Even in business, as in the academic environment, two statements about pricing are circulated, accepted by many as truth despite lacking substance.
The first statement says the market determines prices. For this reason, the price manager is only responsible for submitting to this dictate, taking advantage of the market conditions in the best possible way to maximize the company’s or a particular offer’s gain.
However, in reality, only some prices are determined by the market, and even these depend on offer attributes recognized and valued by the buyers.
Some attributes of an offer are its usefulness, accessibility, convenience, shortage, cost, and appearance, as well as the image of “practical,” “organic,” or “ethical” impregnated in it by the offerer’s action. Therefore, whoever takes precedence in the price definition is who offers it.
Agribusiness is no different. The price of coffee is contingent on the type of bean, the way it is processed, its packaging, the advertising, the place of serving, and even the offerer’s reputation. In short, it varies according to the initiatives of those who provide it.
The second statement is that prices were based on the equation “cost + profit = price” in the past. In other words, the selling price of a product was its cost plus a profit margin. This assertion is another untruth.
Imagine a Middle Ages wheat producer offering his grains during a crop breakdown. The grain would be highly valued due to its usefulness, scarcity, and hardship to replace, regardless of its production, distribution, and trading costs. In this case, we are obviously ignoring any governmental intervention that always disorganizes the price system.
In practice, whether in the past or the present, product and service prices continue to depend on the buyer’s perception of the offer value.
That perception is not directly related to the offer cost but, as mentioned before, to several decisions that involve it, from its conception, production, and trading to consumption or disposal, making its offerer the main responsible for its value.
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].
