Luxury vs Premium -or even free

Vesta sent a link from Seth’s blog. The summary is the least contentious of what he says:

Plenty of brands are in trouble right now because they’re not sure which one they represent.

Seth says luxury goods are needlessly expensive, senseless expenditures. He qualifies premium goods as items having value justifiable to their purchasers. Premium means value that transcends discriminating nuances using the example of kangaroo leather ice skates. Some professional ice skaters say these perform best; I’m not in a position to know either way. To the uninitiated, kangaroo ice skates could be a luxury item, no? So who is to determine the difference between luxury and premium? The similarly unadvised could judge a gown covered in hand embroidery to be luxury while it may truly be a premium item to one who knows the value of it. Likewise, some items described as premium goods really aren’t (some lines of premium denim come to mind). In short, his post could make for loud and rancorous debate. Value is in the eye of the beholder.

I don’t read his site often but today it took me off on other tangents -which is where I’m taking you now. In this entry he addresses the issue of throwing good money after bad. Wish he’d written it before I wrote when do you cut your losses? Painful as it is, the unavoidable truth is to ignore sunk costs; these should not affect your future decisions:

When making a choice between two options, only consider what’s going to happen in the future, not which investments you’ve made in the past. The past investments are over, lost, gone forever. They are irrelevant to the future. You have two pieces of land. One you bought for $1,000,000, one for $10,000. On which one should you develop a gas station? I know. The one that’s right next to the huge subdivision being put up, not the one next to the condemned shopping center. Does it matter how much the land cost to buy? No. Not at all.

I guess the next time you’re faced with the potential of throwing good money after bad, you should ask yourself where you’ll build a gas station. It doesn’t matter how you spent the money in the past, only how you spend it here on out.

Then in another he talks about the value of “free”, that’s it’s over. Free isn’t free and the race to the bottom is getting more crowded every day. He links to Katie (some language NSFW ) who says the new “free” should be [expletive deleted] expensive.

Birnbaum has long said that even if you found free production, all the other constraints would make it virtually unaffordable. There’s a cost, the only question is who is paying for it. Don’t be seduced unless you know the full price of free.

Coincidentally, I had an opportunity to ponder the costs of free this weekend. I had to take a truckload of tree branches to the city recycling center on Saturday. It’s free to drop off stuff. I thought that was pretty cool. The city processes the yard waste into mulch which resident can also pick up free. Something we can all feel good about.

I had to wait on a ramp for the truck to be weighed before proceeding to the window (not long). The clerk made a few notes and waved me along. I went up to the dump site and unloaded, marveling at the tractor-trailer sized chipper shredder and piles of mulch waiting for new homes. That and watched some cute squirrels scamper around in distress that I’d interrupted their foraging. Coming back down, I had to get weighed again, notes made again before I went on home. Perennially obsessed, I thought about the costs of this free. The city goes to the bother of inventorying raw inputs (weighing in/out); I imagine they’d do the same if I picked up mulch. This way the city has a running tally of inputs requiring processing and when they need to schedule an employee to operate that chipper shredder. What’s the cost of manning the station? Obviously in the long run, our city taxes pay for it so it’s not really free and it’s a benefit to the citizenry in the form of lawn materials and reducing the fire hazards of back yard burning.

Do taxes absorb the whole cost of free? I thought so but it turns out I was wrong as I discovered talking to the contractor (Monty) we hired to help with a landscaping project. He was less supportive; he said the city program was more wasteful than it used to be with unintended costs to individual businesses and even residents in the quality of life index. Previously, all the dumping (household waste and lawn refuse) was at the same location. You went to whichever section at the dump. For as yet unknown reasons, the city decided to move the lawn recycling portion over to the outside of the opposite end of town. Monty said this move represents a dramatic increase in costs to businesses because they can no longer take care of business in one trip. He says the city’s moving of the recycling center costs him 1.5 man hours and use of a truck for every trip out there (twice daily). It’s changed how he schedules jobs, leaving him fewer working hours in the day with higher costs to boot. He says it affects quality of life in that large trucks now have to transit through the busiest intersections in town going from one dump to the other, and at peak traffic hours. That’s a lot more wear and tear on city streets and an increase in pollution. Not so free after all, eh?

In the end, whether it’s luxury, premium or free, some value is in the eye of the beholder. It’s ironic that value such as “free” can be the easiest to measure provided you’re not first seduced by it. As ever, you get what you pay for one way or another.

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4 comments

  1. Danielle says:

    So true!
    It reminds me of people that drive to the other side of town for fuel because it’s 1 or 2 cents cheaper. Don’t they realise they use and waste more than they save?

  2. Clara Rico says:

    One of my pet peeves is companies who try to use free stuff to get my personal information. For example, when you have a “chance to win”, but first have to go to their website and fill out a form with your name, address, phone number, e-mail, ect. Companies will pay for a mailing list of customers. This is valuable information, and they want it in exchange for nothing. Many of these offers are on candy or soda. Does anyone else think they are targeting children who don’t know better?

    Refunds work the same way. Instead of offering a sale, they require my personal info, including the receipt. Sometimes I wonder if they want to know what else their customers buy and how they pay for it.

    O.K. Just a little paranoia to spice up your day.

  3. ClaireOKC says:

    Thanks for this wonderful clarification. You did this without denigrating either side of premium or luxury. Dealing in that high-end part of the business, it’s sometimes hard to explain to us regular folks that luxury to some is quality to others. I enjoyed this (and quoted it with credits) in my own blog!

  4. Amitai says:

    There’s another interesting business model called Freemium.
    You can usually see it in the Internet, but you can have this business model also in the real life. Consider that in the recycling center they would sell mini-recycler-or-whatever. Well, you are already there, which means you are concerned with recycling; Maybe instead of driving there, you’d like it in the comfort of your own home; And even if you are not buying, they possibly have your name – when they will show it to the council they will say “hey, we have over 1000 active recyclers, we need more funds”.

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