Value, Consistency, and the Value of Consistency

Brand is about consistency.   The value of a brand, from the very beginning, was that it indicated to customers what they could expect of a specific product from a specific vendor.   Later, when brand began to accrue other qualities, such as emotional benefits and the esteem of conspicuous consumption, customers were attracted to the brand because they expected those qualities to be delivered as well.

So the value of a traditional brand is that it delivers the same quality, experience after experience, year after year, decade after decade.   Brands that advertise they have been in business for a hundred years communicate a long history of consistent quality.  Consistency with expectations is critical.

Human beliefs are based on consistency.   When two things occur at the same time, we believe it to be coincidence and attach no special value to the correlation.  But when two things occur at the same time, over and over, we create an association and believe the two to be correlated.   It is not even necessary to understand the reason for the correlation: some of the most strongly held beliefs (superstition and religion) are based on situation where the correlation cannot be explained.

This is as true of brands as everyday experiences: a brand must be consistent to be meaningful.  There cannot be the sense that what the customer gets the next time will be different from what they got the last time.   Any change causes the customer to question the correlation, and to doubt that the brand has the qualities they expect - and for that doubt to become more generalized and existing beliefs to be questioned.  If the logo on the package is different, it is assumed that there must be other things that are different about the product it contains.

Whenever a brand changes, it takes some time to adjust: customers are displeased when anything is different, and need to be reassured that the qualities they value about the brand have remained the same.   Or when an unpopular brand changes to become more appealing, they must then convince customers who were disappointed in the past that things are now different and they should give the brand a second chance.

As an aside, correlations are subjective, so it is difficult to identify which qualities are important and which are not: companies assume they know why customers buy their brand and are indifferent to any other aspect, but are often quite surprised when a minor change that they assumed would be inconsequential results in an exodus of customers.   But the concept of a brand, or any object, is the sensory stimulation.   The customer cares not only about the taste of a food product, but it's scent and visual appearance as well - change any one thing, even an inessential quality, and customers cannot refrain from reconstructing their conception of the brand.

So in that sense, consistency itself is a value: knowing what to expect of a brand means that the customer doesn't have to reevaluate it each time they purchase.   This reduces the effort (cost) of buying, and ensures that the benefit-to-cost ratio remains favorable to the brand.   Any change casts doubt on their existing beliefs, causes them to have to re-think and re-evaluate, and provides an opportunity to change their conception of a brand, for better or for worse.

Cost-Based Pricing

In a previous post I glossed over the costs of production, taking for granted that they are familiar to most people.  I've since come to realize that production cost is not so obvious a topic, so it merits some delineation.  So be warned that what follows is going to be very tedious and entirely unnecessary to anyone who's taken an accounting course, but possibly enlightening (though no less tedious) to anyone who hasn't.

Cost-Based Pricing Model

When a producer sets a price in the market, he must consider the cost of production in order to remain financially viable, which includes more than the obvious cost of fashioning raw materials into finished goods.   The total cost includes variable costs, overhead, and cost of capital.   A few other items, required return and risk, are also considered - though not strictly necessary for the sustenance of his operation, it is generally necessary for him to sustain his interest in sustaining his operation, and thus merits consideration.

Variable Costs

The variable costs of a product are mostly straightforward, and can largely be derived from considering the components that are assembled to create the final product, as well as to the labor involved in its creation.

A simple example is the bread produced by a baker: each loaf requires a certain amount of flour, yeast, salt, and water an the amount depends on output - you need twice as much material to make two loaves as one, and a thousand times as much material to make a thousand loaves.

Waste and spoilage are costs related to risk, which will be considered later, but they are strongly related to variable cost because waste often occurs per-unit and spoilage results from purchasing more materials than are needed.

Labor is also said to be a variable cost, but it is not as flexible and is more subject to waste: workers generally demand a fixed wage rather than being paid by piece-count and, while it's possible to release a worker on a full-day or half-day basis, maintaining a consistent labor supply often requires paying idle workers.   So while labor can in theory be accounted as a fixed cost, it is usually more in the nature of an overhead cost.

Overhead (fixed costs)

The overhead costs of a product pertain to any cost that does not change regardless of the number of units sold.   This generally involves any expense that involves an item that is not delivered to the customer as part of the product.

