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 ….?
