Yale Alumni Association of Cleveland

Customer Value vs. Cost Plus Pricing. Parker Hannifin example: Changing the formula: Seeking Perfect Prices, CEO Tears Up the Rules. Wall St. J. (March 27, 2007)

“Much of industrial America — 60% of U.S. manufacturers — still relies on ‘cost-plus” types of pricing.” In 2001, Parker CEO Don Washkewicz switched to customer value pricing. Overnight, Parker raised their prices anywhere from 3% to 60%. The price increases were met with immediate protest. Parker’s sales team explained why. For example, for Ingersoll Rand’s Bobcat product, Parker’s sales team explained that its “new motor replaced 11 separate parts in the company’s existing machines, … reduced leakage by eliminating hydraulic connections, was easier to install at Bobcat’s factories, and opened up space inside the machines.”

The result of the switch from cost-plus to customer value pricing? Don Washkewicz:: “It’s a different way of thinking that filters into everything.”