Imagine you are the CEO of a car company and the CEO of a rival company rings and tells you they’ve just seen the results of a cost analysis they commissioned on your newly released, technologically advanced car.
What your rival says is that your car is under-priced.
In fact, they inform you that their market research shows that you could ask much more and still not affect sales.
But more than that.
The rival CEO indicates that by his calculations, the more of your new car you sell, the less money you will make.
So, what would you do?
Would you have your finance boffins go through the numbers again?
Would you speak to your market research staff and find out if what your rival has said is true?
Or would you ignore it and over the next decade wonder why the more cars you sell the less money you make, finally being forced by the government to merge with a rival?
If you were the boss of the British Motor Corporation (BMC) and your new car was the Mini, and it was the CEO of Ford in the UK giving you this inside information — you’d ignore it.
Not only did BMC mis-price the Mini, they did similar thing with the Austin/Morris 1100.
It was one of the reasons Ford became number #1 in the UK.
Back in 1960, when the Mini first appeared, Ford’s boss, Sir Patrick Hennessy had a detailed analysis done of the Mini.
BMC had priced it at £496, while the Ford Anglia was £93 more.
Ford wanted to know how BMC could make, and price, such a technically advanced car for less than the very simple Anglia?