Buying at a cut price? You buy twice

If you want to learn something about human nature, watch a comedy special. Or better yet, watch Seinfeld.

A few weeks back, I started watching the show again. Watching those episodes this time was different. We’ve all experienced this. The first time you see something you focus on the story. When you watch it again, new things, concepts, and hidden messages jump out at you from the screen.

In one such episode, George Costanza, a stocky, bolding individual ends up in the hospital. He thinks he is having a heart attack. After going through all the checks and tests, the doctor informs George that he was not having a heart attack. However, his tonsils have grown back and it would be a good idea to remove them. The cost of the procedure is $4,000. Kramer, a friend of George and Jerry, suggests George see a natural healer to cure his tonsil problem. George asks how much it would cost him. Kramer replies, $38. After mulling it over for a second, George decides on the services of the healer.

At the healer’s apartment, George, Jerry and Kramer are assessed by the healer. “What month were born?” asks the healer. “April, “ replies George. “You should have been born in August, “ says the healer, “ your parents would have been well advised to wait”. George looks puzzled. The healer continues, “Do you use hot water in the shower?”. The conversation borders on absurd, but George buys into it without resistance. In order to cure his tonsil problem, the healer makes a special tea concoction for George. George drinks it.

The scene then cuts to the ambulance. George is strapped onto bed, his face is turning purple. The paramedics are having an argument over who ate the candy. Jerry and Kramer are in the ambulance as well. The argument escalates and the paramedics stop the ambulance to have a fist fight on the street. The winner gets back into the van and drives to the hospital. Incidentally, he gets into an argument with Jerry and Kramer. While yelling at both of them, he stops watching the road and crashes the ambulance.

The scenes cuts to the hospital room. George is in the neck brace. The doctors removed his tonsils. Jerry is sitting next to the bed also in a neck brace. They are having the conversation about the cost of George’s hospital stay. George says it’s going to cost more than $6,000, almost double of the original estimate.

This particular episode stuck in my mind because it conveyed a powerful message. Many of us like to go for the cheaper option, whether we buy a table or pay for a carpenter to install floors in our house. Though, in this episode the price difference was extreme, we are often taught a powerful lesson when we go for the cheaper option. When you buy cheap you usually buy twice.

This type of cost saving method is popular in the IT services industry. Usually a small business owner wants to have some form IT work done. Business is good, but just as any other human, the owner wants to pay as little as possible. In return, of course, the expectation is that the result will be of the highest quality, work forever and require little maintenance. More often than not the exact opposite happens.

Consider this case. An owner of a small accounting services company had decided to join the technological revolution. The majority of company’s work was done in Excel and every accountant’s computer was its own island. Sharing documents was done via email or USB keys. This method was quickly becoming overwhelmingly difficult to maintain. The owner heard somewhere about the technological solution to his problem, a shared network drive. A shared network drive is a place where accountants could store their work files and share it with ease. This sounded like a great idea. After mulling it over for a couple of weeks, the owner decided to find someone to do the work.

The owner contacted a professional IT Consulting firm. At the meeting, the consultant asked about the problems the owner was having, and identified a preliminary solution. When asked about a rough estimate, the consultant informed the owner that a more in-depth analysis needs to be conducted. The owner requested a quote. The consultant said $3,500 plus the cost of the sever. It seemed like a steep price to pay. The owner thanked the consultant and let him know that he’ll get back to him in the near future. Then he went to a friend for advice.

Whenever you tell your friend about a problem you’re are having, more often than not you will get a “Why don’t you call my guy? He’ll give you a special price” suggestion. In the IT world, the special price is often the code for cheap and “my guy” is usually someone’s son studying computer something at a local college. Now, there is nothing wrong with some college kid making some money on the side. But, when you run a company with several employees whose livelihoods depend on your business, it might be a good idea to spend the money and get the work done by a professional.

The owner failed to comprehend the gravity of the situation. He met with the kid, who assessed the problem and gave him a quote. He’d have it all setup for $1,200, plus the cost of the server. The quote was a lot cheaper than the one from a professional IT consultant. They agreed, shook hands and set the date for work to begin.

At first things went well. The kid setup the server, installed all the right software and copied all the files onto the share drive. Computers were connected and accountants began using the shared system. A backup system was also installed. The owner of the firm congratulated himself on choosing such a prudent and cost effective way to solve his IT problem. He paid the kid and thanked his friend for such a great recommendation.

