Price is only one measurement of value. There are other means of measuring it to- one being the Customer Value.
Drucker’s analysis concluded that the customer is not illogical and that marketers must study the cost issues taking the perspective of a customer value into consideration to identify the real issue.
How exactly should one go about measuring Customer Value?
The first step of the marketer must be to understand what the customer is interested in buying rather than what the supplier intends to sell. According to Drucker, any marketer, whose basis of pricing is the customer value could accomplish industry leadership nearly without risk. For doing so, cost must be taken into consideration but first the price is considered and determined from the customer’s standpoint.
Chain costing says that all the costs involved in the chain must be considered. The concept of chain costing represents total costs for a particular product or service, but chain costing may also reflect costs that are being paid by the customer which may not be completely understood by him.
The process of making use of a learning or an experience curve to establish future costs and apply them in present was developed in the U.S. The decline curve could be established and used to predict future costs.
Cost should be determined by price and not vice versa. Once the price is determined, consider the costs to ascertain that the product can be sold in profit. However, to do so, all aspects of costs must be considered. Also, overproduction of anything leads to decline of cost and customer value for it.