits!

Now you say, well Grumpy that’s great but how could I a simple consumer know what is the true value of what I’m buying. Well, I’ll admit that it takes a little bit of effort but you know that thing on top of your shoulders that’s holds a few cogs of it’s own? Well I’m asking you to pull a few of those little guys aside and start asking them, hey where was this thing made, how is it that a dollar store can make a profit, what are the raw materials used to make this thing, what would it cost me in time & money to do it in my own, etc? You will be amazed at the world that you start seeing when you start to dig a little. In addition, by not supporting the over inflation or undervaluation of products & services it helps guard our society against unjust practices which lead to economic turmoil. What do you think would happen if tomorrow a company started shipping in prefab homes that you could own for 10K dollars? Awesome right, everyone would be a homeowner! Just remember the old adage if something seems to good to be true then it probably is…

{ 2 comments… read them below or add one }

Selma.Bouvier September 24, 2013 at 7:19 pm

For example – there is Grumpy Cat which has gone viral that has no value at all – unfortunately that is our society.

http://www.grumpycats.com

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Joseph October 18, 2013 at 2:50 pm

The worth of anything is always determined by its possessor or purchaser, and always in accordance with his or her needs and goals. Therefore, the value of a product varies among people and over time. So for instance, I very rarely buy Starbucks coffee because I have lots of time to make good coffee at home, and so I place less value on it than someone who enjoys the convenience or the atmosphere in the stores. Another example is collectors who place a great deal more value on antique furniture than I do.

And except for the fact that raw materials should be appropriate to the use and design of a product, even they are subject to the value judgements of the market.

Getting to my point . . . the value of a thing is not a primary. Therefore, even if all people were super smart infallible beings who never make mistakes, we should still expect variances in how they evaluate worth because their own needs and goals are the only true measure of value.

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