Differing Costs of Production, Reproduction

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The concept of, and concerns about production costs are so .... mercantile.
Portrait_value

That was an era in commerce that is long past, and now out-dated.  Arguably, the peak occurred in 1637, in the Netherlands, when the price of tulip bulbs, imported from Turkey, collapsed from 2500 florins (also known as Dutch guilders) to very little.  Some people “had gone mad” for tulips.  Or was it that they were simply mad?  Shades of prevailing property and share prices in a range of marketplaces.
 
In the instance of tulips the bursting of the bubble had little or nothing to do with costs.  An unexpected and rapid disruption to the supply had people take pause and re-evaluate the “true value” of a tulip bulb.
 
The consequences were immediate, widespread and dramatically substantial.  This is a lesson relevant to all at this time.
 
Andrew Carnegie, the US industrialist, may well have argued that production, commerce and industrial might had attained their zenith in the late 1800s.
 
In reality, it is immaterial.  Market presence, success, sustainability, wealth, value and intellectual property worth have evolved from material goods to the intangibles, of information, intelligence and communication.
 
MEASURING WORTH
 
Quantifying the value and worth of brands, products, services and skills is increasingly difficult, and highly subjective.  One person’s junk (mail) is another’s treasure!
 
Moreover, an abundance of information is readily available to all .... and sundry.  What’s more, a lot of it is accessible free-of-charge.
 
The capacity to retrieve, collate, analyse and selectively disseminate intelligence is a key determinant in a sound measure of worth in the prevailing digital era.
 
Typically, the cost of producing, using, sharing and supplying information and intelligence is typically minimal, marginal, or possibly, even zero.
 
THE REAL ISSUE
 
Among the traditional, established and recognised barriers of entry are production costs.  These include capital outlays, premises, materials, inventory, workforce, supply chains and distribution returns.
 
Individually and collectively, these could be, and were, formidable impediments, barriers and filters.  Risk:Benefit analyses could be centred, and the conclusions determined, on these factors alone. No longer.
 
Original, “ground-breaking” products and services do require considerable investments in time, money, resources and people.
 
However, late-entrants into a product/service range, marketplace and sector can enjoy low-cost carriage by those “Barbarians at the Gate,” who are keen to intrude on the operations, presence and revenues of established market innovators and leaders.
 
The fundamental reasons are very conspicuous.  While production costs can be, and often are, very high, reproduction costs tend to be minimal.
 
Original equipment manufacturers with enviable brand names like Caterpillar, Komatsu and the like, find it difficult to counter prompt, efficient and effective intrusions by unbranded interlopers.  Today, reproduction does not imply inferior quality.
 
Protecting the integrity of intellectual property, design, processes and ingredients is becoming increasingly difficult.  Patent– and copyright protection is difficult, expensive and time-consuming to invoke, enforce, police and maintain.
 
There will doubtless be increasing circumstances of “IBM-compatible” products and service offers, as a consequence of 3-D copying and similar technologies and capabilities.
 
Therefore, accelerated cash-flow positive returns will be possible, enjoyed and shared by “Johnny-come-lately” competitors, and substitutes.
 
Product lifecycles will inevitably be shortened, margins narrowed and exclusivity-price premiums curtailed, if not eliminated because reproduction is cost-free.
 
THE NEED FOR URGENCY
 
The increasing emergence of inequitable, low-cost reproductions in crowded, competitive and static marketplaces will underscore the need for all entities to place greater emphasis and value on enhanced productivity.
 
Windows-of-opportunity will be limited, product lifecycles concertinaed, investment return ratios will necessarily be refined, and risk-tolerance criteria will be reassessed.
 
A week may be a long time in politics.  In business, the cycle may extend to, say three years, but seldom much longer.
 
Self-induced obsolescence will be considered a virtue.
 
Production costs may appropriately be outsourced, allowing product/service innovators and entrepreneurs the opportunities and needs to embrace the reality of utilising, profiting and creating wealth from stark and confronting NIL reproduction costs.
 
That will take a change in the business modelling and most likely a change in mindset.
 

THE AUTHOR

Barry Urquhart of Marketing Focus is a challenging, impactful keynote conference speaker, an original business thinker and a consumer behaviour analyst.


About

Barry Urquhart, MD Marketing Focus, Perth, is the author of Australia's top two selling books on customer service and is an internationally recognised authority on consumer behaviour and creative visual marketing.

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