The 'price parity' fallacy
Across the food-tech innovation sector I regularly hear, 'we have to reach price parity before they'll talk to us'.
The incumbent in question is often a raw material that is generating catastrophic levels of greenhouse gases, contributing to devastating biodiversity loss, and aided by a very generous economic subsidy structure.
Looking at price in the widest sense, we are clearly not seeking to match the current 'price'.
Addressing price in the more literal sense, of course efficiency, elasticity and optimisation are all essential levers for a viable operating model and cost structure for you and your customer. This will be aided over time as the technology moves from infancy to maturity, so as sure as night follows day prices will fall. And there is plenty of healthy competition within the market to achieve this.
But back to the real issue, it's not the cost of new technology that's the problem, it's that the incumbent is not being priced correctly. Not even slightly.
A simple reason for this is because, globally, we still haven't achieved robust and aligned calculations to measure the end to end destructive impact of food production. And even more fun, it's a moving target.
Nonetheless, the industry can no longer credibly continue to take the evasive position on innovative raw material costs. They know that elsewhere on their balance sheet they are increasingly paying for carbon offsetting, paying over the odds to secure and maintain fragile and erratic supply chains, whilst increasingly compensating consumers for declining standards.
Instead, we need to build a bridge. A bridge to connect the old world to the new world, to not only facilitate change but also to expedite the realisation of these vital and realistic cost savings.
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The concept of this bridge: to use a taxation analogy, is to shift from a vertical equity model to a horizontal equity model
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The design of this bridge: generating a 'total cost of ownership' calculation
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The construction of this bridge: by literally visualising it in traditional cost bridge graph
Innovators --> Price your benefits
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Identify relevant proxies for the different benefits you are generating. Leverage that positive impact
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If you're reducing carbon emissions by 80%, check in with the carbon markets and price that saving
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And of course, continue building confidence in your solution by projecting and demonstrating your improvements in cost efficiency
Industry --> It's time for a new game plan
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Synthesis your company's targets, from sourcing to compensation
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As staggering double digit inflation in 2023 has shown, albeit a thin line to tread, consumers are paying more for food and price elasticity is happening, but with zero improvement in standards to show for it. Consumers are well aware of this
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And remember, your incumbent price is only going one way, and that's up
Summer 2023