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Pricer’s Points: Looking at everyday pricing as a consumer | Jesper Hansson

Whenever I get a chance, I always tell people not to base pricing on cost. Even Bart Simpson above is conveying the same message. However much of the pricing we are facing is cost based pricing. The most apparent when living in Asia is out everyday visit to the food courts. Last week I was standing at a stall in Singapore selling Thai and Vietnamese dishes. I’ve eaten there a lot of time but that particular day I was looking at the different menu options and there was 40 different dishes to choose from.

Gordon Ramsay would probably not like the multitude of food offered as it would pose a challenge to keep all the different raw ingredients but that wasn’t my first thought. My first thought was that it seemed strange that the menu had 38 different prices and all prices were in the range from $3.20 to $5.40. For me that is a clear sign that the prices are based on an estimation of cost and most likely a mark up of 100%, meaning that a green curry with steamed rice sold at $4.60 has a cost of $2.30. Then I started wondering how often the stall owner reviews his cost to produce and change his prices. He was there so I asked him and he said they estimated the cost of the different dishes in 2011 when the stall opened and the prices had been the same ever since. I talked to him for about 10 minutes after that and asked him if he had ever considered how much sales he would loose if he just prices all his dishes at $5. His reply was that he had never really thought about that. He also told me that he monitored how many of each individual dish he would sell per week – he had to in order to make sure he had the right raw materials to cook with over the course of the next week. I left that stall after having finished my fried noodles, wondering just how much money the owner might be leaving on the table every week. It could be thousands and I did give him a few hints on how to find out and how to measure customers willingness to pay.

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Looking at everyday pricing as a consumer.

Jesper Hansson

Owner/Managing Director, Core Pricing Pte. Ltd.

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