Cost versus Value Pricing

tesla

I’ve written previously about the challenges startups face in the post Pricing can be strategic. An old story that’s probably apocryphal came to mind yesterday while I was writing another post. (I find I often find ideas for new posts in the midst of writing a current one.)

I’m sure that when you say Tesla these days, 95% of the people believe you are talking about Elon Musk’s electric car company and most of them will have an opinion about Musk, his car company or both. And in fact when you use Google to search for Tesla, it’s the car company that comes up first.

But there’s another Tesla, Nikola Tesla, one of the most prolific inventors of all time, though not one of the most successful of entrepreneurs. And if you search for Nikola autofill will present you with Nikola Tesla first.

There’s a lot to be learned about Tesla’s life for any entrepreneur and to this point there are far more books about Nikola Tesla than Elon Musk. Not having read any of them as yet I can’t make a recommendation but if you search Amazon for Nikola Tesla you will find an amazing number of books about Tesla as well as at least one by him.

One of the options in pricing is value pricing. Harvard Business Review has a very helpful article entitled A Quick Guide to Value-Based Pricing by Utpal M. Dholakia.

But here’s the story about Tesla and how it’s a great example of cost-based pricing vs. value pricing.

Nikola Tesla visited Henry Ford at his factory, which was having some kind of difficulty. Ford asked Tesla if he could help identify the problem area. Tesla walked up to a wall of boilerplate and made a small X in chalk on one of the plates. Ford was thrilled, and told him to send an invoice.
The bill arrived, for $10,000. Ford asked for a breakdown. Tesla sent another invoice, indicating a $1 charge for marking the wall with an X, and $9,999 for knowing where to put it.

Keep this story in mind as your startup struggles with what pricing model to choose. We can’t all be Nikola Tesla, but in this instance at least, value pricing was the best choice and it can be for you, though it may also be the most difficult, as value is in the eye of the beholder. So make sure you know who the beholders are and what they value!

 

Author: Mentorphile

Mentor, coach, and advisor to entrepreneurs, small businesses, and non-profit organizations. General manager with significant experience in both for-profit and non-profit organizations. Focus on media and information. On founding team of four venture-backed companies. Currently Chairman of Popsleuth, Inc., maker of the Endorfyn app for keeping fans updated on new stuff from their favorite artists.

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