Once upon a time, a meat processing company hired our business consulting to develop a cost and profit margin system per product.
The commercial director had required the work, but the details of its execution needed the acquiescence of the company’s financial director, which seemed fair to us. However, to our surprise, when talking to this director, he confronted us with the following statement:
– I need to see the usefulness of this work. Knowing the cost of our products will not shift the price the market is willing to pay for them. So, our result will remain the same.
Since the job had already been contracted and we knew that his position involved internal power disputes, we replied that we would have to wait to finish it before drawing any conclusion.
Well, anyone who works with marketing knows that the director’s statement did not hold up. At what point, then, did his logic fail?
It is simple. The mistake stemmed from the director’s static view of the organization. For him, the company would carry on to operate as it had always done: as a supplier of commodities with the same product line, the same distribution system, the same customers, the same pricing methods, etc.
If this were the case, the CFO would be right. But the commercial director didn’t think this way. He was determined to reduce costs, change the product mix, improve the logistics system, and even give up some customers. It was this strategic vision that made him hire the job.
A company may see itself as a commodities supplier, with prices fixed by the market, but also as a provider whose products have some differential that justifies a higher price, whether quality, logistics, services, brand, or any other.
Coffee, chicken, oil, and cellulose are commodities. But not all coffee, chicken, oil, and cellulose are traded at the same price. Their suppliers seek better prices because they know this is possible.
Pricing stratagems (plans, strategies, politics, tactics) work, no doubt, even more when they are part of a broader movement to build customer value.
When that happens, rest assured, the customers don’t mind paying more for their preferences (remember Coca-Cola, Apple, Nike, and the yummy pizza on the corner).
On the contrary, they even feel gratified that such suppliers and products exist.
C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.
Claudio Luiz Eckhard is a former professor, business consultant, and author of the books “Ajustando o Rumo”[Adjusting the Business Course], “Gestão pela Margem”[Management by Margin], “A Empresa Saudável”[The Healthy Company], and “Pricing no Agribusiness”[Pricing in Agribusiness].
