Cost-plus pricing, n. gerund, delusional.
Going beyond Nagle & Holden … cost-plus prices:
– miss psychological price points
– effectively destabilize the business because they’re set with no perception of customer value in mind (if the prices are set irrationally, customer behavior will be irrational)
– assume that all the costs are cost-competitive, right? Wrong.
– temporarily shield uncompetitive procurement/costing/product management
– prevent the necessary and creative tension between pricing (“these products are not cost competitive!â€) and costing/procurement (“oh yes they are!”) to help improve the business as whole
– are very apparent to professional purchasers & purchasing depts. and can be exploited accordingly
– would be severely lagged and ineffective when used for life-cycle and X-rate 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 ….?
Any more?
