Some Honesty in Pricing for Once
Here is some rare honesty in the discussion about how prices are set. Normally, an article or company would claim that “due to cost increases” (due to oil, etc.) that the company is “forced” to raise prices for their customers. Bull. Companies raise prices because they can, such as in the case of airlines with strong demand. Companies charge what the market will bear.
This is a central tenet of TPS, that Price is set by the market, so therefore Profit = Price – Cost. You only have direct control over costs, so reducing costs is the path to increased profits (yes, you can increase demand through good product design or marketing, which would increase the price the market will bear).
If your costs go up, you’re not entitled to raise prices to keep profit the same. That’s the old thinking of Price (set by you) = Cost + Desired Profit.
With this latest terror threat, if airline demand is down, they’ll have to lower costs. That’s how markets work. You charge that you can. Toyota’s not the cheapest car out there… because people are willing to pay it, the market values the cars that way.
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