The IT setup was working great for a few months. No glitches, no slow downs. The accountants focused more on doing the accounting work instead figuring out which files was the most recent or how to share it with their colleagues.

Then things started to go haywire. Files were corrupted. Data went missing. And one day the server died. The owner panicked. He called the kid. The kid’s phone had been disconnected. He called his friend, who told him that the kid moved on with his life. He finished college and found work in the famous valley on the west coast of the country.

What was the owner to do? Out of desperation he called the professional IT consultant for help. The consultant found the time and visited the accounting firm’s office. He sat at the computer, looked around and asked the most important question. What is the password for this server? The owner had no clue. Turns out the kid left no documentation about the IT infrastructure and how he’d set it up.

All was not lost, however. The IT consultant assured the owner that the situation can be remedied. It would take time. The consultant would have to reschedule some of his clients’ work so the cost could be high. With no other choice, the owner agreed to the proposal. Hands were shaken and the contract was quickly printed out and signed.

The consultant got into the server, resolved ongoing issues and fixed corrupted files. He properly documented the system, how it worked, what software was used and what the passwords were. He made a copy for the owner and uploaded the rest into his Knowledge Management database. It cost the owner of the firm $4,500. A thousand dollars more than the original quote from consultant.

Multiple scientific studies have confirmed what our ancestors knew all along. Humans are genetically programmed to try an avoid losing something rather than gaining something equivalent. This is known as a loss-aversion effect. When it comes to monetary transactions, the loss-aversion effect plays a large part in how we decide on how much we are willing to pay for products and services. Our minds perceive our money as something that we will lose and the product or service that we want as something that we will gain. So our natural reaction is to first minimize the loss. This may explain why we try to go for the cheaper option first, even though, in some circumstances, the monetary gain might be larger than the perceived loss. If the product or service is virtual, abstract, or intangible it might be hard for us to see the eventual gain from paying a higher price for it.

Unfortunately, this type is problem more prevalent in the IT world. Because IT operates largely in the background, few people see and understand how important it is to their business . When everything is working fine, no one notices it. When things go bad, well …

Remember, if you want quality product or quality service, it is better to spend the money upfront. The owner learned his lesson. Have you?

If you want to learn something about human nature, watch a comedy special. Or better yet, watch Seinfeld.

A few weeks back, I started watching the show again. Watching those episodes this time was different. We’ve all experienced this. The first time you see something you focus on the story. When you watch it again, new things, concepts, and hidden messages jump out at you from the screen.

In one such episode, George Costenza, a stocky, bolding individual ends up in the hospital. He thinks he is having a heart attack. After going through all the checks and tests, the doctor informs George that he was not having a heart attack. However, his tonsils have grown back and it would be a good idea to remove them. The cost of the procedure is $4,000. Kramer, a friend of George and Jerry, suggests George see a natural healer to cure his tonsil problem. George asks how much it would cost him. Kramer replies, $38. After mulling it over for a second, George decides on the services of the healer.

At the healer’s apartment, George, Jerry and Kramer are assessed by the healer. “What month were born?” asks the healer. “April, “ replies George. “You should have been born in August, “ says the healer, “ your parents would have been well advised to wait”. George looks puzzled. The healer continues, “Do you use hot water in the shower?”. The conversation borders on absurd, but George buys into it without resistance. In order to cure his tonsil problem, the healer makes a special tea concoction for George. George drinks it.

The scene then cuts to the ambulance. George is strapped onto bed, his face is turning purple. The paramedics are having an argument over who ate the candy. Jerry and Kramer are in the ambulance as well. The argument escalates and the paramedics stop the ambulance to have a fist fight on the street. The winner gets back into the van and drives to the hospital. Incidentally, he gets into an argument with Jerry and Kramer. While yelling at both of them, he stops watching the road and crashes the ambulance.

The scenes cuts to the hospital room. George is in the neck brace. The doctors removed his tonsils. Jerry is sitting next to the bed also in a neck brace. They are having the conversation about the cost of George’s hospital stay. George says it’s going to cost more than $6,000, almost double of the original estimate.

This particular episode stuck in my mind because it conveyed a powerful message. Many of us like to go for the cheaper option, whether we buy a table or pay for a carpenter to install floors in our house. Though, in this episode the price difference was extreme, we are often taught a powerful lesson when we go for the cheaper option. When you buy cheap you usually buy twice.

