Time Value
My wife and I went shopping today for some groceries as we try to re-establish some element of normality in our lives (and diets!)
It struck me, walking around the supermarket, how influential timing is on pricing and margins.
I’ve already mused on the fact that timing is the most important factor in most areas of life - and particularly within startups - but the same theme hit me from a slightly different angle when seeing heavily discounted products that literally less than a week ago were 3-4x more expensive.
Take a bar of seasonal chocolate, Cadbury Snowballs. At full price, the thing was £5.75. But we bought some for 50% off, at just £2.88. Exactly the same product, the same taste, the same shelf-life (effectively), and so on. But 50% cheaper and, assuming a 75% original profit margin (and ignoring the margin slots between Sainsbury’s and Cadbury), 3x less profitable than just a few days before.
Obviously this is a common feature of seasonal categories like fashion, but in that instance there is at least a taste and social signalling element to having the latest release, not to mention the seasonal nature of weather and the clothes that suit. In the chocolate scenario, there’s no “new season” on chocolate. There’s no near-term shelf life. It’s literally that the consumer wanted a Christmas / snowman themed chocolate bar five days ago, and now they don’t.
This type of consumer behaviour is not rational in the classical economic sense, but it’s everywhere - yet further proof that the homo economicus view of humans is a complete joke. I suppose the marginal utility (psychological benefit) of “timeliness” could be baked into a consumer’s perception of value (utility function) in some way, leading to a “rational” decay in price point, but it’s certainly not the typical hard-nosed, calculating brain that so much of economics assumes.
I’ll be thinking about how timing plays into pricing and margins for the companies I work with. There some “obvious” stuff but I think it plays out more broadly at a more nuanced level, too.