Back to the example, the baker's oven and utensils are overhead costs as is the rent of his shop: regardless of whether he bakes one or a thousand loaves, these costs are still accrued.

There is often an attempt to calculate overhead costs as fixed costs - per the previous example, the amount of labor to create a loaf is often considered a fixed cost, but because his employees' wages are based on the number of hours they work rather than the number of loaves they produce, the cost is not truly variable though it can be made to seem so by accounting.

There is likewise an attempt to make the cost of equipment into an fixed cost, figuring that a mixing bowl will wear out and break in a year, during which time a certain number of loaves will be produced, and therefore its cost can be apportioned per loaf.   This, too, is an artificial calculated value that is not strictly accurate in reality.

While overhead costs are not strictly related to the volume of output, volume is a driver.   That is to say that the capacity of an oven is not infinite, and it can produce only so many loaves even if it is operated around the clock, and that if the baker's volume increases beyond that point he will need to purchase a second oven.

There are various ways to flex overhead costs, but for the most part they recommend a long-term commitment: to buy and sell an oven based on whether it is needed on any given day is possible if the equipment can be rented on a per-day basis, but most equipment rental is longer term; and while a purchased item can in theory be sold and repurchased, this is also not a common practice that suppliers will accommodate.

Cost of Capital

Costs of capital pertains to the interest paid on loans, which must be repaid from the profit of any activity that the loan facilitated.  For example, if a baker who needed a second oven took out a loan to obtain it, his cost is not merely the cost of the oven but of the interest owed on the money borrowed to buy it.

It is a common mistake to consider, as a cost of capital, any interest that might have been earned on financial resources that are tied up in the business (such the amount of bank interest that could have been earned on the cash in the register) or the amount of profit that could be made by entering another line of business (a better return on equity by selling off the bakery and operating a butcher shop).

These are both important costs to consider when making an investment decision, such as which kind of business to open or whether to sell off one business and start another, but insofar as the operating costs of a business, they are irrelevant.

Required Return

Required return is the amount of profit that the owner of a business expects to make by operating it.   Strictly speaking, it is also an investment decision that is not germane to the operation of the business, but it does influence the price at which merchandise is sold, and merits consideration.

The required return is the most flexible part of pricing.   The owner must make enough to cover fixed, variable, and capital costs to avoid bankruptcy.  He would very much like to make a profit on his investment, but it is not strictly necessary for him to do so, and a business can run at break-even for an indefinite amount of time, though few would care to invest in such an enterprise.

The opportunity cost of investment elsewhere, as mentioned in the previous section, is generally a driver of required return.   That is to say given an opportunity to buy a second oven out of cash (rather than taking a loan) must consider other uses that could be made of the money.  If it would be more profitable in another investment, the wise decision is not to invest in the business.  Conversely, if the business needs the money to increase its volume, it must offer a return higher than competing alternatives.

Risk Margin

The risks involved in a business also impact the cost of the product, but it's a gangly topic that can make an already tedious meditation completely unbearable, so I will try to keep it short.   However, it's necessary to mention because too many arguments of price and cost suffer from the "perfect world" fallacy in which everything can be known and flawlessly predicted.

Risk in variable cost relates to waste and spoilage: a baker who expects to sell 500 loaves a day purchase enough material to make that many loaves.  If his prediction is too ambitious and he has more flour than he needs, it will eventually rot and his expense will be wasted.  If the baker spills a sack of flour, the cost is likewise wasted in that it will not be recovered by selling bread that might have been made of that loaf.

The risk in overhead costs is twofold: the gross profit (the difference between the revenue and cost of each unit) may be insufficient to cover overhead due to low sales volume, and things that are included in the overhead may have a shorter lifespan than expected.   The owner must also elevate the price to cover this risk.

The risk of cost of capital is generally mitigated by fixed-interest loans, that assure the borrower he will pay a certain amount of interest.  If the financing is not fixed-rate, such as an expense charged to a credit card with a floating rate or credit obtained by a short-term loans that rolls over upon itself, then there is some risk to be borne by the owner, and passed along to the customers in the price.

