Surviving the price discovery phase

12 Apr, 2019 - 00:04 0 Views
Surviving the price discovery phase

eBusiness Weekly

Kudzai Mubaiwa
If your business made it to this second quarter of the year alive, congratulations! You have passed the base level and must now survive the tumultuous waters of the current season of price discovery.

Official bank rates for the dollar to the local RTGS currency are just above the “3” mark, while the parallel market is steady at 4.

This against the backdrop of Government pronunciations that retailer prices reek of profiteering and business owners must not link price increases to exchange rate.

Banks are raising their service charges too, for both RTGS and nostro products, add that to the already fixed 2 percent IMMT tax you know that as a business you have lost 3 percent of whatever price you set, so margins will be tough to sustain.

Incomes are at an all-time low, eroded in value by at least 75 percent, most employers cannot afford, or will not make any adjustment so demand is a problem.

The queue for cheap foreign currency for inputs and raw materials is long, the interbank market may just as well be non-existent, and the bureau de changes are only just being licensed. What’s a business owner do?

Disparities are glaring in today’s Zimbabwe economy, but we must go back to basics. Pricing must be informed by costs, real incurred costs, not by being copycats — that means a business that does not have such costs, cannot just match those who raise prices from that basis.

A business cannot be run from external factors only “rumour” or “precedence” or even “benchmarking”. To do so is to rob the consumers and unethical. Equally so, neither must those who are not running a business and fully cognisant of its’ specific/unique costs dictate what the price must be (this means you, Government). We must let the market show us the way now, however, long it takes.

The question is how much contribution does the small business make in such moments? Can they sway the buyers and the market?

Certainly so — by providing honest pricing for goods and services. At best Government can use moral suasion but all the players must play their part in being reasonable so that the season of price discovery ends sooner than later. As it stands it is easy to get the same product for various completely different prices, which indicates that someone will either be inflating a price or not incurring the real costs of getting a product into the store.

Consumers are becoming more aware of these differences and have become default bargain hunters, it is after all, now much easier to find information using technology. Profiteers will be punished by low volumes and naturally die in time. No intervention is needed.

It is important to accept that while a business may become as creative as it wants and be constantly innovative in order to deliver value, some models will be disrupted for life and die.

Already some businesses are realising that hard decisions must be made, and are reducing their burden by retrenching — essentially trimming costs to reduce pressure on the little available income. Prices directly speak to turnover and need to remain competitive so all costs are worth interrogating in a tough economy.

Small companies will not be able to deal  with big companies’ head on, so segmenting will be key. Be sure your competitor is aiming for the exact same market, and try and undercut them by offering reduced pricing only to the specific demographic you compete on than competing in general, so that you keep gains where you can.

Strange and silly as it may seem, this is the perfect season to market your products and clearly share your price with everyone so that they make a decision easily as they will have put your adverts in the subconscious; and likely make yours the basis for comparisons. You will also need to actively track the pricing behaviour of competitors so that you do not waste effort trying to match them only to discover that it was a temporary action aimed at clearing some stock.

Though the desire is always to win market share, only choose to be involved in price battles you will likely win and that will result in improved bottom line — profit. You are better off staying the course and being a better version of yourself than trying to edge others out using price. A deliberate price war may cost more than you bargained for. During price discovery you are aiming to survive, not necessarily emerge a winner. The customers will find you as they search for lower prices and more value.

Customers will remember those that blatantly overpriced goods and services and those that elevated relationships and communicated when they had to make the necessary adjustments.

They will also remember those that “carelessly” raised prices motivated by greed more than simple profit. Remember that if you raise prices then reduce them greatly you will be viewed with suspicion rather than celebrated.

This is the time to re-look what the Harvard Business Review aptly summarises in the theatre of operations as the four key perspectives: customer issues, company issues, competitor issues and contributor issues.

Customer issues are the sensitivities of customers to pricing and the potential impact on your segments dependant on pricing.

Company issues are the matters of cost structure and strategic position as well as in-house strengths.

Competitors issues are insights into rivals cost structures, strategic position and strengths and finally contributor issues are any defining factors that may emerge from other players in the industry as a whole.

Business owners will have to be agile in this environment in order to steer the ship well where there are many moving pieces. It will be a lot worse before it becomes any better.

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