Starting a business that charges lower prices and that -- however counterintuitively -- provides a better product, service, or experience is a successful entrepreneurial strategy.
Like Uber with taxis. Aldi and grocery stores. Amazon and, well, everything.
Add Mark Cuban and his just-launched Mark Cuban Cost Plus Drug Company, a pharmaceutical company that plans to make less expensive versions of selected (read: expensive) generic drugs.
The company's first drug will be a generic version of albendazole, an antiparasitic drug used to treat hookworm. Treated early, two tablets will treat the infection; left untreated, cognitive defects and neurological problems can result.
Sadly, as the current price of that medicine has risen, so has the incidence rate of hookworm.
Cuban's plan? Produce and sell albendazole, a drug that currently costs consumers around $225 per tablet, for $20. How?
Cost Plus Drug claims its cost to make and distribute the drug is approximately $13 per tablet. It adds a 15 percent profit margin and charges $15 per tablet as a wholesale price to pharmacies, clinics, hospitals, etc., and then sets a manufacturer's suggested retail price of $20 per tablet.
"I'm all for capitalism at its purest," Cuban wrote, "but it requires capitalists acting like human beings first. If they don't, the cost of health care goes up for everyone to the point where we can't afford insurance and people die or receive inadequate care."
And then there's this.
Emotional Intelligence and "Empathy Arbitrage"
As Inc. colleague Justin Bariso writes, emotional intelligence is the ability to identify, understand, and manage emotions to achieve a specific goal. So while good companies aim to satisfy customers, great companies want to connect with customers emotionally.
But that goal isn't always a positive one.
Imagine it's 2015 and someone you love suffered with a serious medical condition. Like malaria. Or cancer. Or AIDS. You searched for answers. You searched for treatments.
You learn about a drug that may be effective. Even though it's extremely, possibly even cripplingly, expensive, that's OK: In this situation, money is no object. You'll do -- and spend -- anything to help the person you love.
Regardless of "fairness" of the cost.
The same happens when parents spend more than they can afford to provide their children the "best" education possible, regardless of the actual value received. Or with safety, where people will spend more than what is reasonable -- much less what they can afford -- to protect themselves or someone they love.
Or with caskets and burials, where the implication from some funeral home directors that the less you spend, the less you must have loved your dearly departed.
When emotions can be used to overly influence the cost/value equation, the result is what Cuban calls empathy arbitrage: the difference between what a product or service is worth and what customers feel they should have to -- or in a less emotionally charged circumstances, be willing to -- pay.
Even if, back in 2015, the company that produced the drug your loved one needed had increased its cost by 5,455 percent, from $13.50 to $750 a tablet.
That's the story of "Pharma Bro" Martin Shkreli, currently serving prison time for an unrelated stock fraud case. Shkreli's company practiced what Cuban calls "inhumane capitalism."
And whether Cuban is correct or not, he clearly feels the price of medications is at least sometimes unfair.
"There is humane capitalism and inhumane capitalism," Cuban wrote. "When capitalists act humanely, markets are optimally laissez faire," he continued. "When capitalists act inhumanly, the only real response is government regulation, which damages markets and increased costs across the board."
The goal of Cost Plus is to produce "radically transparent, low-cost versions of high-cost generic drugs" so that "everyone should be able to afford their medicine" and "feel the price they paid for their medicine was fair."
Emotionally intelligent goal as well -- and in this case, a positive one.
Who doesn't want to feel they are treated fairly? Who doesn't want to feel they have access to the health care they need?
To accomplish that mission, Cuban's company hopes to introduce more than 100 additional drugs by the end of 2021 and build its own factory in Texas in 2022.
Will it be successful in "disrupting" (a word used too frequently) the pharmaceutical industry? That remains to be seen.
According to Bezos, disruption is fine, but successful businesses focus on things that won't change. Bezos built Amazon around things he knew would be stable over time.
I very frequently get the question: "What's going to change in the next 10 years?" And that is a very interesting question; it's a very common one. I almost never get the question: "What's not going to change in the next 10 years?" And I submit to you that that second question is actually the more important of the two -- because you can build a business strategy around the things that are stable in time. ... In our retail business, we know that customers want low prices, and I know that's going to be true 10 years from now. They want fast delivery; they want vast selection.
It's impossible to imagine a future 10 years from now where a customer comes up and says, "Jeff, I love Amazon; I just wish the prices were a little higher." "I love Amazon; I just wish you'd deliver a little more slowly." Impossible.
And so the effort we put into those things, spinning those things up, we know the energy we put into it today will still be paying off dividends for our customers 10 years from now. When you have something that you know is true, even over the long term, you can afford to put a lot of energy into it.
People will always want to pay reasonable prices for medications. People will always want to feel, when they are sick, or suffering, that others are not making "excessive" (an admittedly difficult word to define in a capitalist system) profits from their misfortune.
People will always, always, always want to feel they are being treated fairly.
Delivering on those promises could help Cuban's company not only stand out, but build an emotional connection between its brand and its customers.
Which is something every business hopes to achieve.