And while the required return does not entail any risk, all of the above factors constitute a risk that the required return will not be achieved.   And since the desired return is higher when the risk is higher, it will have an impact on cost.

Finally, there is a species of risk wholly unrelated to cost, such as disaster risk: it can be as devastating as the cart being run over by a bus, the vendor being robbed at gunpoint, or as minor as a wind that blows a stack of napkins into a puddle.

None of this changes the fundamental structure of the costs, but it does factor into the calculation of price.

Putting it All Together

I'm going to refrain from posting a spreadsheet that shows a tabular accounting of all of the costs of production - the excursion has been so tedious that I have bored even myself - the point being that in determining the minimum price at which a producer can offer his goods for sale, all of these factors (and possibly others I have  failed to consider) must be tabulated and broken down to the unit level, based on a projected volume of sales.

Price Sensitivity and Opportunity Cost

It's occurred to me that conversations and decisions on the topic of price sensitivity tend to neglect the notion of opportunity cost, and particularly in times of economic hardship, it is likely more influential to buyer behavior than it normally is ... though given that the present financial downturn has persisted for at least five years, we may need to revise our perception of "normal," as the lessons learned during the present slump and the behaviors to which consumers have become habituated will likely persist even after the storm has passed.

Cost of Production

The cost of production is relatively straightforward: the producer considers their variable costs, overhead, cost of capital, and required return in providing a good to the market, and the very least the customer can expect to pay is a price that covers those costs, which for some is the basis of their consideration of a fair price.

However, costs of production are very rarely considered by the customer, who are primarily concerned with their own needs rather than the needs of the producer.   It is especially rare in cultures that do not engage in haggling, but have the expectation that the price as marked is not negotiable.  For the majority of purchases in US markets, that is the case: we do not haggle with the grocer over the price of a melon, as is common in some eastern cultures, but take it or leave it based on the demanded price.

As an aside, I'm often surprised by the number of people who do not seem to recognize when haggling is appropriate.   People seem to take the price of items such as furniture or jewelry to be non-negotiable, and the only realm in which they feel haggling is possible is in the automotive sector or private sales.  Of course, there is another species of customer who seems to feel haggling is appropriate in venues where it is not, much to the chagrin of others who are waiting to be served while they waste time hectoring store clerks for a better deal.

And of course, all of this is a diversion, the point being that production costs are an indirect influence on the customer's assessment.

Need-Based Cost

Another common approach to evaluating prices is in the customers' assessment of their needs: whether worth the cost to satisfy a need, or whether the consequences of failing to fulfill the need necessitate paying the cost. It is essentially a binary decision - to buy or not to buy in a specific instance, not yet considering alternative methods for suiting a need (see next section).

It stands to note that vendors cannot accurately assess the needs of a customer and how much it is worth to have those needs fulfilled.   The customer knows these things with certainty, and the vendor can only guess.  They very often guess wrong, covetous of profit per sale and indifferent to sales volume.

Need-based pricing is a common consideration when a vendor that assumes the customer will not purchase in future if he does not do so immediately.   It's also a negotiation tactic used to place artificial pressure on the buyer to create the impression of a now-or-never (or "limited time only") deal when such is not the case.   When it works it can result in a good profit on a one-time sale, but when it fails it fails disastrously and devastates the potential lifetime value.  And from the consumer's standpoint, it can be quite amusing to see how a vendor who has pulled that trick squirms when you fail to react.

But again, I digress: needs-based considerations are generally a preliminary decision (the customer would not be in the market at all if his needs were inadequate to the price) under normal circumstances - and that it only takes precedence in the customer's assessment in certain instances by dismissing all other bases.

Alternative-Based Costs

Alternative-based costs derive from needs-based costs: in this instance the customer recognizes that the cost of neglecting the need is unacceptable, but is considering cost in a comparative versus binary manner: there are other alternative that can be chose to address the need, and the customer assesses whether one possible option is the most efficient use of his budget.

This may be a product-based decision (a customer needs to clean a floor but is choosing between a vacuum cleaner and a broom) or a brand-based decision (a customer has tentatively chosen a vacuum cleaner and is now choosing between a Hoover and an Oreck).  The binary test of whether the item is adequate to solve the problem has been satisfied, and the customer is considering more qualitative factors (how effective, how easy to use, etc.) in considering an option, mindful of his other options.

