Re: The Psychology of pricing
JOHN PICCIRILLO <john_at_tmlk.com> WROTE:
> Your pricing model should not be based on cost.
TO WHICH ROBERT BRENNER <Binfog_at_aol.com> REPLIED:
> I disagree with this basis premise. All pricing models
> should be developed knowing the cost to produce or the
> cost to provide. Productivity also has a direct
> bearing on price. Integrate cost and productivity into
> the model and you have a baseline cost from which to
> set price. It is then that you evaluate what
> competitors are charging or what you think the market
> will bear. This gives you a range within which you can
> set your final price.
I have to agree with Robert that John P's basic premise
is mistaken.
Any product or service has a cost of delivery which can
be calculated with some certainty. Most of these costs
can be generally predicted in advance. Doing so allows
a business to compare a predicted cost to present
market prices and see if a potential competitive
pricing advantage is possible.
When introducing a new product or service, a lower
price gives a seller greater flexibility to create or
penetrate the potential market. When combined with an
effective marketing program and ad campaign, a lower
prices gives a seller a strong advantage.
> But without considering cost (even nonrecurring
> development costs), you are going into the process
> blind. You may be putting a lot of R&D into a product
> that can never be sold for enough to cover costs and
> produce the profit desired. Even information has an
> associated cost. It takes resources to collect,
> process, package and distribute this, and I believe
> that you need to know how much you are putting into a
> product so you can evaluate if it is a worthwhile
> venture.
When attempting to enter existing markets where
preexisting pricing for alternate goods or services
exist, failing to use a cost-based price as the minimum
entry point is committing biznicide as sales will only
produce losses. This explains the demise of many
e-enterprises which had no idea of the value of their
offerings relative to their costs of production.
If initial investment and overhead are figured into the
cost recovery equation, a prediction of how many total
units must be sold over what period of time can be
calculated. If it turns out that twice the world's
population must be sold monthly for a product unlikely
to be used more than once annually per person, you
know you've got a winner???
Regards all,
John Gaskill
gm_at_info-central-usa.com
Received on Wed Oct 11 2000 - 14:01:30 CDT
