Sunday, November 16, 2003

More on Value

So this weekend I noted a nearby conveninece store had 2 litre Pepsis on sale for 79c. In the Pepsi dispenser at work, I can buy a 20 oz bottle (591 ml) for 95c every day.

Things like this make me wonder "Why is this so?"

The big bottle, plus tax, works out to 41.9c per litre. The little bottle, with tax included in the price, works out to $1.61 per litre. And it is the same sweet fizzy liquid in both.

Why would an arguably intelligent man like me (and some regular readers of this blog would argue there is precious little intelligence here :) ) knowingly pay 3.8 times as much per unit for a mere soft drink? I think it comes down to value. Consider:

  • The big bottle is a "batch" of cola. I can't drink it all at once (at least in socially acceptable circles). So, it's use must spread out over time.
  • The big bottle isn't cold. So, I have to either refrigerate it or find some ice before drinking it.
  • The big bottle requires a drinking cup to transfer it into before I can enjoy it. Something else I have to do.
  • I then have to either wash the reusable cup (a hassle) or throw away a non-reusable cup (a waste) when I'm done. I don't like either one.
  • The big bottle requires planning. I have to catch the sale price and then stock up when it happens.
  • On the other hand, the little bottle is there when I want it, it is cold, in a drinkable container, and requires no clean up or advance planning on my part.
In short, the soft drink folks are reaping a 3.8x premium to add services to their sweet fizzy drink. By bringing it to me, at the point of use, in a batch of one, I pay a huge markup. Gladly. Unthinkingly.

I pay for the value. Big time.

OK, Joe, why do you carry on about a bottle of pop? One reason: Simple examples often help explain complex issues.

The beginning of any Lean process is to understand the value the customer places on the product. The Lean process must focus on these two: the customer and the product. Only then can we know what waste is in the process and begin to replace it. Value is the beginning of the framework of Lean.

So, begin to notice value. Where can I find the same sort of value in delivering my product? How well do I know my customer (either internal or external) such that he/she will gladly pay a sizable mark up? Look at the is worth pondering.

I hope this is helpful. Oh yeah, and enjoy your cola of choice from the machine today. As always, feel free to forward to a cola-drinking friend. Email me

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