It seems to me that the alternative-based approach is grossly overemphasized by sellers, as evidenced by marketing messages and promotional tactics that present comparisons to similar brands and products.  That's not to say it's invalid, nor to say that buyers do not similarly overemphasize alternative-based criteria, but ultimately the price that a buyer is willing to pay is based on the fulfillment of need, and they can be very intelligent and diligent in identifying other options, outside of what a firm considers to be its competition.

However, success at alternative-based appeals relies on the premise that the customer is able to afford an array of equally satisfactory options.   Which is to say that it functions well under "normal" market conditions, but falters in times of financial hardship.

Opportunity Cost

The topic of opportunity cost is often pointedly ignored in discussions of price sensitivity, largely because it is very difficult to focus in a meaningful way.   It pertains less to the purchase of an item in question and more to the entire budget of a customer and a holistic consideration of needs.  That is to say that it asks the question "Would I rather have this product, or would I prefer to have something else I might obtain for the same amount of money?"

That "something else" opens up a universe of possibilities that cannot be conveniently discussed or considered - but is again fundamentally derived from the needs-based decision by broadening the consideration.  Whereas alternative-based cost considers other products that might be obtained to service a need, opportunity cost considers other needs that might be satisfied with a budget.  In times of hardship, opportunity costs tend to take precedence in buying decisions.  Lacking sufficient budget to fulfill their every desire, the customer is not choosing between products but between needs.

Most vendors are loath to consider opportunity costs.  For vendors of luxury goods, making a prospect aware of more pressing needs is a losing proposition.  But even when the product in question is a necessity, it is culturally inappropriate to intrude on another person's financial affairs.   It would be highly inappropriate for a salesman to ask a customer the questions necessary to demonstrate that if he drank one less cup of coffee a day and switched to a cheaper brand, that would enable him to afford a car payment that's $25/month higher.  Not to say that some won't try, but it's taking a risk of offending a potential customer.

Even so, it seems that opportunity costs are a significant factor in the customer's perspective on price in times of economic hardship, and there may be instances in which it is less offensive and even welcomed for a vendor to encroach on that territory.  Taking the same example, a customer who is negotiating an auto loan with a banker expects to be asked, in a general way, what their "other expenses" are each month, and may even be tolerant of a bit of intrusiveness if the banker might help them discover ways to be able to afford a higher loan.  However, this seems unusual: the perception of the consumer is that banker has less at stake in the decision, is in a position of greater power, and is providing a supporting service rather than selling a product.

To end with a digression, as it seems that's the way things are going, the customer perception of banking is entirely wrong: the banker's profit from the loan is at stake, he is not in a position of power given that there are other sources of a loan, and he is in fact selling a loan product.  Most people don't seem to recognize that, and assume an overly docile negotiating position, to their own detriment, when dealing with certain vendors.

Convergence and Conflict

The main thrust of this meditation is to propose that opportunity cost is woefully neglected in the present market - but I've also sensed that, aside of the obvious diversions, I'm touching on yet a different concept: that of the convergence and conflict among these various perspectives on pricing.

Arguments of whether a given product is worth the price are common.  Not only is it implicit in the setting and negotiation of prices, but it's also implicit in any product review, and often surfaces in casual discussions about products and brands.   The source of disagreement may be in whether a price is justified among two people who share the same perspective but it is also common, and perhaps even more common, in discussions or negotiations between people who are taking different perspectives.

That is, one person may conclude a product is worth its price based on production cost criteria, another may conclude it is not based on needs-based criteria, a third may feel it's a good deal based on a consideration of alternatives, and a fourth may disagree because he is considering opportunity costs.

As such, in negotiation and agreement, it's likely necessary to identify the perspective before debating the criteria that underlie a conclusion - or when the debate is entirely internal, to the mind of a buyer faced with a purchasing decision, to be more deliberate in considering the various perspectives.

