What is a Fair Price?

When I was about 8 years old, I started to collect coins. The collection was nothing special as I look back on it, but it taught me a very valuable lesson. I went with my dad to a coin shop and paid $6 for a coin. Some two years later, I looked the coin up in the “Red Book” which placed a value on coins and saw that my original purchase was listed as $12.00 in uncirculated condition which mine was. I excitedly told my father that I had doubled my money. He smiled and said, “Not so fast, Don.” Then he proceeded to explain to me that the Red Book price was close to what a dealer would charge me if I wanted to BUY the coin now. If I were selling it to him, I would be lucky to get $8 and more likely $6 which is what I had paid for it. The lesson that I learned at my tender age was that a coin, a house, a used car, a collectible, or a stock was only worth what someone else was willing to pay for it.

In Consumer Behavior, theorists often refer to a phenomenon known as the endowment effect. If something is owned by you, you endow it with a value that is often distant from marketplace realities. People who think their home is worth a million dollars are shocked when their realtor places it at $650,000 and even then the bids that arrive are lower. The used car that you have pampered for 12 years does not fetch nearly as much as the price you envision for it. Learning that things are only worth what others are willing to pay for them was a great lesson to learn when very young.

Over the years, I have  been shocked by people who survived in the advertising and media business not realizing the simple truth of auction market pricing. I would suggest a bid on a property or a sponsorship and a colleague might say, “We can’t offer that. The station will not make any money on it.” I would often respond simply that such a low amount was what the property was worth to our client and add that, if the price was truly too low, they would not sell it to us. You did not have to be abrasive or obnoxious about it. Simply state that our offering price was all that the client could pay or what we were willing to pay.

Another sales tactic that always really amused me was when a rep would say, “We have worked so hard putting this together. You have to pay more than your offer.” Once, sitting across from a particularly odious salesperson, I smiled and said, “I didn’t know that you were a Marxist.” He looked wounded at first and then slowly became angry. I outlined Marx’s long discredited labor theory of value which briefly described that the value of a commodity can be objectively measured by the average number of hours required to produce that commodity. Think about that for a moment. Let’s say that I decided to knit a sweater. I assure you, my friends, that I could spent 1,000 hours working on it and, at $15 per hour as a wage, no one would want to buy the ugly sweater that I had produced at any price—but especially not at $15,000. Well, I use that absurd example to make the point that it mattered nothing to me that someone had spent a lot of time putting a proposal together. If it did not reach the people whom the client needed to reach at the right price in the right environment, we would go elsewhere.

In the years to come, prices for advertising or  program or event sponsorships will fluctuate depending on market conditions and competitive demand. There is no intrinsic value to media time or space across any platform. It is only what someone is willing to pay for it. Ideally, both sides get a win-win in an important negotiation. Pricing to me has always been something of an economic miracle. Sometimes dozens of people in many countries contribute to putting a product or service together. Each makes some money every step of the way. The finished product, however, is only worth what the consumer thinks is a fair price and one hopes the producer can make a profit at that level.

The little boy with the shiny uncirculated silver quarter is now almost 60 years older. He has not forgotten the lesson he learned so long ago.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com