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Pricing Add-Ons

 

DisciplinesMarketing > Pricing > Pricing Add-Ons

Description | Example | Discussion | See also

 

Description

The price that a customer pays for a product or service is made up of a number of elements. The basic price comes from your costs plus your profit. But then further costs may need to be added, such as for tax, tips, storage, packing, shipping, recycling, and so on. A question hence arises: do you include such costs in a single price, or do you separate out some or all of such add-on costs?

Offering a single price makes the effort of calculating true costs easier. Using add-on costs makes the basic price seem cheaper, but then adds complexity that could be accepted (if the basic price has already caused closure on the purchase decision) or could make the potential customer walk away (if they see this calculation as too much effort).

Example

It is common in restaurants within a country to not show tax on its menus, and not automatically add tips. One restaurant decides to buck this convention, clearly announcing prices as 'including tax and service charge' and marketing this as 'making life easier for you'.

An internet company declares 'free shipping', while actually including shipping costs within stated pricing.

Discussion

Conventions for what is or is not included in a stated price varies greatly between countries and industries. Tax, for example, is often left off pricing in business-to-business transactions where this may be recovered by the buying company (such as VAT in the UK). What customers expect, typically driven by such norms, can be a critical guide for how to break up pricing. It also offers an opportunity to rethink pricing and to appear more competitive or honest.

See also

Tipping

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