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This Company Charges $27,000 for a Single Piece of Fruit | Inc.com

By all accounts, the fruit thus sold is very high quality, grown under special conditions. However, the price this fancy fruit commands is geometrically greater than what it costs to grow, ship, and display it. The profit margins for these gift fruits must be astronomical.

Why do people pay so much money for something that costs so little to produce? Well, in Japanese society, such gifts provide prestige to both giver and receiver. In other words, the price reflects the value rather than the cost.

The $27,000 muskmelon is a perfect illustration of how you should be pricing your own products and services.

Foolishly, most business people believe that the best value is “the highest quality for the lowest price.” Based on this definition, they try to compete in their market by dropping their prices while simultaneously trying to reduce their cost of goods.

This is a recipe for price wars and low margins.

The $27,000 muskmelon illustrates that, in some cases, the best value can mean “the highest quality for the highest price” or even just “the highest price.”

The same is true for most luxury goods. The difference in manufacturing cost between, say, a Louis Vuitton handbag and a knockoff is minimal. The high price of the original item is part of the value of the product to the buyer. If you didn’t pay too much, you’re not getting the full value.

If you think that luxury goods are a special case, you’re missing the point. The best pricing strategy is always to base price on the value that a product or service has to the customer rather than what it costs you to provide that product or service.

For example, if you possess knowledge others do not possess, and that knowledge is of value to your clients, you can ask a high price that’s completely disconnected from your cost of goods.

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This Company Charges $27,000 for a Single Piece of Fruit | Inc.com.