Ken Uchikura’s Newsletter Vol. 78

Equivalent Exchange

I would like to talk about the equivalence exchange that I wrote about in my blog on May 7th, which cannot be used in business. Equivalent exchange is used in the anime "Fullmetal Alchemist". I believe that the principle is that in order to create something you want, you need to lose the equivalent amount of something else.

Suppose a business sells a product called “A” for $10. From the consumer's point of view, it can be said that A and $10 are equally valuable.

However, when you look closely at the breakdown of $10:

R & D Expenses

Manufacturing Costs

Raw Material Costs

Transportation / Logistics

Marketing Costs

Profit

The above items make up $10. Therefore, you can see that the value of product “A” is a collection of things that cannot be seen. If you don't sell “A”, then think about disposing of it. Now imagine that the sales price is $5. In this case, the price of “A" will be half before and during the sale. We now have to say that “A” = “A” is no longer true.

Business practices are not an equivalent exchange. A product cannot be sold unless the consumer always feels they are receiving more value than the equivalent exchange. So how do we accomplish making one product more valuable? That can only be accomplished by “Marketing”. This is the conclusion I have reached.

Pompom Drawing by Ken Uchikura

Kenichi Uchikura
President / CEO
Pacific Software Publishing, Inc.
ken.uchikura＠pspinc.com

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