It's Not Luck - Eliyahu M. Goldratt [53]
“If the company doesn’t have a bottleneck,” Brandon slowly brings it together, “and we don’t cut all the costs that were part of the calculated product cost, then . . . . Alex, you are telling us that we have actively participated in jeopardizing our own companies, aren’t you?”
I maintain my poker face. It’s not easy.
“I need a drink,” Brandon says, and stands up.
“Make it a double,” Jim follows him.
I guess that they are more interested in the last conclusion than in the way I have connected it to UDE number 4. That’s fine with me. It won’t hurt them to do some soul searching. Some people claim that the way to hell is paved with good intentions. From what I’ve observed and deduced since I’ve learned to construct common sense, these people are wrong. By now, the way to hell must be blocked by good intentions.
They return with coffee, bringing me one also.
“What happened to the drinks?” I ask.
Jim pats his stomach, “It’s here.”
“There is still one thing I would like to show you,” I say.
“You have shown us enough,” Brandon promises me.
“No,” I object. “Remember, all of this stems from your demand that I show that one core problem is responsible for all the UDEs. We haven’t done it yet.”
“Yes, you have,” Brandon sighs. “You have shown how everything is tied so tightly together. It’s good enough.”
“Besides,” Jim raises his hand, ‘Judging from your eagerness, I suspect another bomb is waiting for us. I think that we’ve had enough for one day.”
“There is one link still missing,” I insist. “You haven’t seen how striving for local optima leads to the lack of innovative marketing ideas.”
“Yes, that’s important,” Jim agrees.
“Okay, Alex,” Brandon gives up. “We asked for it, we deserve to get it. Go ahead, show us.”
He got the point. Next time they will not be so hasty to suggest that I spend all morning constructing trees rather than leisurely buying gifts for my family.
I point to the area of the tree we haven’t covered yet and start reading, slowly. “If ‘Most managers believe that the product price should be equal to product cost plus reasonable margin,’ then ‘Most managers believe that there is essentially a single, fair price for a product.’ At the same time, do you agree that, ‘Different market sections might have different needs’?”
“Uh-oh. Here it comes,” Jim trumpets. “Of course, what a dichotomy.”
“No,” Brandon corrects him, “what an opportunity. Keep on Alex, this is interesting.”
I keep on, “If ‘Different market sections might have different needs,’ then ‘Different market sections might have different perceptions of value for even the same product.’ ”
“Of course,” says Jim. “Different perceptions, we can demand different prices.”
“Not so quickly,” I say. “Different perceptions don’t automatically translate into different prices. My conclusion at this stage is only that ‘To a large extent most managers ignore the market’s different perception of value for the same product.’ To answer your point, I have added another statement. ‘Actions to guarantee effective segmentation can be taken.’ But Jim, if a company neglects to find and institute these actions it must expect that two segments having different perceptions of value will both demand to pay the lower price.”
“If one section knows about the other,” he admits.
“Jim, at the end there are no secrets. At the end one will know about the other, and then what? You must take actions to guarantee that even if from the supplier point of view it is the same product, from the market’s point of view it is not.”
“Can you give us an example?”
“Sure. Look at the airplane we are about to board, eventually. Go to the tourist section and check the prices people have paid. Do you really believe you are going to see only one price?”
“No,” he smiles. “Not at all. It depends when they bought the ticket, where they bought it. It also depends if they bought their tickets as a group or as individuals.”
“Yes,” I agree. “It also depends on some strange things like the length of their stay. If you notice, none of it has any relation to the actual cost of flying