Traditionally the price of a product is marked as the sum of the cost of manufacturing and the profit. But now the equation as changed. Lean manufacturing understands the fact that customer is not willing to pay for the wastes in the manufacturing processes. So the equation lean manufacturers will follow will look like
Profit = price – cost
Definitely you can’t increase your prices as you wish. Your competition will simply win the market if you try to increase the prices of your product. On the other hand, no one is doing business for nothing. As an organization you have to have profits. So you have two constrains. While you need your profits high, you must keep your costs competitive in the market. You are now left only with one variable, which is cost. How to balance this equation with this single variable. Obviously you will have to reduce the costs.
The important fact is, customer gets the priority in balancing the above equation. Customer is not going to pay for the wastes in the system. Alternatively to compete in the markets and to earn profits, organization will have to eliminate its inefficiencies and reduce costs.