Frederick G. Crane: Start With Demand-Based Pricing
The Wall Street Journal - 04/12/2013
GUEST MENTOR, Frederick G. Crane, executive professor of entrepreneurship and innovation at Northeastern University D’Amore-McKim School of Business: There are three basic ways to go about setting a price for your product or service: cost-based, competitive-based or customer-based. Many startups are tempted to start with a cost-based approach, which in my opinion is the worst possible option. Why? Because basing your price on cost alone could make your product or service cost too high, if you have a high cost structure. On the other hand, it could also set your price too low, which can send a signal to the customer of poor quality. This is particularly true for services where price is often a surrogate indicator of quality.