The Reluctant Entrepreneur: Credibility

When we started, and because of our JIT (just in time) policy very often we had no reason to produce as there were no orders. It was at one such non productive moment when a government contractor approached me for a huge order of tanks. His condition was simple, He wanted X to be the price I would agree to charge, Y would be the price we would bill the Government. The difference between Y and X I would return to him in cash. The quality he was not concerned about and if needed, we should reduce the weight to ensure we too made money.

Despite the fact that we desperately needed orders, we turned down the business. The logic was that after a year only we would be responsible for the product. Every one would see poor quality SHAKTI tanks and no one would know what price was paid for them. Today, 18 years later that decision is paying rich dividends, there are no poor quality SHAKTI tanks on any roof in Goa or elsewhere.

I got a call from a walk in customer inquiring about the price of our tank. I gave him the list price. He told me that he was offered a price cheaper than that by our dealer and since he was coming to us directly he expected us to be cheaper. I informed him that we had a pricing policy where the dealer was not under cut, while at the same time ensuring that the dealer did not overcharge. It was apparent that the dealer was not overcharging.

The customer told me that I should undercut the dealer and that he would keep it a secret. I explained to the customer that maybe the dealer would not know I undercut him to save a few rupees, but surely he would know I cheated the dealer. Since the tank cost much more than the small dealer margin, would the customer not be wary of my product and wonder what I was going to do to short change him, since I had no qualms undercutting the dealer.

Fortunately, for me the customer saw my point and did not press any further. He however went back and narrated the story to the dealer. The dealer called me up and thanked me for taking care of his interest. There was no need of a special thanks because our policy was to take of of stakeholder interests, the customer always gets a good product, the dealer gets his margin and therefore, we get our profit.

In the plastics industry usage of recycled material is normal. The reason is simple, customer cannot tell if the material used is the promised virgin grade or a mixture of recycled and virgin or simply recycled. The choice of what material has a major effect on the cost. Right from day 1, we have ensured that a customer get what he orders. So, if the customer orders a product of recycled material the Purchase Order will say so. Every employee on the shop floor knows that mixing is not allowed. Over the years many employees have left and joined other companies, some have grown to decision making positions. This factor is well known to them and they have no hesitation in paying the price, because they are assured about the quality.

If you look at the three cases mentioned above you will see that in no case is the return immediate, nor is there any chance of manufacturing the crediblity many years down the line, either it is in the company's DNA or it is not.

Had we sold poor quality tanks to keep our line running, what would be the explaination we would give today? Had we sold the tank directly to the customer we would have lost very importantly on credibility, credibility with the customer buying, and surely credibility with the dealer. Were we in the habit of mixing would that fact not leaked to the market over the years?

This credibility is not possible to purchase nor can it be made available instantly. This is something a company deposits over its lifespan and withdraws at crucial junctures of the product lifecycle.

I must add here that the same is applicable in our life. Sometimes, we too goof up in the short term and pay the price over the long term. The moral of the story is “THINK LONG TERM”.