Why Your Price Has Nothing to Do With Cost

October 13, 2014

Oscar Wilde said that he was a man of simple tastes, only the best will do.

Sally doesn’t value flying first class but buys $450 jeans. Bob wears $50 Levi’s and always flies first class; he’d buy his own jet if he could afford it.

We all place a different value on what we receive and we’re willing to pay a comparable price. It has nothing to do with the cost to the producer or provider. Sally doesn’t care if the manufacturer of those $450 jeans is going bankrupt.

Therefore it’s the customer who is priced, not the product or service, based on his or her decision as to value.

Some sellers compete only for those at a single value point, whether it’s Walmart with low prices or Nordstrom with high prices.

Others, like a football team, segment their offerings at various price points from regular seats to club levels, from season tickets to million dollar sky boxes, to meet the value attached to them by their customers.

Unfortunately, in many parts of healthcare, pricing is completely misunderstood. It’s based on costs – the so-called “resources” involved. Even the current healthcare panacea du jour, “value based purchasing,” is simply a tool to reduce what are labeled waste and inefficient, i.e., underlying “costs.” But cheaper is not a synonym for value.

What’s your pricing strategy? What service or product can be provided to those who place a high value on it and are willing to pay a commensurately high price?

If you think that this is impossible, that your prices are dictated by payors and that “everybody” does business such and such a way, then you’re not thinking deep or wide enough.

Leave a Reply