Yesterday I shared that cost-plus pricing might be an 'easy' approach, but it is not the best way to price your offering.

Today, I want to share a better approach: Customer-driven Pricing

What is it?

You set up a pricing strategy that reflects market conditions.

Typically sales or product managers decide on the final price offered to the customer.

The Pros:

• Reflects the customers' perceived value of the product.

• Sales and marketing teams usually can reach their revenue or volume targets.

The Cons:

• Profitability suffers because the organization focuses on making more sales based only on the customer's willingness to pay (WTP) and not the real value of the product.

• Customers usually don't know or conceal information about their WTP. Hence, only relying on WTP potentially leads to underpricing your product.

The takeaways:

Customer-driven pricing is a better approach than cost-plus because you start valuing your customers' feedback.

But it is often misleading because it is only guided by what the customer thinks, and not on the real worth of the product.

The job to be done is to raise the price acceptance, and not just please the customer at whatever price they think they want to pay.