In the third of seven articles on the Seven Deadly Sins of Business Neil Debenham looks at Greed and its implications for business.
As with all businesses, the only way to survive is to offer a good product or service at a fair price to an active marketplace. But have you noticed how Apple products retail at a far higher prices than similar products from different brands? Its known in the trade as “Apple Tax”
According to teardown engineers at IHS Markit, the 64GB version of the iPhone X costs Apple £285 ($370) in materials and had a starting price of £769 ($999)*. Is this profiteering, or a premium for design and marketing excellence?
It is clear that Apple can, and do, charge a premium. That’s because part of what people are buying is the Apple brand – and that comes at a price. Building a strong brand can be a passport to charging higher prices and greater profits. But building a brand isn’t cheap and takes time.
When looking at your pricing model, you must go through a rigorous process. Here are the top five considerations from Neil Debenham:
- Research your market and see what your competitors are charging and how much customers would be prepared to pay.
- Do you have a premium product, either through design and technology or because you have a strong brand?
- What are your competitors’ customers biggest objections and can you solve them, if so, would a customer be prepared to pay a premium?
- Work out your costs, both fixed and variable, then divide by the number of items this produces. This is your break-even figure to which you must add a profit margin.
- Come up with a pricing strategy by deciding if you want to price low to increase sales and market share, or whether you feel you have a premium product which justifies a higher price.
What you should not do is charge a high price for a standard product or service. Your greed will undo you. You will find it hard to gain customers and hard to make money.
That said, in the absence of fraud, deception, and coercion and in the presence of a willing buyer and a willing seller, any price of a good or service is a fair and just price. A fair and just price is the market price. A marketplace operates on supply and demand and a product or service is only worth what a customer is willing to pay for it.
Undercharging is not clever either. You may sell more, but your margins will disappear, and you will find it hard to increase prices without objection from your customers. This strategy is often adopted by large corporates aiming to gain market share but for this to work you must have deep pockets or have a great understanding of the lifetime value of your customer.
Greed can also occur when it comes to rewarding your team. Paying under the market rate can have a serious impact on morale which, in turn, will affect productivity and loyalty. After all, your team are what makes your business, be generous; recruiting replacements and loss in productivity and revenue can often outweigh the savings you make through low wages.
Greed is equally dangerous when it comes to long term sustainability. To succeed in the long term, a company must innovate and adapt to market conditions and rising competitors. If you focus only on the straight line to profit, you might overlook opportunities for growth and improvement. This will hold back the company as it attempts to move forward into new areas.
In summary, you need to manage greed before it manages you. Business is a journey and you must fall in love with the challenge as well as the potential riches. In my experience, fairness in business always pays in the long term and will create a far more rewarding and enjoyable environment.
Please click here if you would like to read Sin No 2 Gluttony also by Neil Debenham. If you have any questions on the issue on reputation or insolvency, you can contact me Neil Debenham at firstname.lastname@example.org and follow me on Instagram , Twitter and Linked In