Cost, Convenience, and Loyalty

I stumbled across some notes from a couple of very informal experiments - Marketing 101 type of stuff - that got me think about the way in which we consider brand loyalty.   In brief, discussions on the topic tend to take too binary approach, suggesting the customers are either loyal or they are not, with little room in between.   Some refinements to that theory are measurement of share of wallet, or calculating the percentage of the time a customer buys a given brand when they buy a particular product.   I think those are closer to the mark.

But before I digress further ... the first study looked at scanner-panel data comparing the sales of the two major cola brands (need I even name them?) to demonstrate that when the price of one was as little as a dime less than the other, a significant number of customers purchased the cheaper brand.  This suggests loyalty does not exist for a large number of customers, as they buy whatever brand is cheapest.

That much is very well known, but what the researcher also considered was that the price of generic or store-brand cola did not seem to waiver - even though, in blind taste tests, the results are clearly random, and in spite of the fact that consumers are well aware of this, there is still loyalty to the two major brands - a person may switch from one to the other, but never to the generic cola, even though there is no perceptible difference in product quality.

The second survey was completely new to me: it was an informal study that posed two questions.   First, if you went to a restaurant that did not sell your cola of preference, would you leave and go to one that did?  84% indicated they would not do so.   Second, if you went to such a restaurant with a friend, and they did not serve his preferred brand, do you think it would be reasonable to expect your friend to accept whatever was on offer, contrary to his preferences?  88% indicated that they thought this would be a reasonable expectation.

This sparked an idea: that it is likely loyalty to brand has much to do with the consequences of switching, primarily the negative consequences in terms of effort or inconvenience rather than price.   And this is likely best considered in degrees.

• If the two choices are side-by-side on a supermarket shelf, it is very easy to switch from one brand to the other.  Zero inconvenience, for all intents and purposes.
• If the supermarket were out of a customer's preferred brand, this means they would have to drive to another store to get their preferred brand.  I don't think any surveys or experiments have investigated this, but I expect consumers would take whatever was on offer for that trip.
• While deciding which restaurant to visit, a customer might take into account whether it serves his preferred brand of soft drink.  But I expect that in most cases that other elements of the meal figure more greatly than the beverage, so I likewise expect a person would compromise on brand rather than go to two different places to assemble his meal.
• By the time the customer has been seated in a table, he has already invested considerable effort into getting there, and if his preferred brand was not on offer, chances are slim he would leave rather than accept another brand.
• Add to this a social element: if a person is seated with a group of friends, and the choice to go to a different restaurant meant leaving his companions behind, there's even less a chance he would do so to be loyal to his preferred brand.
• And to turn the pressure up a little further, if a customer had brought his family, spent some time corralling the kids into the place and getting them seated and relatively calmed, leaving to go to another place that served their preferred brand would require a great deal of effort.

It also occurs to me that all of this is likely quite obvious, and I might be a little embarrassed at spending even this much time poring over it - except that marketers keep doing studies on the topic, so at least I am not the most tedious person on the planet.   But just because something is painfully obvious doesn't mean that it is taken into consideration.

And that gets back to the point, when I still seemed to be making one:  measures of loyalty seem to assume that customers must be fiercely and absolutely loyal to their brand of preference, in spite of the incentive that a competitor might offer them to switch, and in spite of the non-monetary costs that they will have to undertake in order to remain loyal to a given brand.

With that in mind, simplistic measures such as how often a customer purchases a brand, or how much of their budget is spent on one brand versus another, seem woefully insufficient to explain the degree to which customers have brand loyalty.  It remains a phenomenon that stubbornly defies quantification.

Considering Long-Term Costs

As a consumer, I have a habit of looking to the long-term cost of things.  I'd like to say that the meditation that follows was some sort of epiphany, but it's been with me all my life and I have the sense it serves me well, and frustrates the salesmen who try to get me to ignore certain things when considering a purchase.  I also have the sense that thinking in this way has led me to be a better advocate for consumer experience, but more on that later.

What's got this on my mind is a rash of door-to-door sales of pest control services.   Various companies, national brands and local operations, are sending people door-to-door to offer ongoing maintenance services that include quarterly visits to "treat" the interior and exterior of the house to discourage bugs from moving in, along with as-needed service at no additional cost in case the maintenance treatments don't work.   It's only $49.95 per month to never have to worry about pests.

