In Oriendu Market, Ovim, I learnt the construct of pricing, after school. Lechi, my grandmother, understood the dynamics of the market. On the big Orie market days, every 8 days, Oriendu would welcome the world, with traders from Enugu, Aba, etc arriving for business. Unlike the small Oriendu market (Igbo runs on a 4-day week), the big one has more buyers, flipping the pricing equilibrium where produce could command more money.
“Isi Uwa…if after 4pm, sell this yam lower by …Naira”, she would say [the full name of Ndubuisi is Ndu bu isi uwa meaning life is supreme above all things]. That price reduction did not make sense until later on I realized that from 4pm, those outside traders would begin to depart, and anything not sold would lose value considering that storage facilities were limited. There was no technology, but timing was used to model the price positioning considering the nature of the product.
Good People, from Oriendu Market to Wall Street, pricing is fundamental and strategic. And the price you put on a product or service is largely inconsequential. The real deal is the perception of the customers on the specific amount. This is where the social science of pricing moves into physics. Yes, two salespeople can introduce the same product to the same customers, and each of the customers will come out with different perceptions of the product price.
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In other words, the best Pricing Power is creating perception which will move the customers, without necessarily adjusting the actual price of the product. Yes, how do you make a product seem “cheap” by not actually reducing the actual price but through perception? But note: it goes beyond being “cheap” to affordability since something could be cheap and still not affordable.
The greatest moment in a business is when a company discovers and operates a great business model. Why? It is through a business model that companies create value. Yes, a business model encapsulates the logic of a firm, and the way it combines and uses factors of production to create value for stakeholders.
But how do you create value? Do you go cost plus or value-based pricing? How is that pricing going to help you scale, looking at your marginal cost? Your pricing strategy affects value capture which can shape your unit economics. When the unit economics is bad, you are not SCALING, but growing! The greatest companies SCALE, not just grow. And that happens when revenue and profit grow faster than your cost. So, if you plot the transaction cost, distribution cost, fixed cost, revenue, and profit, against Growth, the first three will be largely flat even as the last two are shooting into space. Go exponential on PROFIT!
Amazing People, when marginal cost continuously tends towards zero (i.e. asymptotically to the horizontal line) even as growth happens, you have a GREAT company. Meet me in class for Physics of Pricing!
Sat, April 12 | 7pm-8.30pm WAT | Physics of Product Pricing and Optimizing Profitability – Ndubuisi Ekekwe | Zoom link
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