Pricing and Margins Along the Supply Chain

Demands to improve margins of all stakeholders never cease. Who does not want to make more money? It may be a cultural trait that Asians use the 'poor and small' vantage point with such persistence against business associates with connotations of wealth and privilege. The latter are often assumed to be natural and inevitable corollaries of better education, western mannerisms, and English fluency. Reverses are mostly true. Conservative Marwaris for example hide oceans of riches under simple garb, servile gestures, and loud displays of the vernacular.

A major obstacle in negotiating fair spreads of profits along the value chain is that everyone wishes to determine how much ultimate consumers should pay. The sticker price, like rack rates of hotels is rarely if ever realized. Much humor surrounds the price first quoted by a friendly seller from the unorganized sector of a market! Deep discounts have become 'force rigueur'. Links in the distribution chain downstream of a manufacturer ask for discounts primarily to manipulate the final consumer price. Organizations with bludgeoning inventories, fixed costs that are threatening proportions of projected cash inflows, crippling debts and top-line focus are easy prey for margin vultures.

Price is an integral link in the Marketing Mix. Consumers who gladly avail of deep discounts are also trenchant critics of brand owners who appear devious in their declared brand prices. A discount that is seasonal may be genuinely appreciated as a mark of goodwill, but expect no respect if you are not serious about your Maximum Retail Price. Discounts along the supply chain should also be linked with specific tasks and responsibilities rather than dictated by convention. The association of medicine sellers in India achieved much notoriety towards the end of the 20th century for blackmailing indulgent industry executives in to incentives entirely removed from the life-saving nature of the goods involved.

One should never negotiate under pressure. Hence, pricing and margin should be determined by consensus before a brand launch. This requires that all stakeholders take part in the planning process. Secrecy is an issue when members of a supply chain are not exclusively wedded to any one manufacturer. This is an issue for brand owners to optimize within the framework of national laws to foster competition.

Do write and let me know what you think about pricing, margins, and discounts. I would love to participate in your processes for these vital cogs of profitable and sustainable enterprise.

The picture below if of a meeting between an executive of a reputed farm input corporation and mango orchard owners. The person with the microphone is from the agro-input corporation. The host is on his right. The expansive cottage is his and he served a sumptuous feast as part of the event in the true tradition of Indian hospitality. The two people on the right are mango orchard owners. They want deep discounts and credit to buy farm inputs.

It takes a decade for a mango sapling to become a productive tree. Intense annual agronomy starts a good 6 months before each year's harvest. Farm inputs have imported ingredients and scarce indigenous ones as well. Working capital is a major constraint for all stakeholders in agriculture and farming. This is heightened in horticulture from a farmer's perspective.

How would you spread costs and margins along the value chain in such a situation?

From SunoSuno Stock