From: CA. Rahul Bajaj <ca.rahulbajaj@gmail.com>
Date: Mon, Oct 3, 2011 at 8:19 PM
"The Pricing Paradox"
At the outset, let me tell you, that I am not a Chartered Accountant or a Cost Accountant, but a humble Human Resources (HR) professional, who has ventured into "unknown" terrain perhaps recklessly. But, now that I have reached thus far, let me muster some courage to share some perspectives on "Pricing" from a people perspective, hopefully expect, most of the readers, the CAs to think!
As part of my professional hazards, it is quite common for group of employees, be it junior level or senior level, come to me and complain that their salary is inadequate or less. Since, I work in the IT Industry more often the conversation is not about inadequate salary but "less salary compared to market".
Now, what is salary?
As HR person, working in Indian IT Industry, I would say that Salary is the price that you are willing to "quote" for the service or product that you will deliver during a predefined period (Viz., monthly or weekly etc) or the price that your employer is willing to pay you for a predefined period, in return for the service or product that you will deliver. Is it so?
I looked into Wikipedia to see what it throws up as definition of Pricing, and it states;
"Pricing is the process of determining what a company (or Individual) will receive in exchange for its products (or Services provided)".
From the above two definitions, you will see that I used the word "quote" in my definition, whereas the Wiki definition states "process of determining".
A quick question comes to my mind; how many of us (in India) are willing to "quote" a price without knowing what the customer is expecting as price or without knowing the price range that the customer has in mind? The question really is; how many of us know at what price do we want to sell (quote) our product or services, which has very little correlation to traditional elements viz., manufacturing cost, competition pricing, market condition, quality of product or service etc?
Sounds silly!
How many of you know the price of an iPhone 4? What are the primary features of iPhone 4? Basically, it is a mobile phone, which can be used to capture pictures, create video, send SMSs, and watch movies and to listen to music. In terms of functionality, any other Samsung or Nokia phone will have the same features. However, you will get a decent Nokia or a Samsung phone with the above features at Rs. 10,000/- to Rs. 12,000/-, while the iPhone 4 cost Rs. 42,000/-.
How can Apple price the phone at such a significant premium, over the other competing similar products that are available in the market?
Let's check out the price of BMW X1 car and TATA Aria. You will see a similar difference in pricing. How can BMW price the car at a significantly higher premium over the TATA Aria, even though the car does not have some of the features that Aria provides viz., four wheel drive, higher safety features etc?
The sane mind will say, "It is the brand"! But if you think harder you will find that there is a "new" element that impacts pricing i.e., "quality of experience" that the customer gets.
So, instead of asking how much to charge for the product or service, the question that market leaders are asking is, how much does the customer value the "quality of experience"?
The Apples and BMWs of the world are asking for a "premium price" for the "quality of experience" that they offer to their customers.
If you have used an iPhone 4 and a regular Nokia or a Samsung phone, you will realize that the experience of the movie or music or navigation is far superior in an iPhone 4.
In the new world, information is no more an edge, knowledge is no more a unique advantage, technology is no more an USP, they are all basic criteria to stay in business. The key pricing proposition is in the "quality of experience" that you offer to your customers or employees, which impacts profits in a big way !
Are you ready to improve the "quality of experience" that you give to your employees?
Are you ready to give a superlative "quality of experience" to your Customers?
IF you can give a superior experience then your profits will grow and so will your bank balance!
Are we ready to accept the new paradigm to grow? Think about it!
--
warm regards,
CA. Rahul Bajaj
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