The Heart of Business, as Taught by the God of Management — Philosophy: ‘Pricing Is Management’

This time, Inamori* spoke about the above motto in Kyocera philosophy.

What Inamori said is quoted with “”.

 

“ Pricing determines the success or failure of a business.

When setting prices, one must consider whether to go for small profit margins with large volumes, or higher margins with smaller quantities. There is no fixed formula; the range of possible prices is virtually infinite.

It is extremely difficult to predict how much volume will be sold and what level of profit will be generated at any given margin. However, the key is to accurately understand the true value of your product and find the one point where the product volume and profit margin is maximized.

This price point must be the one that satisfies both the customer and Kyocera. In search of this single optimal point, pricing must be determined with great care and deliberation ”

 

In this section, Mr. Inamori devotes a significant number of pages in the Kyocera Philosophy, which shows just how crucial he considers this topic to be.

I believe this is truly one of the core elements of sound business management.

While business strategy and organizational theory are certainly important, what truly matters is this fundamental question: At what price should we sell our goods or services?

Our company provides services, so I would like to focus specifically on how we determine our service fees.

At the very beginning, I will highlight the following three key points:

 

 

 

Let me explain them one by one.

 

1. Engrave in your heart the importance of pricing

” To be honest, when I first included this topic in the Kyocera Philosophy, I didn’t consider it to be all that important.

However, over time, I have come to realize just how critical pricing truly is. I often say, “Pricing is management,” but I do not mean just the moment when the price is set.

If pricing lies at the very heart of management, then we must also take responsibility for the processes that support it—such as procurement and cost reduction in production. That means it is the top leader, the president, who must be willing to take bold action: directing cost-cutting measures, negotiating for lower material costs, and making tough decisions.

If those responsibilities are left entirely to purchasing or production staff, while market prices continue to fall, the company can quickly fall into deficit. “

→ These days, we see more and more so-called “knowledge- workers—people starting their own businesses by offering services such as counseling, coaching, organization, or marketing. And I believe many of them struggle exactly with this issue.

They find their business doesn’t take off, or fails to grow as expected. The more they work, the more losses they accumulate. I believe this often stems from one fundamental question: Is the pricing truly appropriate?

But even before considering whether the price is fair, many people are unclear about something more fundamental: the purpose and significance of their business. Why are they doing what they’re doing?

I, also, spent a lot of time wandering in this space of uncertainty.

Once the purpose and significance of the business become clear, so does the target audience—who the business is meant to serve. And from there, it becomes easier to determine what kind of goods or services are truly appropriate.

 

2. See through to the customer’s true intention

” At times, I would even go to speak directly with the client’s procurement officer before our sales representatives did, just to figure out his/her intention.

When the sales rep returned from the visit, I wouldn’t just accept their report at face value. I would ask detailed questions like:

‘I really want to understand what you’re saying.

But who exactly did you meet over there?

How did you greet them?

And how did they respond?’

I would then have them reenact the entire verbal correspondences as accurately as possible.

I had my subordinates recreate the negotiation scene, saying things like,

‘Well, I said this, and then they replied like that.’

By having them reproduce the situation in vivid detail, I was trying—despite not being physically present—to gather even the slightest clues that might help me grasp the customer’s true intentions. ”

→ When I first read this part of the Kyocera Philosophy, I found it relatively easy to understand compared to other sections.

I think this is because I had already been studying counseling, the release of subconscious blocks, and psychology in general.

In addition, through my practice of Aikido, I had devoted time and energy to sensing the intentions and nature of others.

Since it is the subconscious mind that governs human behavior, I came to believe that reading this subconscious mind, or the ‘ki-atmosphere-‘ of others, is especially important when trying to determine the most appropriate pricing.

 

3. Let the market decide the highest acceptable price

” In essence, pricing means determining the highest price at which the customer is willing to pay.

Pricing is not something that can be left solely to the sales department. It must be carried out by top management, based on a thorough and exhaustive verification of all the data and information collected by the sales team.

Management cannot function if salespeople simply do as they’re told by the customer and offer prices lower than competitors, without applying any strategic and sensible analysis. ”

→T his is what is meant by ‘deciding the cost based on the selling price’—in other words, ‘starting with the price.’

Of course, when pricing a product, calculating and understanding costs is also an important factor.

In my own profession—valuing real estate—this becomes especially relevant in today’s market, where construction costs have risen significantly.

Because of that, more attention is being paid to second-hand properties. The reason is simple: the same building can no longer be constructed at the same cost. That rarity adds value.

This might be a unique example, but what Mr. Inamori is emphasizing here is that buyers naturally consider production costs when making purchasing decisions.

They assess whether the value of the product justifies its price, including the cost of manufacturing.

In other words, the focus must not be on the seller’s convenience. We must always ask:

What feels right for the customer?

What are they genuinely willing to pay for?

This should always remain at the center of our analysis.

 

 

As I reflect on pricing, I’ve come to believe that three core insights are essential:

 

As for myself, I still have much to learn and many areas to improve.

But I intend to revisit each of these principles, one by one, and truly incorporate them into my decision making process.

 

 

* Mr. Kazuo Inamori, the founder of Kyocera, KDDI (one of the top tele communication companies in Japan) and the top of revitalization project of JAL. As a well-known Japanese entrepreneur, he has been sharing his experiences and management know-how with managements of small to middle companies in Japan.

 

Further queries or doubts, please email to ytomizuka@abrilsjp.com

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