Article written by Quantiz’s founding partner – Frederico Zornig
A company can choose from various methods to set prices. The most traditional and widely used, based on our experience and research conducted by major consulting firms and Quantiz itself in 2016, is what we call markup.
In this method, the starting point is the cost of the product and the manager defines the desired margin they would like to obtain for their product, estimates a certain volume of sales, and with that, can define the markup which is nothing more than a factor that will be applied to their purchase or acquisition cost.
Some companies even work in a simpler way than the one mentioned above and simply apply a multiplier on top of the cost of goods sold or manufacturing cost and define the selling price.
Therefore, it is an easy-to-use method. And has other advantages such as almost certain assurance that the obtained margin will be close to the adopted markup and a guarantee that their costs will be covered. However, its biggest weakness is precisely being directed to financial objectives or goals within the company, ignoring competitor prices or, even more important, the perceived value by the customer (B2B) or consumer (B2C).
This perceived value is precisely the great opportunity to capture higher margins for the products and services we offer to the market. Whenever a company has a competitive advantage that is relevant to a certain segment
of customers it serves, there is an opportunity to price the product understanding quantitatively the perceived value by customers and how much they are willing to pay for these differentials.
Clearly, in order to arrive at these values, some type of customer research is necessary. There are several research techniques available to help a company define this differential value, and it is not the purpose of this article to explain them. The idea here is simply to reinforce that a pricing project can bring about a change in the way companies price their products, adding more sophisticated methods that allow for greater capture of value for what is offered.
