Cost-plus pricing, n. gerund, delusional.
So going beyond Part 1 … cost-plus pricing:
– misses psychological price points
– effectively destabilizes the business because the list prices are set with no perception of customer value in mind (if the prices are set irrationally, customer behavior will be irrational)
– assumes that all the costs are cost-competitive, right? Wrong.
– temporarily shields uncompetitive product management, product engineering, procurement and product costing from economic reality
– prevents the necessary and creative tension between pricing (“these products are not cost competitive!”) and costing/procurement (“oh yes they are!”) to help improve the business as whole
– is very apparent to professional purchasers & purchasing depts. and can be exploited accordingly
– would be severely lagged and ineffective when used for product life-cycle management
– can be easily gamed by the competition: it’s very obvious when a company doesn’t set its price competitively
– wait, don’t tell me that with cost-plus pricing you don’t even bother with competitive analysis either ….?