The first thing that comes to mind is: I don't have a bug problem that's worth $49.95 to deal with.  Every so often, maybe once in six weeks, a spider will find its way in, and we once had a few wasps in a vent, but that's it.  I've likely spent less than $50 over the past five years to deal with the issue, and am not fearful that it will suddenly become a problem, as the salesmen insist could happen at any time.

The second thing that comes to mind is, how much would I have spent on their service to deal with this non-problem if I had been paying them all along?   Five years is 60 months, at $49.95 per month, is nearly $3,000 - applying the same math to the degree of the problem (one bug every six weeks), that's 43 bugs, or about $70 per bug.   I pay about that much for a pair of sneakers - which means that every time I saw a bug, I could have crushed it with a brand-new sneaker, and then thrown the shoe away, and still paid half as much (given that sneakers come in pairs) as to pay exterminators for this service.

Admittedly, I'm beginning to revel in the absurdity of this comparison - made all the more silly by the fact that it's entirely accurate.

The point being that "only" $49.95 per month adds up to quite a lot of money over the long term.    Right now, I have an extra $2,900 in my bank account because I chose not to purchase this service, and if I stay here for another twenty years, it will come to $14,500.   That's quite a lot of cash.

Moreover, this isn't an isolated incident: there are many products or product options I have declined in spite of a modest, or sometimes insignificant, monthly cost.    I don't think it's an exaggeration to assess that there are at least three things I've decided to do without that cost about $50 per month, and at least half a dozen or so service features that would have cost $10 or less per month - which comes to $210 per month, or $2,520 per year, or $12,600 over the past five years.    As a consequence of this meditation, I'm likely to root out a few other needless things whose modest monthly cost is nibbling away at my income.

I'm also likely to be a bit more difficult at work, advocating for the customer.  When sales or product management proposes to offer the customer an additional feature for ten dollars a month, to raise the question of lifetime value to the customer.   If we expect to retain their business for 20 years, it's thousands of dollars.  Are we really giving them good value for their money when we offer add-ons like this?   And would they buy it if they really knew the long-term cost?

Sadly, I think the answer to the latter question is "yes."    I don't have the sense that many people work out the math, or would be motivated to reconsider even if they did.  I've had the same discussion with colleagues who seem like reasonably intelligent an sophisticated people in general, but who insist on paying for a personal cellphone even though the company has indicated that employees are allowed "limited personal use" of their company-issued ones.   Work out the math for them, tell them they will be wasting over six thousand dollars over the next five years, and their response, quick as a reflex, is "yeah, but it's only like a hundred bucks a month."

There really isn't a cure for this sort of stupidity, and if one company doesn't take advantage, likely another one will.   But at that, I'm likely going into a cynical state of mind and should find something else to think about before I become completely sour.

Time: The Real Price of Things

This meditation is likely to be abstract, philosophic, and a bit weird - but I think I may be onto something that would render a more dependable and accurate assessment of the motivation of buyers and sellers in the marketplace: the substitution of time for money in our consideration of various factors.

In commercial considerations, money is the standard of measurement: every thing and every activity is reduced to a monetary value, entered into the accounting ledgers, and presumed to explain everything perfectly. Except it doesn't. Money is an abstract concept, and "a dollar" represents different things to different people on both the supply and demand side, across different locations, and across different times. It really is quite sloppy and leads to many misconceptions, contradictions, and paradoxes.

Instead, translate money into time. A thing costs a certain amount of money because a certain amount of labor goes into its fabrication and provisioning. Even when a producer buys a physical component to add to his product (flour), the supplier's cost of that component deals with his own labor costs (the labor to raise and harvest wheat, grind it to powder, package and deliver it), and any materials that supplier uses are representations of the labor costs of his own suppliers.

Perhaps it's easier to understand from the consumer's side: the money that a consumer uses to purchase items he wants and needs is gained by the time he has spent at his own work as a laborer. If a person earns $10 an hour, a $5 purchase represents 30 minutes of his time; if a person earns $30 an hour, it represents 5 minutes of his time. The money-price is the same, but the amount of time the money represents is different to each of those customers.

