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How to Find Out What Customers Will Pay | Harvard Business Review

It’s one of the most fundamental decisions that every business must make: What price should I charge? The right answer to that question is a company should charge “what the market will bear” — in other words, the highest price that customers will pay.

Unfortunately, few companies use this approach. Instead, prices are usually set using “that’s the way we always do it” processes such as marking-up costs, matching competitors, hallway discussions, and back-of-the-envelope calculations.

Sound familiar? While easy to compute, these methods don’t incorporate the most important component of setting a price — an understanding of how much customers will pay. As a result, these prices have no correlation to what the market will bear. This leads to lost profits.

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How to Find Out What Customers Will Pay.

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