FAIR PRICING AS SERVICE DELIVERY

One thing I reminisce on today as I reflect on the learnings from the Lagos Business School MBA is the most recent topic under the course Business Ethics, which explains the concept of fair pricing.

The main requirement for justice in commercial exchanges is that the price paid for goods and services is commensurable to their value. These now emphasize the importance of having higher-value services and goods, and like the bible verse quotes, every other thing shall be added.  

Before now, I had always struggled with placing an accurate value on the services we offer at my workplace. I also had my fair share of struggles with colleagues (sometimes even supervisors) on pricing our services, where I am often advised to have us reduce stipulated tariffs, just to earn the customers’ loyalty.

Even though there are other factors to be considered in fair pricing, the market price tops the list of factors, and the market price itself is a function of the value that such services and goods attract in the open market. My focus and drive are gradually changing to ensure that the best value is delivered to our clients.

I tell my colleagues that in a densely competitive and regulated industry like ours, you cannot underestimate the importance of excellent services to the clients, and if I were a customer, I would not necessarily go with a bank that offers the lowest interest rates on loans for example, but I will look out for the consistency, knowledge and the interest of the banks and their staff in how my businesses thrive. Service issues that may come up from the lack of the above-listed qualities will certainly cost my business more than whatever amount I can save on the purported lower interest rate.

Market Price of Goods – Value is what drives the market price of a commodity/good/service. When the value determines the price of a good/service it fetches in the market, the Market Theory of Value has been applied. Market prices are fair prices.

Other factors that affect the prices of goods are:

1. Cost of production – the cost incurred in making a particular good or service available. When the cost of production (including a moderate profit) is the only consideration in determining the value of a good or service, this is the Cost Theory of value. 

 The cost theory alone is insufficient to determine the value of goods or the fair prices.

1. Availability of the goods or services – well-informed buyers will naturally place a higher value on a commodity when it is scarcely available than when it is widely available.

1. Expectations of participants on future demand and supply of the product – if it is known that the commodity or service will be scarce, the market/buyers will tend to buy more of the goods, increasing demand, and the price.

1. Availability of substitute – This is a major driver of the value of the goods/product as the prices buyers are willing to sell an item may be higher when it does not have substitutes. When a service/goods have a few substitutes, the market price reflects the goods/services. But when there are more than a few substitutes, the market price reflects the combination of value, current and future availability, and the cost of production.

As I prepare to attend the webinar on Business Ethics, my mind is wide open to identifying other areas of businesses that I may have ignorantly been practicing unethical standards for correction.

#MEMBA 11