Thursday, August 9, 2012

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Price and Prejudice #1

Do you like what I did there?

As you will have realised by now, I'm currently working at a company called MARUTAKA TECHNO マルタカテクノ. If you had a look at the company's modest website, you'll soon notice that it isn't such a big operation. However, Marutaka Techno is loosely connected to a much larger group of Marutaka firms.

There are over 40 sales subsidiaries (販売会社 hanbai gaisha) that distribute Marutaka products mostly throughout Japan but also in a small number of European countries. The group as a whole has sales of over 350,000,000,000 Japanese Yen (that's about 3 billion pounds!) and employs almost 2000 people. Marutaka Techno is more of a sister or affiliate company (関連会社 kanren gaisha), as it does not directly own any shares in, or have shares owned by, the main group. This company is more based on the technology side of things and developing new products.

The main Marutaka Building 丸高ビル
 Marutaka Techno develops and produces new products and then sells them to distributors or agents (代理店 dairi ten). This could be a Marutaka sales subsidiary or even a mail order catalogue.

Marutaka Techno is on the far right!
 When we think of a company producing and selling products, we imagine that they just sell them directly to the consumer. In actual fact, this is rarely the case. Instead, we get a system which (in simple terms) looks a bit like this:

(Of course, some steps are added and some parts are missed out depending on the good/service and circumstances of the parties involved)

Manufacturer → Wholesaler → Distributor → Retailer → Consumer (End-User)

Due to this divide between the manufacturer and the consumer, we see abbreviations a lot like Recommended Retail Price (RRP) and Manufacturer's Suggested Retail Price (MSRP).

Although RRP's and MSRP's do not necessarily have to be followed, there is quite an interesting story regarding new cars! The Monroney Sticker is a sticker which has to be visible on all new cars before purchase. Among other things, the MSRP has to be clearly visible. The reason for this is that car salesmen (we know they are cheeky so and so's) used to make up a price for cars based on what they thought their prospective buyer was willing to pay. This lead to some gross over-charging, and Senator Mike Monroney finally had laws passed to ensure that adequate information be made visible to protect buyers of new cars. 

Due to the voluntary nature of RRP and MSRP, it is common to see retailers undercutting each other in order to secure high sales volumes. Unfortunately, this can damage the brand image or reputation of the product in question, as a low price can (in some cases) denote low quality. While some retailers take the opportunity to hike the price and make a quick buck, competition in the market (in theory) keeps this to a minimum. 

Marutaka Techno is a producer of high technology, high quality products. In terms of build quality and functionality, Marutaka's health-related machines are second to none (I've tried products from the competition and they pale in comparison). As a result, they can (and need to) set a fairly high price for their products. Clearly, Marutaka Techno is aiming to sell their products (or rather have their products sold) to affluent consumers with very high disposable incomes. Marutaka adopts a Premium Pricing strategy. If prices fall, the brand image dips with it and Marutaka Techno's whole development strategy has to be altered.

In order to combat this, Marutaka Techno has a Minimum Price Systsem (最低価格制度 saitei kakaku seido). With this system (implemented through contracts) Marutaka Techno can ensure that the price at which its products are sold will never go below a certain point. Unless there is only one seller in a certain area or country, competition will largely prevent any distributors from raising the price by any significant amount, thereby keeping prices fairly level across the board.

I think I should end this post here before my fingers fall off!

Next time, I'm going to be talking about Lead Time and Production Management. These topics are both closely related to Marutaka's Minimum Price System and I will explain how Marutaka can encourage its customers to buy more products. I recommend going over this post again before digging your teeth into my next update. 

Thanks for reading and bye for now!


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