Every item has a cost, which determines its selling price, and then it is distributed.
The higher the selling price and the lower the cost, the higher the profit margin and the more profitable. The lower the selling price and the higher the cost, the lower the profit margin and the less profitable. Low-margin management will eventually lead to business failure.
It is natural for a company to aim for high profit margin management in order to grow, but this is difficult.
However, we cannot avoid it just because it is difficult.
Today I would like to consider how to sell at a high price and why it is a low price.
Kyocera Chairman Kazuo Inamori, who successfully restructured Japan Airlines, said, “Pricing is management.
●Pricing is management.
Price fixing is not only a sales issue to sell or to get orders, but also a matter that determines the fate of the business. The price must satisfy both the seller and the buyer, and it is a very important task that must ultimately be decided by the management.
I have always said, “In business, anyone can sell if the price is low enough. If the price is lower than that, you can get orders as much as you want, but if the price is higher than that, orders will run away. We must find the best price at which customers are willing to buy and sell at that price. The determination of the price is an important task directly related to management, and it is the job of management to determine it.
____Quotes from “The Real Learning of Kazuo Inamori” ____.
●Values, supply and demand
I know that Company T’s fabrics are expensive, but I often had no choice but to buy them because they are differentiated from other products in the world or because I can buy them in kind. It does not matter if it is more or less expensive than the cost. Prices vary depending on one’s view of value and supply and demand. It is important to make people think that although the price is a little high, if it can be done with this quality and in this delivery time, it is not expensive.
●Why sell at a discount?
In your OEM business, when a product is selected and a price is discussed, it is already at the stage after the decision has been made that the product will “sell,” not at the stage of “I’ll buy it because it’s cheap” or “I won’t buy it because it’s expensive,” and the price negotiation is merely based on the intention to “want to buy the product. Salespeople who think they cannot sell unless they make a low price may have the illusion or delusion that they will lose customers if they do not lose the price. The type of person who loses the price is the one who gets carried away by the pace of the customer’s conversation, and as he talks too much on the sly, he is dragged into the other side and is unable to put a certain distance between himself and the customer. In negotiations with different interests, opinions are to be listened to as opinions, and apart from that, one should devise ways to make one’s point. Inevitably, good people are too attuned to the other party’s arguments and compromise without being able to keep their own pace. We must only try to draw a line between our arguments and those of the other party and deal with them in a cool manner. To do this, it is essential not to speak too much of what is not convenient.
●Value, price, supply and demand views
Essentially, prices are set based on a value, price, and supply/demand perspective, and should not be set by simply setting the selling price at 20% above cost. However, cost awareness is important. If the company does not follow the sales rules set by the company, the company will not be able to pay its employees’ salaries.
However, if the price is set based solely on a 20% increase in cost, an opportunity loss will be created if the value of the product could have sold for more.
The act of selling clothing involves a variety of services. These include color, pattern, quality, fashion, delivery time, production capacity, delivery, follow-up, risk, and financial capacity. All of these costs are expensive, so from the seller’s point of view, it is natural to sell at a high price.
However, from the buyer’s point of view, the interests are not aligned: they want to buy at a lower price to make it easier to sell or to take a profit. This is where the contradiction arises.
However, it should be recognized that the seller is in control of the price.
The true reality is that “the seller determines the price,” and the true competitiveness lies in how much service one is able to provide in order to get this price approved.
「The price is “determined by the seller” and it is the buyer who determines if it is appropriate for his/her business convenience, not “the price is determined by the buyer”.
The selling price is determined by the view of value, price, and supply and demand, while maintaining cost consciousness.
To realize the sales price you have decided on, you will need to use sales techniques, bargaining, persuasion, patience and determination, and other martial arts. Martial arts are acquired through serious competition in many fields.
Selling at a low price is never the way to improve your reputation with your clients. Salespeople who sell at a discount should be considered more likely to be considered naive by their clients. Salespeople who sell at a fair price should be considered “solid salespeople. They should be able to pass on the price, but also follow through.” Such a sales person is a trusted sales person.
The following is a talk for employees titled “Management Classroom” by Masahiro Okafuji, Chairman of ITOCHU Corporation.
＿＿＿＿＿＿＿＿＿Masahiro Okafuji, Chairman of the Board, quoted from his “Management Classroom”: ＿＿＿＿＿＿＿＿＿＿＿
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The more people who can’t do something, the more they complain.
After all, there are many people who blame internal rules or the external environment for their inability to do their jobs.
In my experience, the more people who cannot do their jobs complain about the rules in detail.
They just keep coming up with reasons why they can’t achieve their budgets. There are those who still make excuses like “the impact of the Lehman Shock.
The conditions under which we all fight will be the same. And yet, blaming internal rules or the external environment as the reason for lack of results is not even funny. Both sports and work are interesting because of the rules, right?
If you really think the rules are wrong, you should insist on getting results first.”
↑↑↑↑＿＿＿＿＿＿＿＿＿ quoted from Chairman Masahiro Okafuji’s “Management Classroom” ＿＿＿＿＿＿＿＿＿＿＿
I think he is speaking harshly, but I think he is stating the obvious.
The yen is weakening now, but exchange rates are also the rule. The weak yen is the same throughout Japan. Since we are doing business under the rule of the weak yen throughout Japan, it is no reason for us not to make money. I remember when the exchange rate was 140 yen, and I was grumbling with my colleagues that the exchange rate should be at least 130 yen. At that time, there was extreme competition within the 80-yen rule.
Since we cannot change the exchange rate, we have to keep our wits about us and do our best elsewhere. People who blame the company, their bosses, their subordinates, or the environment for their work not going well will not grow. If you don’t believe that it is within yourself that things go wrong, you will not be able to improve yourself. The fun of business lies in how to fight with all one’s wisdom in a difficult environment.
Chairman Masahiro Okafuji said, “If the rules are really wrong, we should get results before we insist on them.”
But I think that is the president’s real intention. I think he doesn’t want to listen to or acknowledge someone who hasn’t even produced results. The company has to pay salaries no matter what the results are. Even if the company is in the red, it has to pay. However, if the company is in the red, it will go bankrupt and the employees will be left on the street. The company needs to produce good results both to protect its employees and to protect the company. Each and every employee needs to have the resilience to survive through hard work and wisdom in any environment.
I believe that by adhering to the profit margin, the company’s structure will improve. I am prepared to accept a decrease in sales, but as a result of my insistence on improving the profit margin from morning to night, all year round, the quality of planning, production, and delivery improved, and not only the profit margin but also sales increased. On the contrary, if you allow cheap sales, not only will the company’s structure be weakened, but the quality of employees will also decline. I believe that profit margin is a barometer of the quality of a company.