Too often, companies set the prices for their products and services based on a “cost plus” approach, rather than on a real understanding of the customers’ perception of value and their willingness and ability to pay.
The prices you charge for your products and services have a direct impact on the bottom line. The often-used cost-plus approach is far too simplistic and does not recognize the strategic importance of pricing setting.
Pricing has to align with your business goals. Are you trying to maximize profits? Or do you want to quickly gain market share with a new product? Two different goals, each requiring their own approach to pricing.
Here are some thoughts about price setting that may help improve your business results.
Setting Prices: Customer Value, Not Cost Plus
With a cost-based approach, it is not uncommon for the price to be either too low or too high. If you price too low you leave money on the table. Price too high and you miss out on a sale.