The Volume Advantage: Why Competitive Pricing and High Turnover Beat High Margins in a Value-Driven Market - by Nik Zafri

A simple business scenario:

 The cost of one product is RM0.50.

• Seller A buys 1,000 units and resells them at RM1.00 (a 50% margin)
• Seller B buys 500 units and sells them at RM0.80 (a 30% margin).

Both offer the same product quality and service. However, within one week, A only manages to sell 100 units, while B sells all 500 units and continues receiving similar demand.

1. Lower Margin, Higher Volume Can Outperform Higher Margin, Lower Volume

• A sells at a higher profit per unit (RM0.50) but only manages to sell 100 units.
• B sells at a lower profit per unit (RM0.30) and manages to sell 500 units, fully clearing stock.

 In absolute profit terms:

• A’s profit: 100 units × RM0.50 = RM50
• B’s profit: 500 units × RM0.30 = RM150

So, B earns 3 times more profit despite a lower margin.

Lesson 1 - A business strategy cannot rely solely on high margins. Competitive pricing + high turnover often leads to better total profit.

2. The Market Dictates the Price - Not the Seller

Both products are identical in quality and service. Yet customers prefer the cheaper option.

Lesson 2 : Customers will gravitate to the price that feels fair and offers value, especially when comparing identical products. Pricing must align with what the market is willing to pay.

3. Accessibility and Affordability Expand Your Customer Base

A higher price reduces your reachable market. B’s lower price makes it accessible to more buyers, which increases volume.

Lesson 3 : Sometimes, the best approach is to reduce your margin but widen your reach.

4. Cash Flow Matters

• B sells all 500 units, turning stock into cash quickly.
• A sells slowly, locking capital in inventory.

Lesson 4 : High turnover improves cash flow, reduces risk of dead stock, and allows faster reinvestment.

5. Customer Behavior: Perception of Fairness and Trust

Even if quality and service are the same, customers may perceive A’s pricing as too high, creating resistance.

Lesson 5 : Customers are more likely to trust a price that aligns with their perception of value.

6. Long-Term Advantage - Repeat Customers

If B continues providing good value, customers remember the “fair price” and come back.

A risks losing customers permanently if perceived as overpriced.

7. Strategy Must Match Market Conditions

• A is using a premium pricing strategy in a market that behaves like a value-driven market.
• B is aligning with what the market wants.

Lesson 6 : Choose a strategy that fits the market, not the seller’s personal preference.

In short : A’s mistake is prioritizing profit margin instead of total profit and turnover. B wins because of competitive pricing, faster cash flow, and better alignment with customer expectations.

8. Understanding the Surroundings

What Seller B is doing reflects a deeper understanding of economic reality and customer psychology during a downturn.

i. B Recognizes Reduced Purchasing Power

In a slow or uncertain economy, customers:

• become more price-sensitive
• compare options more carefully
• cut back on non-essentials
• prefer lower-priced alternatives even if quality is the same

Seller B's pricing aligns with this behaviour, making it easier for customers to continue buying.

 

ii. B Reduces the Customer’s Financial Burden

By lowering margin and offering a fairer price:

• customers feel less “pain of paying”
• they can buy more or more frequently
• they perceive B as understanding and trustworthy

This builds loyalty - very valuable in tough times.

iii. B Helps Customers Regain Purchasing Power

When a seller provides value pricing:

• customers conserve money
• they can buy other necessities
• they feel more in control of their spending

This creates repeat demand because customers feel respected.

iv. Pricing Strategy Reflects Situational Awareness

• Seller A uses a premium-pricing mindset in a value-driven market.
• Seller B uses a market-aligned strategy, showing awareness of inflation, declining disposable income, cost-of-living pressures and competitive landscape

This awareness is a major advantage, especially when consumers are cautious.

v) B Gains Trust During Hard Times

Customers remember sellers who:

• remained affordable
• did not take advantage of the situation
• provided consistent value

This often results in long-term loyalty even after the economy improves.

In short : Yes - Seller B’s success strongly indicates that:

• B understands the economic downturn
• B empathizes with customers’ reduced purchasing power
• B adapts pricing to match real-world conditions

 

9. B Hires a Worker (10 sen/day) While A Sells Alone

a. B Invests in Leverage while A Relies Only on Himself

B understands that:

• One person alone can only sell so much,
• By hiring help, he increases capacity, reach, and speed.

Even though the worker is paid 10 sen per day, B trades a small cost for a large increase in sales volume.

A, however, is limited by time, physical ability, energy, customer reach

This is a classic difference between working IN the business vs working ON the business.

b. B Converts Cost into Growth

B’s commission cost is tiny compared to his profit:

• Total profit: RM150
• Worker cost (example: if 7 days × RM0.10): RM0.70
• Net profit: RM149.30

The worker cost is less than 1% of B’s earnings (to me, this is good trade-off)

This shows B understands scalability.

c. A Avoids Expenses but Also Avoids Growth

A tries to “save money” by doing it alone.