This type of cost saving method is popular in the IT services industry. Usually a small business owner wants to have some form IT work done. Business is good, but just as any other human, the owner wants to pay as little as possible. In return, of course, the expectation is that the result will be of the highest quality, work forever and require little maintenance. More often than not the exact opposite happens.

Consider this case. An owner of a small accounting services company had decided to join the technological revolution. The majority of company’s work was done in Excel and every accountant’s computer was its own island. Sharing documents was done via email or USB keys. This method was quickly becoming overwhelmingly difficult to maintain. The owner heard somewhere about the technological solution to his problem, a shared network drive. A shared network drive is a place where accountants could store their work files and share it with ease. This sounded like a great idea. After mulling it over for a couple of weeks, the owner decided to find someone to do the work.

The owner contacted a professional IT Consulting firm. At the meeting, the consultant asked about the problems the owner was having, and identified a preliminary solution. When asked about a rough estimate, the consultant informed the owner that a more in-depth analysis needs to be conducted. The owner requested a quote. The consultant said $3,500 plus the cost of the sever. It seemed like a steep price to pay. The owner thanked the consultant and let him know that he’ll get back to him in the near future. Then he went to a friend for advice.

Whenever you tell your friend about a problem you’re are having, more often than not you will get a “Why don’t you call my guy? He’ll give you a special price” suggestion. In the IT world, the special price is often the code for cheap and “my guy” is usually someone’s son studying computer something at a local college. Now, there is nothing wrong with some college kid making some money on the side. But, when you run a company with several employees whose livelihoods depend on your business, it might be a good idea to spend the money and get the work done by a professional.

The owner failed to comprehend the gravity of the situation. He met with the kid, who assessed the problem and gave him a quote. He’d have it all setup for $1,200, plus the cost of the server. The quote was a lot cheaper than the one from a professional IT consultant. They agreed, shook hands and set the date for work to begin.

At first things went well. The kid setup the server, installed all the right software and copied all the files onto the share drive. Computers were connected and accountants began using the shared system. A backup system was also installed. The owner of the firm congratulated himself on choosing such a prudent and cost effective way to solve his IT problem. He paid the kid and thanked his friend for such a great recommendation.

The IT setup was working great for a few months. No glitches, no slow downs. The accountants focused more on doing the accounting work instead figuring out which files was the most recent or how to share it with their colleagues.

Then things started to go haywire. Files were corrupted. Data went missing. And one day the server died. The owner panicked. He called the kid. The kid’s phone had been disconnected. He called his friend, who told him that the kid moved on with his life. He finished college and found work in the famous valley on the west coast of the country.

What was the owner to do? Out of desperation he called the professional IT consultant for help. The consultant found the time and visited the accounting firm’s office. He sat at the computer, looked around and asked the most important question. What is the password for this server? The owner had no clue. Turns out the kid left no documentation about the IT infrastructure and how he’d set it up.

All was not lost, however. The IT consultant assured the owner that the situation can be remedied. It would take time. The consultant would have to reschedule some of his clients’ work so the cost could be high. With no other choice, the owner agreed to the proposal. Hands were shaken and the contract was quickly printed out and signed.

The consultant got into the server, resolved ongoing issues and fixed corrupted files. He properly documented the system, how it worked, what software was used and what the passwords were. He made a copy for the owner and uploaded the rest into his Knowledge Management database. It cost the owner of the firm $4,500. A thousand dollars more than the original quote from consultant.

Multiple scientific studies have confirmed what our ancestors knew all along. Humans are genetically programmed to try an avoid losing something rather than gaining something equivalent. This is known as a loss-aversion effect. When it comes to monetary transactions, the loss-aversion effect plays a large part in how we decide on how much we are willing to pay for products and services. Our minds perceive our money as something that we will lose and the product or service that we want as something that we will gain. So our natural reaction is to first minimize the loss. This may explain why we try to go for the cheaper option first, even though, in some circumstances, the monetary gain might be larger than the perceived loss. If the product or service is virtual, abstract, or intangible it might be hard for us to see the eventual gain from paying a higher price for it.

Unfortunately, this type is problem more prevalent in the IT world. Because IT operates largely in the background, few people see and understand how important it is to their business . When everything is working fine, no one notices it. When things go bad, well …

Remember, if you want quality product or quality service, it is better to spend the money upfront. The owner learned his lesson. Have you?