The Right Price

Published: Jan 10 , 2013
Author: Stephen White

The most frequent request asked of Scotwork consultants is 'Teach me how to know I have paid the right price'.  It comes from a lifetime of self-doubt; that although the negotiated deal looks like a good one, satisfies the need, resolves the conflict, addresses the issues and falls within the levels of affordability, there is a demon nagging at the back of the brain. 'Sucker!' says the demon, 'you could have done much better than that'.

It begs the question. What is the right price? For a commercial procurement manager you might think the answer is easy - one that will enable the firm to make a profit. Buyers want to pay no more than the market price, preferably less, and their performance indicators may well articulate this expectation by requiring them to pay lower and lower prices year on year.

So it was refreshing to read a  report by Bloomberg that the Japanese sushi chain Kiyomura paid a little more than market price to acquire the first tuna fish sold at auction at the Tokyo fish market in 2013. Well, perhaps that's an understatement. They paid US$1.76 million dollars for a single fish weighing 222kgs. About $8,000 per kilo. Now good quality tuna at my local supermarket fish counter is expensive, but that's just ridiculous.

So why pay so much over the odds? Is it because there is good luck attached to buying the first catch of the year? If so, you would suppose that this tuna would have an extra cachet and could therefore be sold in the restaurants at a premium. But it won't be.  Kiyomura restaurant owners reckon that this fish will cut up into about 10,000 sushi pieces which they will sell at their regular price of 128 yen each ($1.47). Leaving them with a loss of $174.50 per piece.

Or maybe it was worth it as a PR stunt to get the restaurant brand name into the media in Japan and around the world. Which is fine, except that most customers hearing about the outrageous price will be probably be wondering  just how much over-priced the rest of the restaurant menu must be to enable the owners to cope with such a big loss on tuna. 

Actually, the main reason turns out to be pride. You might have read about the continuing conflict over a small group of uninhabited islands in the East China Sea, claimed as sovereign territory by both Japan and China.   The competing bidder for the tuna was another Japanese sushi restaurant chain, but one which is an affiliate of a Chinese owned, Hong Kong based company.  Kiyomura couldn't allow the Chinese to win. They were defending the pride of Japan in the face of Chinese (culinary) aggression. Commercially nonsensical, but it happened nevertheless.

The lucky fisherman who caught this fish will no doubt have expected it to sell at a premium; after all the first catch of the year is auspicious. But I suspect he would never have dreamt that a burst of Japanese pride about five deserted islands would turn him into a dollar millionaire.

So did the Kiyomura buyer pay 'the right price'? I don't know, but I would have loved to have been a fly on the wall after the auction was over when he put the call in to his boss. 

Stephen White



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