by Adam Juda on Tuesday, April 22, 2014
One of my friends purchased a product. It was a small, resealable plastic box containing a piece of sandpaper and six pieces of sticky tape, each roughly a square inch in size.
Let's pretend that you own the company that sells this product. How would you price it?
If you were to price on cost, you would probably quote a price in the neighborhood of fifty cents. After all, tape and sandpaper are pretty cheap. Cutting them to size is practically free.
Would it surprise you to know that my friend purchased this kit for $6 and believes it to be worth every penny?
Why? Because it is sold as a tire patch kit for his bicycle.
To a bicycle owner, flats are a pain to deal with. A flat tire can leave you stranded tens of miles from home, with nothing but a very, very long walk to end your day of biking.
Every bicyclist will get holes in his bicycle tires. The usual solution is to purchase and carry spare bicycle tubes. They are bulky to carry, a hassle to shop for and each tube costs around $6.
A single kit could save a rider over $30 in cost, a bunch of time spent shopping and allow him to ride his bicycle while carrying less bulk. What bicyclist wouldn't buy this kit for $6? It seems like a no-brainer!
Lesson: Basing the price of an offering upon its cost of production isn't always a good idea. Pricing an offering by the value it delivers can be far more profitable.
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