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.

MENGENAI MEMILIH PASARAN PRODUK/PERKHIDMATAN

Petikan dari satu forum tertutup. ("Pok Nik" - salah satu gelaran yang diberikan kepada saya)

Assalamualaikum Poknik,

Saya ada berbincang dengan kawan-kawan berkaitan perniagaan dan keusahawanan, rata-rata bersetuju yang menceburi bidang keusahawanan akan memberi pulangan pendapatan yang baik. Masalahnya, saya dapati ramai kawan-kawan saya ini memberi respon yang mereka ini telah salah "timimg" masuk industri, contoh industri ICT yang terlalu ramai usahawan (players) berbanding peluang kerja yang ada, industri pertanian yang berkembang menyebabkan harga semasa turun dsb.

Persoalan saya:

1. Bagaimanakah cara untuk memastikan yang usahawan itu memasuki pasaran yang diingini pada masa dan tempat yang betul (right time right place)

2. Apakah strategi yang boleh dilaksanakan jika industri yang telah diceburi semakin tepu (dengan andaian tiada peluang dalam industri lain, sukar untuk beralih ke industri lain)

3. Berdasarkan pengalaman Poknik, bagaimanakah pola perubahan dalam sesebuah industri yang bermula dengan fasa permulaan, fasa pertumbuhan, fasa kematangan dan fasa penurunan? Dan bagaimana strategi perniagaan yang boleh diaplikasikan dalam setiap fasa tersebut?

4. Minta pandangan Poknik terhadap peluang dan ancaman jika melibatkan diri dalam bidang pengurusan kebun sawit iaitu, katakan saya bercadang untuk menyewa kebun sawit yang dah berumur 10 tahun untuk tempoh 10 tahun lagi.

Pandangan Poknik dalam perkara diatas saya dahului dengan ucapan terima kasih.

Jawapan

Wslm

Terima kasih di atas pertanyaan berkenaan.

Sebenarnya semua jenis perniagaan dan keusahawanan dapat memberikan pulangan yang baik jika kena dengan caranya.

Bidang ICT dan pertanian juga adalah dua bidang yang kalau diusahakan dengan kaedah/pendekatan yang tepat, ianya masih dapat menjana pendapatan yang tinggi.

Pendapat saudara mengenai salah 'masa' itu tidak timbul jika kita telah membuat kajian yang mendalam ke atas satu-satu jenis perniagaan. Contohnya ICT, jika dibuat kajian, yang paling digemari ramai sekarang ini adalah yang mempunyai unsur 'skim cepat kaya'. ICT itu sendiri adalah satu bidang yang sangat luas. Jika kita lihat dari konteks pembangunan perisian yang disesuaikan dengan kehendak industri maka dengan sendirinya terdapat banyak peluang pembiayaan dan geran akan mudah didapati.

Sebenarnya, pengurusan kurang memuaskan sesuatu perniagaan itu masih saya kaitkan dengan ilmu - kekurangan ilmu, pengalaman dan ketrampilan adalah penyebab utama kejatuhan mana-mana perniagaan sekali pun.

Kekurangan ilmu ini juga penyebab utama kemasukan dalam pasaran hanya berdasarkan pada trend semasa...kalau 'A' memasuki sesuatu perniagaan, maka 'B' juga akan terlibat sama.

Masa dan berita juga memainkan peranan, contohnya, jika kita ingin menceburi bidang pembinaan, kita perlu meneliti perkembangan umpamanya, harga barang-barang binaan besi semakin meningkat (contohnya) dan ketika itu tidak ada satu harga siling yang ditetapkan, maka kita tidak digalakkan sama sekali untuk menceburi bidang pembinaan.

Tentang strategi tu, berbalik kepada asas penerangan Pok Nik, sejauh manakah kita ini mempunyai ilmu dan maklumat yang terkini kepada kita? Dan adakah kita pandai menilai sumber maklumat berkenaan? Adakah ianya perlu ditapis? Adakah ianya hanya satu 'rumour' semata-mata? Perkara ini perlu ada dalam diri seorang usahawan sejati.

Masalah kita ialah kita tidak mahu melabur dalam mendapatkan ilmu - contohnya jika sesuatu kursus/persidangan yang bertaraf antarabangsa, mungkin kita tidak ceburi kerana harganya mahal bagi kita, walhal kita memerlukan ilmu berkenaan.

Secara ringkasnya, pola perubahan berkaitan dengan suasana ekonomi itu sendiri. Kadang-kadang jurang antara fasa tidak begitu ketara kerana faktor 'sustainability' (kesinambungan).

Cuma ramai yang salah faham, bila berlaku 'fluctuation' di antara fasa ke fasa, mereka beranggapan ianya adalah tanda kejatuhan. Jadilah 'panik' dalam pasaran tak pasal-pasal.

Sebenarnya ianya adalah 'market correction'. (jika 'average gap' tak besar le) Faktor ini mungkin disebabkan oleh Keluaran Negara Kasar tetapi 'growth' berlaku secara konstan (Hodrick-Presscott - HP) walaupun terdapat 'naik turun (fluctuations) - input yang perlu kita perhati dan pertimbangkan ialah :

a) pasaran buruh,

b) produktiviti,

c) cara organisasi menggunakan modal atau tenaga kerja,

d) Stok Modal (capital stock)

e) Nilai mesin

f) Bangunan

g) lain-lain peralatan/mesin yang membantu organisasi mengeluarkan barangan mereka.

Perniagaan kelapa sawit adalah satu perniagaan yang berpotensi tinggi.

Dari segi ekonomi, rantau ASEAN adalah salah satu daripada rantau yang dapat mencapai pertumbuhan yang pesat di dunia dengan iklim pelaburan yang paling menggalakkan di mana lebih 70% minyak kelapa sawit dikeluarkan. Kekayaan sumber asli ini akan terus menjadi penggerak kepada pertumbuhan yang berterusan bagi rantau ini dalam dekad yang akan datang. Pengeluaran minyak kelapa sawit akan terus meningkat, walaupun pada kadar yang lebih rendah dari yang telah dicapai sebelum ini memandangkan tanah yang sesuai untuk pertanian semakin berkurangan.

Kini teknologi baru telah mula diperkenalkan antara lain ialah untuk menjimatkan tenaga buruh dan Pok Nik pasti, dalam 1 dekad akan datang, teknologi akan menjadi lebih matang.

Itu belum lagi Pok Nik sentuh kepada produk-produk sawit - yang masih ada dan masih dikehendaki dalam pasaran setakat ini.

Sekian, wassalam