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Pricing Is A Community Event | Michael Diamond

It takes a village to raise a child, as they say. But the same might be said about pricing – although I admit that the phrase “it takes a village to establish a price” is a bit less lyrical than the child-raising version. Nevertheless, pricing is a community event, which flies in the face of how many companies approach their pricing strategy.

In general, there are two broad approaches to pricing: cost based or value based. Cost based is the process of counting up your costs, adding some margin, and, voilà!, there’s your price. Value based, on the other hand, looks at the value the buyer gets from your service and from there designates some percentage of the value the buyer is gaining.

It’s common in pricing discussions to champion the value-based approach. It seems fair and usually yields a better return to sellers.

But pricing doesn’t exist in a vacuum. It exists in markets that have these annoying entities called “competitors”. I think this is an area where all of the academic treatises on price theory have their tables and graphs punctured. A common joke is that business would be a lot simpler if it wasn’t for those darn customers. Similarly, pricing would be a lot easier if it wasn’t for those darn competitors.

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Pricing Is A Community Event – Michael Diamond.

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