“Price-Led Costing” the Wave of The Future

A few weeks ago in the Creedy Commentary I contrasted the conventional and prevailing DeathCare pricing strategy that is now outdated: Cost-Led Pricing with the more customer-centric Price-Led Costing favored by more and more B2C companies and, more recently, B2B companies.

As our profession relentlessly marches toward commoditization and price becomes the sole determinant of choice in more and more markets the need for a change in our approach becomes glaringly important.  Who will survive?  It is likely to be those that master this aspect of market strategy in spite of its complexity.

There is a long history of companies that became obsessively focused on cost at the expense of providing a product or service of value to the customer. The fact is, you can make a pizza so cheap that no one is willing to eat it.

Here is an article from the Pricing Society that does a better job of explaining Price-Led Costing than I did.

The more usual way is to take the costs and then determine the price; and although that method may be scientific in the narrow sense, it is not scientific in the broad sense, because what earthly use is it to know the cost if it tells you that you cannot manufacture at a price at which the article can be sold?

[price-led costing] explicitly understands that … price determines … costs, and does not let … costs dictate… price. You must do your cost accounting BEFORE providing the service (what Toyota calls Target Costing). Historical costs don’t matter, it’s only future costs that count.  Click here To Read The Full article “Price-Led Costing: The Wave of The Future

What I would do:

Go back and review the articles relative to pricing strategy on the Creedy Commentary.  Begin working with your team to really try and decide which parts of your organization represent “the baby” and which are really only bathwater and start throwing the bathwater out.

Here are links to The Creedy Commentary Articles you should review.

A Broken Business Model

A Competitive Fortress

Licensing Laws: Barrier to Survival

 

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