What is a Fair price?
People in business today price their products and services based on many different principles:
- For some it is as much as you can.
- For others it is to win the job.
- For still others it is what the competitors are charging.
The science behind a fair price is this:
The cost of the product or service for the buyer must be equal to what you need to be able to repeat the process of making the next product or service while being able to live in reasonable comfort during the time it takes to produce it.
This clarity of the science behind a fair price is not commonly used or understood and makes the life of a Sales Representative complicated. Reps come back with ‘lost on price’ in the majority of cases. Their demeanour sags with their shoulders. They look at their own company as though the bosses are trying to deceive their customers. “Why can others do it at that price?” They try to appease the boss by saying what the boss has told them, “They will fail sooner or later”; and “I know that our quality and service is better, but that’s what the customer decided”.
The challenge is to be able to deal with fair price scientifically and truthfully. This is what is required today. Using an empirical example for this is useful.
Let’s say that you are a shoemaker and that it takes you 3 days to make a pair of shoes. You then sell them immediately. Now you have some cash and have an order for another pair. You need to use this cash to buy materials for the next pair, but you also need to live while you take three days to complete the pair diligently. You need to have enough to have clothes, gas, water, rent, school fees, etc. Pricing too much will give you excess cash. Pricing too low will mean that you are out of business because you cannot complete the second pair of shoes without borrowings.
There are going to be many arguments about why one should get as much as possible and/or that unless there is competition, the shoemaker will take the three days and not try to get the pair done in two days. The only healthy and sustainable response to both of these questions is that they can only be asked by people who have no morality or have implicit self-doubt. They know where they themselves fall short morally and project this onto others. If their own inner status was self-accountable and moral, they would assume the same from others. Let us, therefore, work on the basis that our shoemaker is diligent, skilled, positive, has the experience required and is caring, selfless and not self-indulgent. (Daar is nie pille vir dom nie; ook nie vir moralitiet nie.) Our scientific definition of fair price would then hold. When our shoemaker’s salesperson is faced with a counter price from another shoemaker for shoes at 75% of their price, the very first response should be what? How about this response, “Is your price high enough to keep you supplying without cheating or excess?” Surely this simple question evokes a reality check in fair price considerations?
Nobody can objectively supply at a price where they will not be able to be there for the next one, be it the next site establishment, the next batch of clothes or bread. While this price might vary from location to location depending on distances and regulations, within a certain area, the fair price amount should be very similar. If people start to cheat on taxes or regulations, then morality has once more failed. Outside of a failed morality, a fair price is a very real concept. With morality, people want to supply what they promise, and they want to make it as efficiently as possible. This drives costs down from an implicit desire within people to be dignified and ‘God fearing’. Without morality things go wrong fast. One cannot legislate morality – as much as governments of today think that they can. Trump thinks that tariffs will bring morality. This is an absurd concept.
In conclusion, a fair price is what it would cost a moral person to continue producing a product and live while making the next product for sale. Charging more or less than this is a question of morality and competence. Reps should hold these thoughts close to them when being challenged with a lower price – on the assumption that they are part of a moral enterprise. Are the other prices being offered sustainable, the same quality, or are they only achievable through immorality? We should all be asking for legislation that is policed. We need a firm and stable base of laws that are applied to all equally. As soon as any law applies to some and not to others, a fair price becomes difficult to achieve and prices in fact rise.
A fair price can be a transparent price. And thus an informative price that gives the observer of the price an insight into what is expected of the supplier when the product is purchased. This makes mutual perspectives clear. Then the need for competitive prices diminishes to a level of need for transparent and therefore reasonable prices. Then economic life can finally become what it essentially is: serving!