This is common among small businesses, but:

• Saving costs does not equal making profit.
• Doing everything alone slows the business.
• Opportunity cost becomes huge.

A’s choice actually costs him more because he misses out on potential sales.

d. B Creates Employment and Strengthens Community Trust

Hiring someone even for a small commission:

• builds goodwill

• creates local support

• strengthens reputation

• increases customer trust (“This seller is growing”)

Customers often prefer businesses that create jobs rather than solo traders who appear stagnant.

v) B Understands That Cash Flow Is King

The faster the stock clears:

the faster money returns, the faster B can reinvest, the faster B grows

Hiring help accelerates this cycle.

A, by relying on only himself, slows everything down.

vi. B Is Playing a Long-Term Game, A Is Stuck in Day-to-Day Survival

• B is building a system.

• A is building self-dependence only.

Systems win long-term.

In summary

Seller B shows understanding of:

• leverage
• business scaling
• cash flow management
• customer behaviour
• market environment
• productivity
• long-term business mindset

Seller A focuses on:

• saving costs
• doing it alone
• short-term thinking
• limited growth

CONCLUSION

The scenario of Seller A and Seller B decisively illustrates that a successful business strategy cannot rely solely on high margins. Seller Bs victory, earning triple the profit (RM150 vs. RM50) despite a lower margin, highlights the power of competitive pricing, high turnover, and strategic alignment with customer expectations. 

By recognizing reduced purchasing power in the market and prioritizing cash flow and accessibility , Seller B not only maximized absolute profit but also cultivated customer trust and loyalty by offering perceived fairness and value. Furthermore, Bs willingness to leverage a worker for a small cost demonstrates an understanding of scalability and long-term systems thinking over As focus on cost-saving and self-dependence. 

Ultimately, success comes from choosing a strategy that fits the market, not the sellers personal preference.

QUALITY ASSURANCE - QUALITY CONTROL 101 - Short Article by Nik Zafri

I've noticed that many people still confuse Quality Assurance and Quality Control. Let me reclarify this with an example using "defects." I've created a table for QA/QC 101 to illustrate the differences.

KEY DIFFERENCES

Proactive vs. Reactive - QA is proactive, focusing on preventing defects by improving processes, while QC is reactive, focusing on identifying and fixing defects in the product/during project operation

Scope - QA is broad, encompassing all activities related to the implementation of processes, while QC is narrow, concentrating on specific outputs (products or deliverables).

Responsibility - QA is a responsibility of everyone involved in the development process, whereas QC is usually the responsibility of a specific team.

Both QA and QC are essential for ensuring high-quality products/projects and processes, but they serve different purposes and are implemented at different stages in the development lifecycle/project operation.

DRAFT GUIDELINE - DUE DILIGENCE FOR THE CONSTRUCTION INDUSTRY

You feel strong when you work in a strong team rather than working alone.

hashtag#duediligence hashtag#construction hashtag#constructionindustry hashtag#riskmanagement hashtag#auditor hashtag#qaqc hashtag#safety

I once collaborated with a team of professional consultants, including a Professional Engineer, a Chartered Auditor, a Legal Practitioner, Risk Management Consultant and I was put in charge of systems and methodologies including QA/QC/SHE elements.

This draft guideline (customized to the construction industry), which I devised, has proven instrumental in assisting numerous auditors tasked with conducting due diligence on large-scale construction projects, as mandated by regulatory authorities. To maintain confidentiality, specifics such as project names, authorities involved, team members' identities, and exact dates are withheld.

I hope this will serve you well, make amendments if you wish.

THE AFTERMATH OF POOR WORKMANSHIP IN CONSTRUCTION - Nik Zafri

No names, location and project will be cited. This is just merely information-sharing. Some of the contents have been altered on purpose to avoid legal complications. I am not a professional engineer but my experience has served me well.

Was hired to do a 3rd party quality inspection prior to CCC somewhere in Malaysia (no names, location and project will be cited) I would like to emphasize and make a professional disclaimer that the following case is an isolated case. It does not in any way at all represents the quality of workmanship in construction, building and civil engineering works in Malaysia.

I was a bit nostalgic when asked to do some "QC work" which I have not had much opportunity over the years to really "go down to the field" (too busy doing consulting advising work)

The owner and the authorities somehow "doubted" the inspection results being submitted by the "consultant" that they have hired.

