Definition
The Price-First Policy is a strategy where a manufacturer first reduces the price of a product to a point where they believe more sales will result, and then forces the manufacturing costs down to meet that price. It rejects “cost-plus” pricing in favor of using a low price as a driver for operational efficiency.
Why It Matters
Most businesses ask: “What does it cost, and what is our margin?” Ford asked: “What can the public afford, and how do we cut costs to reach it?” This policy is the “Substrate of Mass Production.” It uses “Impossible Pressure” to drive innovation. If you don’t use this, you’ll be disrupted by someone who figured out how to make your “fixed costs” look like “wasteful overhead.”
Core Concepts
- Price Forces Efficiency: A low price “makes everybody dig for profits” and discover improved methods of production that leisurely investigation would miss.
- Costs are Not Fixed: There is no such thing as a “fixed cost.” Every cost is an indicator of current waste that can be eliminated through better engineering or management.
- The Buying Power Filter: What use is it to know the cost if it tells you that you cannot manufacture at a price the public can afford?
- Expanding the Market: Every price reduction reaches a new “stratum” of buying power, ensuring continuous sales growth and business stability.
- Quality through Price: Reducing price must not involve “cheapening” the product; it requires “putting brains into the method” to produce higher quality at lower cost.