Sounds like a rationalization right out of “Atlas Shrugged”.
It’s not pricing that matters. It’s what people are willing to pay that matters. An entirely different calculation.
Just more suppression and/or control of capitalism.
The author was never a product manager.
Every product I sell is set at a minimum cost plus price for that particular segment or type of product...
A item that needs special consideration in the sell price like being keep frozen automatically is set at a higher margin to off set the cost of keeping it frozen...
The biggest factor in pricing a product is what the COMPETITION IS SELLING IT FOR...
I have many items as an example in my dry goods category that is priced at what the market will bear because there are few competitors that sell it... typically it will only be a few margin points higher than normal...
An item or similar item 50 other companies sell will be priced accordingly...
Is the min-max method out of date or too advanced?
I never heard of any of these pricing strategies- except for cost-based which is used for utilities.
Cost based pricing does not work in the government. They overtax the systems and the more money they take in the more they waste.
No respectable publication would use “sucks” in the title
I like to buy things below the marginal costs and let the manufacturer make a profit on volume.
Well it kind of depends on what you sell. Luxury designer goods are usually value priced rather than cost priced.
It also depends on how many competitors you have and whether the product is unique and exclusive.
Value pricing attracts competition because they will quickly realize that the cost is low and the profit margin high and they will rather quickly undercut your pricing PDQ and the resulting price war result in a downward spiral to cost pricing.
Sometimes, keeping your value pricing modest will delay the entry of competitors into your market, because there might be other value priced products that have more tempting margins.
There is no one best system for everything.
my old boss set our prices based on margins that would allow the company to pay off all of its debt in a set period of time, given wildly optimistic sales projections. The market did not agree with him. Interestingly, as he raised prices, sales dropped. He felt that this was because our sales reps weren’t working hard enough, and our service was lacking. His proposed solution was to raise prices a little bit more to make up for the revenue shortfall. There are costs to being stupid.
He only focuses on cost not value. Comparing seats at an arena.
Obviously the seats cost the seller the same but differ greatly in value to the consumer. If not for price, who should get the front row seats? He gets to decide?
FWIW, my understanding is that Costco sells everything at a fixed percentage markup. They seem to have been quite successful, and without screwing over their employees.
We need a group of highly educated people appointed by politicians to dictate price and production. Somewhere they can be centrally located. if only such a system existed it would be super duper successful. I know, as a business owner, I’d welcome the relief of someone else deciding what to charge for my services.
This is a freshman level article. No one uses cost based pricing,
Value pricing is better than cost plus pricing, really, what a concept.
Good grief.
The author assumes costs are fixed. Over time costs can be reduced through purchasing scale, relocation of production, substitution of materials, automation, and improving labor productivity.
Pricing is one element of the marketing mix and the determination of actual prices is an element of corporate strategy. When setting the actual price of an item the company considers: competition (current and potential future), costs (current and projected future), requirements of the distribution chain (Tiffany has a different price expectations than Walmart), promotion strategies (high low or everyday low price), product positioning (some brands have higher perceived value and are able to price at a premium to similar products), internal financial/profitability goals, and an intuitive assessment of what the market will bear.
In my experience the only companies successful long term with pure cost based pricing are those who are able to maintain the low cost producer position in the industry and at the same time are willing to accept low margins to achieve high volume. The high volume requirement to cover fixed costs, and the advantages of production scale at high volumes, become significant barriers to competitive entry. However, high volume production scale typically requires undifferentiated commodity products to realize maximum production efficiency and lowest cost per unit. Commodity producers often lose market share to higher cost and higher priced products. An example is the beer industry where microbreweries are gaining share from the low cost producer (Anheuser Busch) even though their products are often priced higher.