Well, they are right!

a) I looked at the soil conditions in the surroundings and spotted the first problem. It is a bit complicated to have a strong foundation when it comes to housing projects on or even in the vicinity of hilly areas. (I sometimes wonder, how site investigation was conducted on the first place, how the soil test was done during that time - not to mention environmental impact assessment)

The previous consultant inspection did discover some problems of floor slabs, foundations that are cracked etc. But the root cause was inaccurate. It simply said "poor workmanship".

As suspected, I noticed some ground subsidence (settling) problems which by nature may have caused movement of the structure.

Compaction of the subsurface was not sufficient hence potentially creating further problems on the drainage during rainy season.

After a quick investigation, found out that there have been some minor landslides reports in the neighbourhood area which nobody took into account.

b) There have been signs of attempts to recast and hacked out but again, the concrete may not be properly recompacted by proper force of vibration/ ramming. "new" honeycombs are still spotted.

The concrete was not impermeable and densed due to improper compaction.

c) Materials used was definitely superficial. To quote one example, I noticed the windows from inside and outside - lack of sheet metal drip edge above the window header, the flashing is deteriorating, rough framing etc.

Thus, I did my own 'wet run' (spraying the water from inside and outside) - wow...everything started to leak here and there even through the sills. The previous inspection did not take into account the water spray test.

d) There were problems of segregation (mixed ingredients separated) everywhere. My best guess is the mixing was not measured properly against high coarse aggregate. The mix dropping may also have been done without proper chutes (perhaps dropping them through too great a height in placing)

e) Construction joints - poor compaction. There were stains/moistures on the concrete face. This may have been caused due to a layer of concrete laid before pouring is continued and the old concrete was not washed properly.

Ok enough with that, there are a lot more. Let's talk about management during construction

i) This is a clear sign of poor project management

ii) There will also be a problem when you hire foreign workers - communication problem - not to mention language barrier may cause bigger problems

iii) The subcontractors may have been given very complicated jobs and the main contractor may also not been properly supervising

Well, the conclusion made by the project owners/stakeholders and the authorities were not good at all. I don't want to know what happened next.

I chucked when they asked me :

"Nik, are you a professional engineer?"

I replied "not a chance 'in hell' but you can thank my previous employers managing mega projects and my humble years of audit and inspection experience, that's where I learned the trade.

After all, you are the expert (Ir), you should be signing it..not me..aa..aaa."

They nodded and thanked me.

Shoddy construction workmanship/method are the reasons leading to failure of buildings and structural integrity. The root causes? Inadequate QC at site and negligence.

PENANG WAREHOUSE COLLAPSE - POSSIBLE CAUSES

(Photo Source : The Star)

The perspectives shared below are to be considered as strictly personal and unofficial opinions concerning the recent Penang Warehouse collapse, which tragically may have resulted in the loss of 4-5 workers' lives. It's a distressing event, especially given the recurrence of such incidents elsewhere in Malaysia. These viewpoints stem from my individual experience and are not intended to sway or impact any ongoing investigations conducted by the authorities in any manner

Beams under construction can collapse due to various reasons, including:

Design Flaws?

Since the project has been going on for quite some time, I do not think it is relevant to the design flaws. Possibly, the original plan or method statement of installation were not being adhered to leading to weak points or inadequate load-bearing capacities in the beams.

Material Deficiencies?

I also feel that it has little relation to substandard or faulty construction material but of course, you can never tell - low-quality steel or concrete can compromise the structural integrity of the beams.

Construction Errors?

Can also be the possible cause where mistakes made during the construction process, like inaccurate measurements, improper installation of reinforcements, or poor welding, can weaken the beams.

Excessive Loads?

Can be another possible cause. Beams may collapse if they're subjected to loads beyond their intended capacity, either due to unexpected heavy weights, construction equipment errors, or overloading (workers, materials or machines placed on the beam) during the construction phase.

Environmental Factors?

It was said that heavy rains are occurring during the time of construction. Extreme weather conditions like strong winds, heavy rains, (possibly ponding areas can also soften the ground) - can stress beams beyond their limits, causing them to fail.

Lack of Maintenance?

I am unsure whether this is the case but insufficient or improper maintenance during the construction phase could lead to deterioration of materials over time, weakening the beams.

Foundation Issues?

This can also be a cause where problems with the foundation or support structures at the said location can compromise the stability of the beams and eventually cause them to collapse.

Human Error?

This is a common problem. Where there is accident, the question of inadequate supervision will always arise. Others can include workers negligence or lack of adherence to safety protocols can contribute to mistakes that lead to beam collapse. All these comes back to supervision - either Safety or Construction.

Understanding these potential causes is crucial in ensuring proper precautions are taken during construction to prevent such collapses and maintain safety standards. Quality control, adherence to building codes, regular inspections, and employing skilled professionals are essential to mitigate these risks.