Part 5: Price Components

Basis of Charge

Capsule: The industry may change the basis of charge it uses for the product or for any other component of price in order to change the effective price for some or all customers.

The industry may change its effective price by changing the Basis on which it quantifies the product itself or any benefit associated with the product. This action changes the unit measure the industry uses to quantify one or several components of the price. In most cases, the Basis of the variable charge for the product reflects the key cost that drives the industry's cost per unit sold. A change in the Basis of measurement for a component would normally change the effective price for some segment of customers. The industry might use one Basis for the unit of product and a different Basis for an Option or for a Support feature. The industry may create a combination Basis for a charge or credit by including more than one Basis in a single transaction. When the industry includes more than one Basis for its charge in a particular transaction, it usually is charging the customer for the achievement of a particular result or on the occurrence of a particular event.

Example of Basis of Charge: HP unveils its first copier, the CopyJet. The CopyJet is less than one-tenth the price of most conventional color copiers. It also uses plain paper, another savings for users. But it's slower than high-end machines, and the image quality isn't as good.
Explanation: HP and its customers have a number of potential Bases to charge for this copier. The most obvious is to charge for each copier. It might also charge per plain paper copy, per minute of use, or per million pixels of copy quality.

More Basis of Charge Examples »

For more examples and brainstorming ideas, please see Improve/Pricing/Change Components of Price/Change Basis of the Charge or Credit.

Basis of Charge Questions

  • Identify the bases the industry uses today:

    • Application or Item: The industry charges for each individual unit sold which is not classified separately below. ·

    • Stated Time: The industry sells a service for a particular period of time.

    • Result Achieved: The industry charges the customer for the achievement of a specific end result.

    • Unit of Cost: The industry charges the customer a multiple of its key cost.

    • Dimension: The industry charges by length, width, or height.

    • Volume: The industry charges by cubic measure.

    • Event Occurrence: The industry's charge or credit to the customer is contingent on the occurrence of a specific event.

    • Package: The industry charges for group of similar items.

    • Unit of Currency: The industry charges for units of currency spent or invested.

    • Bundle of Related Items: The industry charges the customer for a set of items used sequentially, concurrently or in a common application.

    • User: The industry charges for each user of the product or service.

    • Weight: The industry charges by English or metric units of weight.

  • Has the Basis changed in the last few years?

  • Has the use of a new Basis affected the sales volume of any competitor in the industry who uses it?

Basic Strategy Guide Users Return To: Step 23

Summary Points Next: Period of Price Effectiveness