Case_In_Point_7th_Edition_Page001_183_2

/et.s talk au w i o st-based n w pricing. What does it cost us to make, package and market a onemonth
supply? Were there heavy R&D costs?
Student draws this chart.
– R& D costs were minimal because this was discovered by accident while we were testing a
similar drug for a different illness. So the cost of the entire package, everything you need to worry
about, is $1 for a month’s supply.
One dollar? That’s it? That’s great. So with production costs of one dollar and no heavy R&D
costs, we can dismiss cost-based pricing. If we look at price-based costing, we need to figure
out what the market will bear. How much will people be willing to pay for a full head of hair?
Currently, they are paying between $50 and $60 a month for products that aren’t as good as
ours. So that means that they might pay as much as $150 to $180 a month. So now we have
parameters of between $2, which represents a 100% markup, and $180, which represents
18,000% markup.
– An 18,000% markup; are you comfortable with that?
I’m comfortable with the markup percentage if that’s what people will pay. This isn’t a life and
death drug, like an AIDS drug. This is purely cosmetic. I’m not convinced that people would
pay $180 a month. You’re growing a little thin on top, sir. What would you pay?
– Rule number one: never insult the interviewer.
Sorry, but it looks good on you.
– And you were doing so well. What else do you have regarding pricing?
You need to look at what it is worth to them compared to other things in their life. People pay
$3 a day for a cup of Starbucks coffee. Is a full head of hair worth a cup of coffee? I’d say yes.
– So, $90 a month?