Prices are dropping. Or more accurately tending to zero. Automation, standardisation, artificial materials are all driving this trend to zero in certain categories. Even as cost of certain goods drops in absolute terms, rising incomes also reduce the percentage of income devoted to certain necessities.
As a kid I remember clothes-shopping being a much-anticipated treat, limited to birthdays and Christmas. Shoes, stationery, electronics – you name it, it was expensive. Poor people didn’t have furniture, or at best a string cots. Most white-collar executives could afford to buy one house at the end of their work-life. Books were prized possessions, bequeathed and circulated. Leisure travel was a luxury.
Clothes used to be expensive because you had to use natural materials like cotton or silk which took a lot of effort to produce, then stitch them by hand. Furniture used to be out of reach for many people because it had to be hand-made from wood – now plastic seating is found in almost every home. The Green Revolution made food much more accessible and affordable. Medicines are becoming way more affordable to everyone. Across categories like housing, food, publishing, travel, healthcare, clothing prices are dropping to the point of being negligible either in absolute terms or in percentage of income terms.
So what happens to the 4Ps in a world where things cost nothing?
While the product itself maybe worth virtually nothing, the experience may be very valuable. Think bottled water. Or going to McDonald’s not just for the cheap burger but the excellent toilets. Or the service provided for your on-cloud product. With newer technologies it should be possible to design and deliver stuff designed just for one person.
If stuff is worth almost nothing in money terms it may be better to extract that value through making the buyer contribute effort or barter. For example, you’re already paying for Facebook or Truecaller with your data.
With digitisation, 3D printing tech and the falling price of transportation where you are is no longer a factor in many categories. This also means that you can reduce your cost of real-estate by telecommuting or producing from places that are considerably off the beaten track.
Cost of publishing is also almost zero. So all your customers and users can help tell your story. Also, as the product price is almost zero, the story matters more than ever. Think of how the price of clothes or bags vary based on the story you are able to tell. Or how the food from a ‘storied’ restaurant just tastes better.
There is a general belief that eCommerce and VC funding are driving down prices through artificially lowering prices. Yes, they are subsidising certain categories, but in many cases the price drops are genuine through reduced cost of distribution and brand-building for the product owners.
I presented this idea initially at a CFO Conclave and there was a general feeling that the downward pressure on prices cannot be sustained. I think that the trend for mass-demand products is downward and the survivors will be those who can structure their business model to accommodate this trend. Also, even as the price of say a mass-manufactured shirt comes down, the desire for and affordability of a bespoke shirt goes up – think of Raymond’s Bespoke services which are essentially the high-end lux edition of the neighbourhood tailor.
Agree? Disagree? Share your views with me at @jessie_paul
Image source: circa 1899 by Jean-Marc Côté, from Futuredays by Isaac Asimov
Absolutely Jessie. The topic enticed me so much that I could not stop reading the full one. At the end, here are my two cents. In recent news, Jio is doing exactly that – prices are zero for the outgoing calls and yet there will be profits (or should I say, there are). Profits in the case of zero pricing can be by weakening competition and making margins on related products which are bundled into the free offer. I think this topic can well be explained into a compendium of case studies from diverse stories from corporate world.