Friday, October 18, 2013
Analyzing the Pricing Strategy of A Profiteering Mind!
Long ago, when computers and computer programs were not so common , no one, even those somewhat familiar with these modern day marvels, never imagined the future scope of these to revolutionize the way businesses would be carried out. Besides, no one could foresee the huge money making potential that computers had in store.
I remember a small engineering industry giving me a task of making a FORTRAN program to calculate the thermal design parameters of a shell and tube heat exchanger that the chemical process industry commonly used. The manual calculations used to take days and the said program I developed using my little knowledge in that programming language could do the task in seconds. Moreover, one could check various alternatives for the equipment design so easily.
The effort I put to make the program was a few hours a day for a couple of days. I gave the program write up and the IBM punch card pack that contained it to the user free of cost. I felt shy to ask a remuneration for that work. I being just a budding student in the academic field at that time was not a business man to ask for a remuneration for my work. I knew making the program, but I did not know how to work out the price for my labor.
The well known billionaire of USA who made computer software an industry worth more than the much more complex hardware too was in his college at that time. He applied a different formula to evaluate the cost of his software programs that made software business of later days the top money spinning activity.
The simple trick was to evaluate the cost of the software in a different manner. Software production involved intelligent manpower. If you evaluate the cost based on that, the cost of a software pack could be to the order of say $ 1000. But the said software when used in another business had the potential of making a substantial profit of say $100000 for the end user. So, why not link that profit potential as the determining factor for pricing the software that was otherwise profitable for selling at $1000 for its maker. It the maker of the software could convince the end user of it money making potential then it was possible to strike a deal. Even a 50:50 profit sharing deal would have provided the software developer a clean profit of $50,000. Where is $1000 and $50,000 ?
See, the difference the approach makes in determining the price of a product ?
The world now moves adopting these two basic strategies. Prices of items, objects and services can be determined based on the cost plus profit basis or on the basis of profit potentials. The latter is a complex affair. It depends essentially how people get hooked up to certain ideas and concepts, not necessarily always wise!
For example, business and money making for some are like the games that people play in the casinos. In this kind of business money simply flows massively from one end to the other without any one doing much efforts. Time, luck and mind play the tricks. This is the area of business where the customers are those who have made enough money that money no more have much value for them in life.
Let me explain this with another example. There are thousands of artists in this world who can make paintings much better than many of those names whom we now know as world celebrities. When the good art work made by an unknown artist can never fetch a reasonable price even to provide its creator a day's food, some thing that is much inferior, but attributed to a so-called celebrity artist can fetch billions in some art auctions. Now the question is what essentially has determined the prices? I would rather say it is the foolish thinking of the billionaire buyer that determined the price of the painting in billions than the beauty of the painting in itself. It is yet another matter how to make this billionaire or others like him foolish ! There are people capable of doing that !
Easy money making happens due to mind corruption. It is another form of corruption. It affects the society dangerously, but in a subtle manner.
I do not want to explain all the sub forms of pricing strategies adopted by people who are concerned only with profiteering.
Even then, it adds color and contrast to life. If those billionaires in whose control billions have accumulated easily, would wisely channelize those billions for creating opportunities for the deprived people, then the matters would be different altogether.
Instead, if they prefer to buy gold, land and other properties and keep those things as future treasures hidden from every one without any useful purpose for anyone, it is a grave sin that they do to the society at large.
I do not consider money making and wealth generation as sins. But, money made and wealth created should not be made static. There is no harm in sinking some money when it accumulates too much in one hand by buying some art works. But use that money to buy the art works created by all artists. Not from just one or two.
Those fortunate billionaires should think of spending their easy money for promoting such businesses and human activities that are not conventionally profitable.
The neo Indian billionaires of India can do wonders for their country if they decide to do some thing of that kind, instead of spending their monies to buy castles and yachts in foreign lands.
Let the monies that got accumulated in their hands not make them foolish cowards finding interested only in those activities and things conventionally designed or intended for such people ! Let them realize that there are things much more desirable than their 'pseudocratic' life !