I am reminded of the famous line in Weldon’s Cost Accounting – Cost is a fact. Price is a policy. Value is an opinion. In my previous column here I reflected on the concept of ‘cost is a fact’ and some new insights into cost accounting for sustainable business. Now, I wish to present the next and a more profound concept – ‘price is a policy’. Price of a product or a service is a means or instrument for businesses to achieve a lar ger purpose.
When there is steep income gap in a community, various forms of differential pricing have been practiced for a long time. These are ways in which some new ideas helped markets work better. From the sustainability viewpoint, it continues to be the most critical area for market innovation. The other perspective is to see what higher purpose takes a deal beyond the ‘cost plus’ paradigm.
There are multiple contexts and values of business that have to bear influence on pricing policy. There is great hope in the increasing number of businesses and their leaders who strive to factor their values and ethics around price. The Tata Nano, for instance, stresses on the purpose of helping two-wheeler riders get into a safe car. The purpose set the price first followed by innovations to design and material management. This is different from assumptions like profits are to be maximised in the sortterm; investment is to be r ecovered very quickly.
Innovation in pricing policy is a journey without a finishing line and there are also no holistic solutions. There are inspiring stories like Amazon, for instance, started in 2000-01 with a long-haul vision. Investors and immediate interest groups were jittery. When Tata trucks were selling at a premium and dealers cashed on the opportunity, the management held back price escalation because larger customer-base could not afford price rise. Japanese automakers were also patient about pricing and widened their scope on customer’s real needs. I have seen increasing supplier rates to help investment and long run cost reduction for good quality vendors. Titan initially went into an array of selection watches to make it possible to bring out another set of watches at affordable price to access masses wearing watches for the first time.
Free markets for sustained growth will not come cheap. Pricing needs a humongous capacity for self-governance. Increasing regulatory intervention in banking, stock market operations, telecom, insurance, real estate, drugs and so many issues reveals a serious self-governancedeficit.
Sustainable enterprises demand sensitivity towards customer needs combined with affordability, being patient and leverage long term advantages, introspection on corporate lifestyle and cost levels, and of course other ethical dimensions.Among the top one hundred long-lasting companies in Japan, Prof. Haruo Funabashi states in his book ‘Timeless Ventures’ that frugality as a value will come back and ‘making more from less’ will be a given in all forms of business pr ocessing.