Dunn Harland’s Post

Transcript

Let's talk about pricing. There's a really nice book by Thomas Schelling called Strategy of Conflict. They talk about conflict in terms of contests between people as they make a distinction between 0 sum games and non 0 sum games. So 0 sum games is if I win you lose and non 0 sum games is we can both win, right? We both get something, but there's a certain amount of contest in what the division of prize is. So we both get a piece of the pie, but I might get a slightly bigger piece of the pie and you might get a slightly less. This is the pivot. You mean still both up and up with �� yeah, right. I mean that that way you can then bring in value based pricing because a lot of people work on cost plus models, but. The cost of producing an item is completely independent to what the value to the end customers. And so one of the great examples of this is if you're producing a range of bolts, you have a. 1mm bolt all the way up to 20mm bolt, right? And your 6mm bolt is what's used almost all the time, which means that when you're manufacturing that because you're manufacturing millions of it, the cost of setting that up and producing the jig gets spread between millions. So the cost of that one bolt might only be like 1 Durham where's all the all the other bolts have to have the cost of the manufacturer and the jig set up and all put into it. So therefore they actually cost $20 each. But as far as the users. Concerned. That doesn't factor it. What they're more concerned about is, is what they're actually buying. And so you can put a value based price and it says actually a 1mm bolt, I'll pay, you know, wondering a 2mm, I'll pay 221.2 domes and factor it up. And the fact that you have a cheaper manufacturing price for a certain item then doesn't have to be taken into account. Because at the end of the day, if I go in and buy a bolt, I don't really care how many other people have bought that bolt. I care that that bolt is fair price from it. Is it very interesting thing? Let's say my car is broken down and I wanna repair it. Now there's a range of values, the range of money that I'm willing to pay to get that done. There will be a point where it becomes prohibitively expensive right now. From the supplier side, there will be a range of values that you're willing to to judge and still be profitable. It will start from at the baseline your cost, right? Yeah. If it goes below your cost, that's a bad deal for you. If you're looking at a single item location setup, yes. Yep. So starting from the cost all the way up to like all the money in the world is your range. The transaction can only happen if there is an overlap in this range. Where do you price within that overlap? If I would say arbitrary and that is the extra value being created when it comes to pricing strategies, we're basically just saying how do you divide that value so that you get more of it?