In Kyocera philosophy,Mr. Inamori *set out a sort of Moses’ ten commandments, which are actuallycomposed of twelve mottos. The principle six is “ Pricing is one of the mostimportant responsibilities of top management”. This article explains what thisprinciple means and how we can interpret this motto in our day to day business.
Q: What does thismotto imply?
A: Mr. Inamori said pricingis the key to generate revenue streams, however, he pointed out that some topmanagement looks comfortable in leaving such an important responsibility to seniormanagement. Mr. Inamori said, pricing, regardless of the product size andquantities, has always to be under the responsibility of top management. Inother words, the pricing has strictly to be conducted by top managementhimself/herself.
Q: However, in theday-to day business, the sector manager, or department manager is responsiblefor the profit and loss of the sector/department. Would that be the case wherethe sectorial manger determines the price?
A: Under Mr. Inamori’sargument, the pricing has strictly been conducted by TOP management. This isthe key of Mr. Inamori’s business theory. As mentioned above, taking intoaccount the business motto number five, the ultimate mission of the company isgenerating the highest revenue and maintaining the minimum expense. Therefore,pricing should directly impact on the financial result, thus he reiterates thatpricing has to be directly conducted by the top management.
Q: What are the key inpricing, for the top management to conduct the right pricing?
A: First, identifyingthe value of the product or service, that you are about to promote. Secondary,identifying the proper margin thoroughly analyzing your cost structure.Thirdly, anticipate the possible sales volumes as precise as possible.Fourthly, by simulating and analyzing, identify the balance of the price and thevolume to maximize the figure of the price multiplied by the volume. Fifthly,double check whether the price you delivered is the highest point in which yourtargeted customer is willing to pay.
Q: What is the challenge for us to conductthis process demonstrated by Mr. Inamori?
A: Forgetting about all the prejudice andso-called market practice that you believe as the common sense. The pooranalysis of the pricing is the cost-approach. Some leaders tend to establishthe price based on the cost, how much investment/ expense has been spent tocreate that product or service. This is highly likely to end up poor pricingmodel. They consider that the cost should be a part of the price and can not bereduced. According to Mr. Inamori, the price is decided by the customer/client. This is the business to design the product/ service to be profitableunder the given price. Do not get caught by the price prevailing in yourindustry. Do not stick with the cost structure that you have believed in yourlife so far.
Q: So overall, what are the messages from thismotto?A: Pricing is the lifeline for your business to beprofitable. Therefore, top management should commit themselves to deliver thebest pricing, taking into account the pricing guidelines as Mr. Inamoridemonstrated.
