11 Mar What is a product’s price?
In this post we are going to talk about the price of a product, about its costs – which is not the same as its price – and what this is based on and what it means.
For starters, I’d tell you that the price of a product is what the customer is willing to pay for it. How many times have you heard this expression? I have heard it many times and I am more and more convinced of it, as long as we keep in mind other aspects that we need to assess.
In Rieusset, as could not be otherwise, we have a cost system that allows us to analyze the price we offer our customers. This system makes it possible, broadly speaking, to estimate the materials we are going to use, the capacities and resources we are going to require, and of course, the benefit we hope to achieve. With all this we obtain the price we offer to our customers.
But is this the price the customer is going to pay? Obviously not. On the market there are competitors who have different ways of calculating price depending on lighter or heavier cost structures, with a larger or smaller raw material purchasing capacity than ours, with production machines with which they can obtain better or worse performance than Rieusset and with benefits that they intend to be larger or smaller than ours. And all this explains why we can find different prices for the same product.
So then, what will the customer do? Buy the cheaper one? If the product offered by all the competitors is the same, the answer would be yes.
But this is where we come upon the first concept we need to evaluate. Are the products really the same? Not always. For this reason, in order to assess what we are purchasing, we need to review its specifications, and by comparing them we can see if the difference in price is justified.
Having cleared this up, what else do we have to consider? From my point of view, the product’s performance. Not all products, in spite of complying with the specifications, perform the same once the consumer gets them home. This is the point to which I want to call your attention the most. My experience allows me to say that many times buyers concentrate only on the price and on the savings that the cheaper product will bring them without taking into account that once at home, the product will not perform as expected, or even worse, as how it could perform. What does this mean? Simply that sometimes, buying cheap turns out to be expensive. The initial savings achieved at the time of purchase are lost, sometimes even two or threefold, due to the loss of speed on the machines or because of problems caused by line stops or lack of quality in the final product. I have seen this in large corporations where communication between the purchasing and production departments is not good and where each one, solely responsible for its own cost center, does not evaluate if their actions negatively affect the other one, as well as in small companies where they simply do not consider it.
But in order to evaluate a product, do I just have to consider its price and performance? From my point of view, no. There are other concepts that, depending on the product we are talking about or the needs of the company, can be as important as the previous ones. I am talking about the level of service, the flexibility, the degree of innovation that the supplier may have in order to solve the customer’s problems.
From here on, once all these concepts are on the table, any purchasing decision we take will be a good one.
In Rieusset we are committed to giving the customer a high-quality product, at a competitive price, which will result in good performance on their machines, accompanied by smooth service that allows us to adapt to their needs at any time, and with innovation as the driving force behind continued development. For these reasons we are the right partner.