The Glass is Too Big - Home

[Editor: This is an older post that was saved in draft mode for a long time. Given my current time crunch, I finished it off and am publishing it. The references to "this morning" and anything else that may seem out of date should be seen in that context]

This morning I saw an article which was describing getting your new iPod nano custom painted and this quote caught my eye:

...and sending your own nano for color work will most likely be around $65. Kinda pricey...

ipod mini, customization, product pricing, business



It struck a nerve with me about how many pricing misunderstandings there are. This one: "product vs service" is one of them. I'll probably post on the other one that seems to cause confusion in the near future: that price is a function of VALUE not the cost of production.

At any rate, the quote underscores the fact that many people don't seem to understand why products are so much cheaper than services. In this case, the iPod nano is a product that benefits from the efficiencies of mass production. Each iPod nano uses the exact same parts, bought by the tens of thousands from suppliers and assembled also by the tens of thousands. As a result, they can be built significantly cheaper than if you were to try to have a custom MP3 player built to the same specs. The cost of designing the small form factor, the custom CPU, etc. are spread across all of the units they'll sell. Because they'll sell so many of them, each unit's portion of those huge expenses is really tiny.

Services, on the other hand, are directly purchasing someone's time. There aren't others to spread the cost of the time across, so the cost to the individual is much higher. This usually comes with the tradeoff of getting exactly what you want. In other words, if you are willing to take an iPod nano in the colors that Apple makes available, you get to share in the lower costs of the mass produced product. If you'd prefer a color that the mass market hasn't made available, you have to move to the service market and bear the burden of directly paying for the service.

Other examples:

A lawn mower costs less than geting someone to mow your lawn for half of the summer.

A shirt bought off the rack is much cheaper than having one tailored.

Where things get interesting is when the mass manufacturing methods make customization available as part of the normal manufacturing. When shirt manufacturing includes having the fabric cut by a computer-controlled cutter, it doesn't matter whether you're making just S,M,L,XL or a different pattern for each shirt.

When you're trying to figure out why a price seems "high", consider whether it's because you're thinking "product" while paying for "service".

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