The Harvard Business Review’s Daily Stat reminds us why pricing is so important. The McKinsey Quarterly found a company that was selling an industrial piece of equipment with a net margin of -200%.
The lesson is that we should price products or services across the product life cycle. The example of the negative net margin occurred because an industrial-equipment manufacturer spread its costs across all products. They were deceived to believe that they were making a reasonable margin on older products. However, a closer examination of expenses of each product phase showed that older products cost substantially more to produce than it had expected.