Cost-plus pricing (adding a fixed percentage for profit on top of your costs) is the worst pricing strategy around. And it’s used by most companies(!) But… there are two good uses for it: Use it when all your products or services are completely customized. Thus if you build new houses to customer specs — thenContinue reading “Cost-Plus Pricing Strategy – 2 Good Uses”
Author Archives: Marlene Jensen
Do you use this terrible pricing strategy?
Cost-plus pricing is where you calculate your costs, then add a percentage to it for profits. It is used by most companies. Cost-plus pricing is required only where you sell customized products/services — where every order is different. For all other products/services — it’s the worst pricing strategy you can use. In fact — youContinue reading “Do you use this terrible pricing strategy?”
Using Excess Production Capacity
If you have excess production capacity for your premium brand product, consider a lower cost version as well. However, make it a separate brand (or manufacture it for a private-label client) instead of cheapening your premium-brand image. Source: The Tao of Pricing.
Adding a Higher-Priced Model
Adding a higher-priced model (even one that sells poorly) can make your other models more attractive. Some customers (and some companies) wish to avoid the highest priced model. Help them by giving them an even-higher-priced model to avoid. Source: The Tao of Pricing.
Rationale for Entry-Level Offerings
A peasant may not remain one. Offering a range of models at different price levels lets consumers develop brand loyalty — before they can afford your best. Example: By ignoring the low ends of their markets, GM and Ford allowed Toyota & Honda to grow strong enough to then challenge them with high-end cars. Source:Continue reading “Rationale for Entry-Level Offerings”
Dangerous “Loss Leaders”
Beware of “loss leaders” that could become just-plain-losses. Example: A cellular service attracted droves of customers for its “evenings free” promotion. But… most of them only placed evening calls. Source: The Tao of Pricing.
Prices Seek Their Own Level
Water seeks its own level. So, too, do prices. Products sold cheaply in one country will find their way to countries where they are priced higher. Source: The Tao of Pricing.
Dangerous Revenue Boosters
There are many paths that increase short-term revenues but hurt profits in the long run. The wise owner will watch out for them. Particularly devious: Large discounts given by sales managers to reach a revenue total that earns them a bonus. Source: The Tao of Pricing.
Customers’ Non-Monetary Investments
The more your customers invests in your products: Time (for learning/training), or Money (for peripherals) …the less likely they are to switch to a lower-priced product. Use this knowledge wisely(!) Source: The Tao of Pricing.
Price Cuts That Don’t Increase Sales
Are you increasing sales with your price cut? Or… Just increasing your customers’ inventory? Advancing their expensive purchases by a month or two? Price cuts that don’t increase total sales can be as worthless as the promises of a known liar. Source: The Tao of Pricing.