It is not that people with a lot of money spend it less discriminately or have different needs - its that the money-price represents a smaller amount of time. In that sense, the $30/hour worker considers a $5 item with the same lack of discretion that a $10/hour worker would regard an item that costs 83 cents. The price, in terms of time, is paltry.

This is likely where the convenience of obtaining an item enters into consideration - regardless of what they earn on the job, both individuals might spend an hour minutes to get to a store, buy an item, and return home. This levels the field a bit, because when convenience and cost are combined, the $10 worker must invest 90 minutes and the $30 worker must invest 65 minutes to obtain it (a difference of 72% is still significant, though less than the 300% difference when money-price is considered alone).

It also levels out differences between markets: an American worker who earns $10 an hour and pays $5 for a meal is spending more money, but the same amount of time as a third-world laborer who earns 50 cents and hour and pays 25 cents for the same meal in his locale. In that light, the histrionic objections to low wages in developing nations is entirely unwarranted.

The difficulty in chronitizing rather than monetizing costs is in the disparity in wages of the buyers. Our sense of equality and fairness is largely satisfied when all customers pay the same money price, regardless of what they earn - but again upset when we recognize that the same money price represents highly disproportionate time prices for different consumers.

It's also highly unlikely, given our cultural fixation on money, that accounting systems can be converted to a chronitized method of measurement. We really don't care that we earned a "profit" of ten minutes on the sale of an item, but want to know how much money we have made.

It does become significant in terms of personal finance: where a person is considering their budget and the price of things in terms of money rather than time. The explanation of why people with a lot of money buy more things and pay higher prices seems more logical when you recognize that they might be spending the same amount of time to buy a "luxury" version of an item that less wealthy individuals purchase an "economy" version.

It is not that having more money makes them regard the money itself as less valuable - it's that it takes them less time to earn more money. And when you consider time given rather than money, it works out that that the $30/hour worker exchanges an equal amount of his time (two hours) for a $60 shirt as the $10/hour worker exchanges for a $20 shirt.

This makes the consideration of price, in the retail sense, much less subject to seemingly unknown factors - but it does make the mathematics a great deal more complicated when price expressed in terms of time fluctuates according to the income and financial resources of each individual customer.

Don't mistake this for a revisionist consideration of pricing: it would be ludicrous for a retailer to ask each customer how much they earn in order to set a money-price for an item to be equal in terms of time for the individual shopper. But it would be (and is) quite natural for a consumer to consider what he spends as a percentage of his total income and select a retailer or an item that offers a price that represents roughly the same proportion of time.

That is, the $10/hour worker who seeks to spend 25% of his income on rent will seek an apartment that lets for $400/month whereas the $30/hour worker, seeking to spend the same 25%, seeks one that lets for $1,200/month. The same for the vehicle they drive, the clothing they wear, the food they eat, and any product or service they consume.

When retailers seek to supply a given market, they seek to satisfy a given price point to accommodate the capacity of a given income level. Each product is tailored to the purchasing capacity of a given income bracket - so that in aggregate, sellers provide range of choices to suit a range of incomes, resulting from a range of wages. That is, when a retailer decides to stock $20 shirts and $60 shirts to accommodate the price sensitivity of different shoppers, what he is really doing is providing each the ability to choose an item that represents an amount of time that is proportional to their income.

To focus only on money prices is to ignore a necessary relationship between money and time that has a significant impact on consumer behavior in terms of price sensitivity. Were the consideration more explicit, it would likely help clarify and add more certainty.

As such, a retailer who is seeking to price his merchandise in a given area has to consider the price sensitivity of customers in an area, and that is difficult to do based on the household income of customers in an area. If you translate cost into time, and determine that customers are willing to give about 20 minutes of their own labor in order to purchase a given item, then determining what price to charge can be done by considering their income in terms of time: if the ZIP code areas that a merchant wishes to serve though a given store average out to $15.87 per hour, then the proper price for an item that represents 20 minutes labor would be $5.29

My thoughts on this matter are beginning to unravel - too much at once to coordinate it all - and I likely need to break off typing and do some thinking to reorganize and reconsider them. But I have the sense I'm onto something here, and that chronitization can be useful in untangling some of the problems where monetization obscures the real cost of things.