From the course: Accounting Foundations: Cost-Based Pricing Strategies
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Use of costs in pricing customized products
From the course: Accounting Foundations: Cost-Based Pricing Strategies
Use of costs in pricing customized products
- Of course a business wants to charge it's customers as much as they are willing to pay. This is sometimes called Value-Based Pricing. Even this idea is more complex than it looks. As you consider whether it is worth it to give the customer an attractive price now, in the hope of developing good will and a long-term relationship. Another obvious thing to consider in pricing is the existence of behavior of competitors. Prices are not set in a vacuum, but are a part of a company's competitive environment. Now with that said, it is often the case that the company doesn't know what price a customer is willing to pay, because even the customer doesn't know. This is specially true for custom made products and services, or customer purchases that aren't made very often. For example, a few years ago my wife and I had some extensive remodeling work done on our house, well how much should we pay? What was it worth to…
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