What the agency model can learn from other markets

Rory Sutherland

There is a lot of talk in marketing, and quite rightly, about the difference between price and value. But there is probably too little discussion about the difference between price and overall cost – in particular, the transaction costs of making a purchase.

To quote Wikipedia, 'Consider buying a banana from a store: to purchase the banana, your costs will be not only the price of the banana itself, but also the energy and effort it requires to find out which of the various banana products you prefer, where to get them and at what price, the cost of travelling from your house to the store and back, the time waiting in line, and the effort of the paying itself; the costs above and beyond the cost of the banana are the transaction costs.'

There is a good reason why marketers may disregard this. If you are, say, a detergent brand, and your products and your competitors' products are largely sold in multiple supermarkets, the transaction costs are broadly the same for everyone (though strong brands and packaging can significantly reduce consumers' search and information costs: distinctive brands typically make consumer decisions faster and easier).