Customer-Driven Pricing

What does the customer think the price should be? That's the question here (not "to be or not to be").

Customer-driven pricing is a cost accounting term which, in practice, compares the cost to make, market, and sell the product...and then whatever mark-up or investment return that sale brings...versus the market-clearing price the company could, in theory, charge to sell it.

Think of a home. In a hot real estate market, that home might cost a builder $3 million to build, but it could sell for $8 million. In a more normal market, homes are built on a "cost plus" basis, where the homeowner simply engages a contractor and pays her whatever the home costs plus 10-12% add-on for their time to manage the project.

In the case of CDP, this notion of "the market price" just applies to...well, everything. If the cord of firewood costs the logger $100 to cut and deliver, in the heat of summer, maybe the customer-driven pricing number is $120. In the middle of winter, when people are desperate, maybe the "right" price is $200. Those customers then drive the price of the logs.

Of course, if the logger misjudges demand and overcharges, and no one buys his firewood, his business may, uh...go up in flames.