Academic journal article Journal of Accountancy

You Are What You Charge: Ultimately, a Business Is Defined by That for Which It Collects Revenue, and It Collects Revenue Only for That Which It Decides to Charge

Academic journal article Journal of Accountancy

You Are What You Charge: Ultimately, a Business Is Defined by That for Which It Collects Revenue, and It Collects Revenue Only for That Which It Decides to Charge

Article excerpt

Prices comprise the language of business, indeed of society.

They serve three crucial functions: First, they transmit information; second, they provide an incentive to use methods of production that are least wasteful and most valuable; and finally, they distribute income. Free market prices are essential to a well-ordered society, and should be protected as a form of free speech.

Once it becomes clear that no customer buys hours, it is self-evident that pricing by the hour is precisely the wrong measurement to establish the value provided to the customer. The firm of the future will price on purpose, for profitability, not market share. Pricing is an art more than a science. Of the four P's of marketing--price, place, promotion, and product--price is the most complicated. It is the only chance a business has to capture the value it produces outside of itself, which is the marketing concept championed by Peter Drucker.

Price does not create the value per se--although it can greatly influence the perception of it--but it does capture it, leaving the other three P's to produce value for the customer. Price also sends distinct signals into the marketplace, giving customers clues as to who you are, what you do, whom you serve, and ultimately, how your firm perceives itself. Think of the message that a Mercedes versus a Chevy, or a Mont Blanc pen versus a Bic, sends into the marketplace; a large part of that message is embedded in the price. …

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