2. The emergence of money, entrepreneurship and pricing

Subject title The emergence of money, entrepreneurship and pricing

Purpose of the activity The aim of the session is to introduce the participants to the history of the emergence of money and trade relations and to strengthen the pricing skills of goods and services.

Duration 2–3 hours.

Location and tools Chairs, projector, flip chart, writing tools, large paper sheets.

Number of participants 10–30 participants.

Acquaintance/ team building methods Participants are divided into groups of 4–5 people and are invited to discuss the following issues (4–5 minutes are provided for each issue to discuss):

• Who is a businessman and who is an entrepreneur, and how do these two concepts differ?

• Share a story of a businessman or of an entrepreneur you know and follow and tell us why this personality fascinates you?

• What qualities do you need to build your business or take entrepreneurship in any field?

Each group tells everyone what they have discussed. Other participants comment and complement.

Practical tasks

Task: “Product or service pricing model“

Participants are invited to divide into groups (those who would like to can also work individually) and, according to the example of the scheme provided in the theoretical part, to form a pricing scheme of your created product or service, in which the whole pricing process would be portrayed visually as creative as possible.

In the second phase, participants are asked to develop a pricing strategy, i.e., to depict or to describe how the product or service will be introduced to the market and offered to customers.

Participants have 20–30 minutes to complete the task. After completing the task, groups of participants are invited to present their ideas publicly. Participants-listeners are invited to share comments, questions, tips.

End of session reflection methods At the end of the session, participants are invited to close their eyes, remember all the experiences they have had during the session, and think about what thing they have in their lives they consider “invaluable” and to imagine it as best as possible. After about a minute, participants are invited to open their eyes and share their feelings at the end of the session and name one thing that they consider invaluable in their lives.

THEORETICAL INFORMATION

HOW DID ENTREPRENEURSHIP START?

Barter trade In ancient times (2.5 million years ago), the world was dominated by hunters-gatherers, whose main activity was to search for and hunt for food. They didn’t have to decide where to plant an apple or where to grow a mammoth. And of course back then they weren’t buying or selling anything. At that time, responsibilities could be distributed unequally between people and groups, but “goods” and “services” were distributed via a mechanism of mutual commitment. The donated piece of meat on a barter basis was exchanged for medical care, stones were exchanged for shells, and the like.

Everything changed about 10 thousand years ago, when people decided to grow and breed several species of plants and animals. From dawn to sunset, people began planting seeds, watering plants, weeding weeds, grazing sheep because they realized that this activity would supply them with much larger amounts of grain, fruit, and meat than gathering and hunting. In this way the agricultural revolution took place.

Over time, people have mastered farming, learned to stock up on enough food and engage in various activities. Some began to pay more attention to animal husbandry, others did better in horticulture, and so on. And gradually things began to evolve in such a way that one family had an excessive amount of one resource (for example, meat) and a shortage of another resource (for example, grain). Such families, living next to each other, began to realize that they can exchange above mentioned resources, and thus began the first trade relationship – an exchange.

With the creation of cities and kingdoms, the development of transport infrastructure, new opportunities for specialization have emerged. Not only professional doctors and shoemakers, but also carpenters, priests, lawyers and officers began to establish themselves in larger cities. Some villages were famous for their wine, others for their olive oil, and others for pottery. And here the problem arose: how to improve the exchange between such a large number of professionals?

The emergence of money The system of mutual services ceases to operate when a large number of strangers get involved in it. It is possible to try to continue using barter trade, but there may be various complications when the benefits offered to the exchange will not be necessary for one of the parties or it will be difficult to calculate how to evaluate one or another item (for example, trying to figure out how many apples you need to give for a pair of shoes).

This problem has been addressed in a variety of ways. An integrated banking system was created, where all the resources were brought together and efforts were made to distribute them evenly in some way. Over time, most communities have developed a much simpler way to perform the exchange between many professionals in narrow fields: they have started using money.

Money has been independently created many times in different parts of the world at the same time. This discovery in itself does not require any technological innovation, as it is the result of an intellectual breakthrough of humanity.

Money is not necessarily coins and banknotes. It’s all that people have systematically agreed to use

when paying for goods and services, in other words, everything that calculates the price of all things. After coming up with money idea, people were finally able to quickly and easily calculate the price of a wide variety of items (apples, shoes, divorce proceedings) and quickly carry out the exchange process as well as accumulate savings in a convenient form. The best form of money we know is a coin. But the money itself emerged a lot earlier than people learned to manufacture money. Many communities began to thrive when they started using shells, livestock, fur, salt, grain, necklaces, materials, and debt statements.

Using money, we can quickly and easily measure the comparative value of all goods and services. In a monetary economy, a shoemaker only needs to know the price of different types of footwear and he/she does not need to memorize the price ratio between shoes and apples or shoes and goats. And also, the gardener no longer needs to choose from all the shoemakers the one who likes apples as everyone accepts money. That is the historical essence of money – it was created so that it could always be exchanged for anything needed.

Fundamental pricing principles Considering the entire history of monetary and economic development in the world, we can see that money, which seems like a simple and fairly clear measure of value to all, at the same time, most people are wondering why some people have a lot of money and others have little. Famous and wealthy people of the world state that financial well-being depends on each person’s internal

attitudes towards money, self-worth, and activity. In the framework of this activity, we will not talk about the psychological aspects of financial well-being, but we will learn the basic principles of pricing of goods and services.

The first session of this module was about developing a business model in which participants have already managed to create models of their business ideas. If the same participants take part in this activity, they can continue their work by developing ideas they already have, or focus on completely new goods and services offered – whether they are real or hypothetical.

Thus, PRICE is a cash basis of the value of a good or service.

PRICING is an element of a marketing complex that includes processes aimed at determining the price of a good or service.

PRICING STRATEGY is a method and action algorithms, that are used to achieve objectives of pricing and prices. Pricing strategy is influenced by both internal (marketing strategy and goals) and external (demand and market) factors.

PRICING METHODOLOGY is a set of pricing rules which reflects the principles of value creation of goods or services.

Pricing methodologies can have a wide variety of complex formulas that help calculate the price of a product, taking into account many factors: materials used, transportation, workforce, downtime cost, refresher training, and so on. The larger and more complex the structure of the companies that create one or another product, service, or value, the more complex the pricing process becomes. The service pricing process would look similar, some elements of the cost of developing the service could vary, for example, there could be refresher training costs, costs for the recreation service provider to maintain the quality of services, and so on.

Pricing strategy can be developed based on different factors: it can be a completely new and innovative service or product and then it can be offered at a relatively higher price. “Apple” company operates on a similar principle: from the very beginning of its existence, it set significantly higher prices for its products than was recommended for this innovative company. Other strategies, such as establishment or penetration strategy, may be chosen where the price set is significantly lower than the average price in order to attract as many customers as possible. Pricing strategies can vary depending on the different economic circumstances in which a company finds itself.

We could illustrate the product pricing process in the following simple diagram:

100€ Transporting premises Rent of

DEVELOPED PRODUCT

Prime cost

50€ Advertising

250€Used materials Labor force Taxes PROFIT

200€

VAT ~21%

1050€ 1270,5€