Catalyst

How to make your pricing attractive – and fair

Jinoy Jose P | Updated on January 23, 2018 Published on August 06, 2015

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Be transparent about your costs – and your customers may just come back for more

In the price war, cost is the first casualty. Rarely one gets to know how much one saves or loses — or, in other words, what the actual cost of a product is and what is cut or cropped. On product costs we are always in the dark. And that’s one reason I like what OnePlus co-founder Carl Pei told an Indian publication recently. When asked if the company would keep the price of its flagship new phone, OnePlusTwo, static over time, the Chinese entrepreneur said the firm would keep the cost of its devices very close to the actual production cost and would not change this model. This sounds like a refreshingly new school of thought to me. Pei’s statement stands enchantingly closer to the noble idea which is unpalatable to most businesses — cost transparency.

Make no mistake. OnePlus is not fully transparent about its product costs. But Pei’s answer gives you a fairly decent idea about the actual costs of the product which any gadget buff will vouch has specs that match an iPhone or other premium devices. Pei and his CEO Peter Lau have been quite vocal about how the company keeps its prices so low. Marketing experts say such gestures help them connect with consumers better as they get a sense that the company is being transparent with them and price products fair-and-square.

Better business proposition

Consumers are fond of companies that promote transparency, and revealing the total cost of a product to the consumer is the best way to win their heart.

That is exactly what an HBR paper discussed last year. Lifting the Veil: The Benefits of Cost Transparency is prepared by Bhavya Mohan, a Harvard Business School doctoral student in marketing, with the help of her teachers Ryan W Buell and Leslie K John. It asks, what does cost transparency do in customer-firm relationships, when firms voluntarily disclose their variable costs to consumers? Here’s what it finds: “One-way cost transparency enhances consumers’ attraction to the brand, in turn increasing their willingness to buy”.

The HBR experiment shows that if companies reveal the cost of their products, sales can go up to 44 per cent. That’s quite a rich reward for being honest. “Global firms can benefit from being transparent, particularly if they are looking to attract international customers,” Mohan told Vitamin C. That said, in reality, we don’t get to see companies revealing such precious information — or go nowhere near disclosing such detail. Why? One can quickly jump to the conclusion that they just don’t care, because the cuts they make by inflating margins may be much higher than the price they would fetch for being honest.

That’s why we need strong policies. Granted cost-break downs are guarded like passwords to Swiss bank accounts, but it’s time this changed. Companies should understand that sharing is caring. And I, the consumer, would be happy to reciprocate the feeling.

Wouldn’t you love the builder who gives you an item-by-item breakdown of the cost of building your house and the margin he would take? I would, aware that he can still fool me with those numbers.

Feel happier taking a chance

But I’d give it a try and, yes, I can compare his set of numbers with those floating in the market and make better-informed choices.

Trust me, cost transparency can do wonders in sectors such as pharmaceuticals or electronics or apparel. But is anyone doing this in the real world? A Forbes report told me about Everlane. This San Francisco-based online retailer shares the variable costs of its products with consumers. Better, it shares images and descriptions of factories where it manufactures those products. Similar is the case with Honest by, a retailer from Belgium, which claims to be the first company in the world to share “the full cost breakdown of its products”. It was conceived by award-winning designer Bruno Pieters who used to associate with the fashion industry in South India. “Total transparency is easy,” Pieters told The Guardian in a 2013 interview. “The only reason it doesn’t happen is because consumers don’t understand that they can demand it. If people asked for it, it can happen tomorrow.”

Wise words, folks! Let’s break the jinx!

Published on August 06, 2015
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