Pricing is an upstream economic constraint, not a markup applied after the product exists.
The argument.
Most firms price in the wrong direction. They design a product, calculate its cost, add a target margin and then discover whether the market agrees. That is cost-plus arithmetic pretending to be strategy.
The sequence should be reversed. Establish the price the market will sustain, by channel and at a plausible volume. Then subtract the channel take rate and the contribution margin required to justify the capital. What remains is the allowable cost structure. Engineering, sourcing and packaging have to fit inside that number.
Underpricing is not automatically conservative. If the market will sustain a higher price, the missing dollars become a permanent reduction in the margin ceiling. No later advertising optimization or supply-chain project can fully recover a price that was voluntarily surrendered at the top of the equation.
This also changes product development. A product that cannot be manufactured, landed and sold profitably inside the market-defined envelope is not waiting for operational improvement. It is economically malformed. Kill it, redesign it, or change the market.
Return to the Economics Office index, or read Fourth Derivative in the Free Public Library.