One Reason to Buy Less Stuff

I’ll use the decision to buy an iPhone as an example. Most people would ask, does the iPhone do enough to be worthy of its cost?

Is it worth, say $400, to buy this device? One way to think is that the iPhone has more features than a $199 iPod and $299 a smart phone combined. If you value the iPod and smart phone, then the iPhone seems worthwhile. This kind of thinking is a plain cost-benefit analysis.

And yet, this analysis can be horribly misleading.

It’s so bad that even an Apple commercial hints at why you should not get an iPhone:

All these years, you’ve gone through the day without email like this in your pocket, or stock updates like this in your pocket, or internet like this in your pocket. And you survived. The question is… how?

Now just wait a minute, I thought. I lived just fine all these years. I was very happy to check my email, stock updates, and internet once or twice a day from my laptop.

And that reflection made me realize the problem with simple cost-benefit analysis. It’s just wrong to compare total costs versus total benefits when you already have a system in place.

You really have to compare the marginal costs to the marginal benefits.

I already paid for a set of tools to answer calls, check email, play songs, and get my stock updates.

The relevant question is how much better can the iPhone be? In other words, what is the marginal benefit of an iPhone?

It’s the added benefit I get from having instant access to stuff. What is that? For me it’s pretty low since I care much about these things.

The marginal benefit might be higher for you, but it mathematically has to be less than or equal to the total value you place on the iPhone. I’d say my marginal benefit is only 10-20% of the iPhone’s total value.

And here’s the kicker: even though the marginal benefit reduces, the marginal cost of an iPhone is still the same. You just can’t trade in your old things and pay for what you value as the marginal improvement (unless it’s for something like a trade-in for a car).

Since I only buy when the marginal benefit exceeds the marginal cost, this makes me much more restrictive in what I buy. So when I do buy, I am surely getting my money’s worth.

When a new product is introduced, I often see that I’ve lived all these years just fine with what I have. I think I can continue to survive just fine.

Thanks for reminding me, Apple.



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  • KyleJB

    You forgot the marginal benefit of having less stuff in your pockets. There are times when I have carried a cell phone, an ipod, and a digital camera in my pockets. Right now, there are no phones that have the megapixel quality of a digital camera and so you can’t easily combine all 3. But having only 2 things in my pockets rather than 3 is a huge boost; especially if you are wearing jeans.

    Also, marginal benefit can change depending on the situation. When I am walking around looking for a place to eat or a specific address that I can’t seem to find, having direct access to the internet is really beneficial to me. There have been multiple times when I’ve called my friends (or have been called by my friends) and asked are you near a computer. But most of the time, you are right, that stuff is not important.

    So is there potential for a product to fill a niche? Sure. I could say that it is similar to an “AAA” type insurance. I may use AAA once a year. But when I do use it, I am so relieved to have it. That marginal benefit is only realized a long way out. It may not even be a benefit you thought you would ever really get from the product like quickly being able to google maps an address because you are late for a job interview or a date. But it may only take one instance for it to be worth the investment.

    KyleJB

  • chrischow

    An excellent post!

    Did you know that the original iPod profit margin at time of release was nearly 50%? Prices have since come down since then…

    http://www.isuppli.com/news/default.asp?id=7308

    …I personally couldn’t justify the expense when a blackberry (erm ok its turned into a crackberry now) could do the same things an iPod but with much less initial cost with contract rebates, etc.

  • http://www.mawsoft.com/blog RohoMech

    @KyleJB – Funny, your response includes how you survived before (calling your friends), and that’s something I’ve done to my brother a few times (usually when I’m lost). I think you forgot to mention the pleasure some people get in showing off their new gadgets, which can change depending who’s with you at the time.

    I used to think having fewer gadgets was an advantage, I’ve been using my cell phone’s camera instead of buying a new one, however, I think the benefit is almost entirely miraged by the failure of my phone do really do what a camera can. In any low-light situation, I will not be able to get a decent picture. My phone also has GPS & Navigation, but compared to a stand-alone device it falls very short. Same with its music & video functions. Everything just sort of works.

    So, I think your comparison to AAA insurance falls apart for that reason, because the addition features don’t always work. So, a better comparison would be having some kind of auto-insurance that includes road-side assistance, but its restricted by location or hours or type of emergency. Most of the time you’ll be covered but there are certainly situations where the full-blown AAA would be the only option.

    This actually DECREASES the marginal utility even further, and perhaps its worse because it gives you a false sense of increase in the marginal utility. So, while it might be more expensive to buy a camera/music player/phone/gps, and difficult to carry them around with you, having a single device that tries to do all of them will surely fail for each device it tries to replace.

  • http://www.mawsoft.com/blog RohoMech

    @Presh – I wonder if the apple commercial hints at a huge cost of having those things constantly nearby you.

    In the past, if you called someone’s home and they didn’t answer, you’d assume they were unreachable. Eventually pagers were common and that at least alerted people to someone’s call, but then if you didn’t return the page quickly that person could get upset. The same thing is happening with cellphones.

    So, by the same analogy, by having a device which lets you be increasingly available, you could end up sacrificing your alone-time.

  • http://www.mindyourdecisions.com/blog Presh Talwalkar

    @KyleJB and chrischow: Thanks for commenting. My thoughts echo RohoMech’s, so I’ll let his responses be the final detailed answer ;)

  • Pingback: The Art of Justifying iPhone Costs : Brazen Careerist





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