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.