Value-Based Pricing - Explained - The Business Professor, LLC

Value-based pricing is a strategy that companies follow in order to establish prices on the basis of the value of the product or service ... Home Marketing,Advertising,Sales&PR PrinciplesofMarketing Value-BasedPricing-Explained WhatisValue-BasedPricing? WrittenbyJasonGordon UpdatedatSeptember28th,2021 ContactUs Ifyoustillhavequestionsorprefertogethelpdirectlyfromanagent,pleasesubmitarequest.We’llgetbacktoyouassoonaspossible. Pleasefilloutthecontactformbelowandwewillreplyassoonaspossible. 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Backto:MARKETING,SALES,ADVERTISING,&PR HowdoesValue-basedPricingWork? Theprincipleofvalue-basedpricinggoeswellwithcompaniesthatcreateamazingproductsandservicesinordertodeliverexceptionalexperiencestotheircustomers.Besides,thecompaniesdesignproductsthatdirectlyincreasetheself-esteemoftheircustomers.Theperceivedvalueisthevalueorworthofaproductthatcustomersareagreeingtoassign,andasaresult,ithasadirecteffectontheproductpricethatthecustomerspayforbuyingit.Marketersfollowseveraltechniquesforassigningvaluetoaproduct.Forinstance,luxurycarmanufacturersaskforcustomerfeedbackthatmeasurestheperceivedvalueofcustomersexperienceswhiledrivingaspecificvehicle.Thishelpssellersinassessingthepriceofvehicle.(Note:Theconceptofvalue-basedpricingestablishespricesonthebasisofperceivedvalueforaproductorservice,thecost-pluspricingapproachconsidersproductioncostswhilecalculatingtheultimateprice).ExamplesofValue-BasedMarketsThefashionindustry,undoubtedly,highlyfollowsthevalue-basedpricingapproachfordeterminingprice.Forinstance,famousfashiondesignerschargeheavypricesfromcustomersbasedontheirconceptionofhowtheyassociatethebrandwiththeiridentityorstatus.Afamouscelebrity,whowearsadesignersoutfittoabigevent,canincreasetheperceivedvalueofthebrandindeed.Incase,thevalueofabrandtendstofallduetosomereasons,thefirmspricingpolicyneedstoberesettoacost-basedpricingmodel.PerceivedvalueinPricingWhenwetalkabouttheperceivedvalueofanitem,itsimplymeansthevalueofanitemaconsumerhasinhis/hermind.Thisiswhataffectsthepriceaconsumeriswillingtopay.Inthiscase,thevaluebecomesthemostimportantaspectandadrivingforceineverybusinessasitaffectsthepriceandwillingnesstopay.Marketsdealingwithluxuriousitemslikevehiclesmostlyusethevalue-basedpricingapproach.Manufacturersgatherfeedbackfromtheclientsonexperienceandfeatures,usethisinformationtocomeupwithamoreinnovativebrandwhichincreasesthevalueandbenefitasperceivedbythecustomer.Theremustbesomebenefitsandvaluesattachedtotheitemforthecustomertopayforahigherpricewillingly.Forexample,twocompaniescouldbesellingthesametypeofanitem,oneoncost-pluspricingwhiletheotheronvalue-basedpricingtechnique.Thecompanysellingonvalue-basedpricingshouldcomeupwithamoreinnovativewayandexcitingwayofusingthatitemwhichtheothercompetitordoesntoffer.Aproductwithuniquebenefitgetsanadvantageovercompetitorproducts,andthereforecanbesoldonvalue-basedpricing.Thisisbecausepricesarecontrolledbythevalueofthebenefitsthebusinessofferstoitscustomer.Atthesametime,thepricethatthecompetitorschargeshouldalsobeconsidered.Inordertomaximizetheprofitabilityoftheproductsandservices,thebusinessneedstoquantifythebenefitstheproductsoffertotheircustomersandalsoreviewcustomersbuyingdecisionprinciplesandmaximizeonthat.Pricessetonvalue-basedpricingarealwayshigherorequaltothepricessetfromcost-pluspricing.Ifbyanycasethepricesarelower,thecustomerperceivesthevalueofthatproductlowerthanthecostincurredplustheprofitmargin.Acompanysettingpricesbasedonvaluepricingattractsacertainsegmentofcustomers.Thecompanymaylosesomepotentialcustomerswhoaremotivatedbypricesandmayalsoattractnewcustomersfromtheircompetitorswhoaremotivatedbythevaluetheproductoffers.RelatedTopics WhatistheRightPriceforaProduct? Competition-DrivenPricing Profit-OrientedPricingStrategy Sales-OrientedPricingStrategy StatusQuoPricingStrategy Value-BasedPricingStrategy PenetrationPricingStrategy ManufacturersSuggestedRetailPrice(MSRP)Definition Markdown PriceSkimming WhyGiveDiscounts? TradeAllowances ChargingforProductTransportation LegalIssueswithPricing WhatisProductDumping? WhatisPriceFixing?  WhyisPriceFixingHarmful? WhatisPriceDiscrimination? WhyPricingDiscriminationisHarmful AcademicResearchforValue-BasedPricing Customervalue-basedpricingstrategies:whycompaniesresist,Hinterhuber,A.(2008).Customervalue-basedpricingstrategies:whycompaniesresist.Journalofbusinessstrategy,29(4),41-50.  Towardsvalue-basedpricingAnintegrativeframeworkfordecisionmaking,Hinterhuber,A.(2004).Towardsvalue-basedpricingAnintegrativeframeworkfordecisionmaking.IndustrialMarketingManagement,33(8),765-778. Supplychaincostmanagementandvalue-basedpricing,Christopher,M.,&Gattorna,J.(2005).Supplychaincostmanagementandvalue-basedpricing.Industrialmarketingmanagement,34(2),115-121.  Theconceptualizationofvalue-basedpricinginindustrialfirms,Liozu,S.M.,Hinterhuber,A.,Boland,R.,&Perelli,S.(2012).Theconceptualizationofvalue-basedpricinginindustrialfirms.JournalofRevenueandPricingManagement,11(1),12-34. MindfulPricing:TransformingOrganizationsThroughValueBasedPricing,Liozu,S.,Boland,D.,Hinterbuber,A.,&Perelli,S.(2015).MindfulPricing:TransformingOrganizationsThroughValueBasedPricing.InMarketingDynamism&Sustainability:ThingsChange,ThingsStaytheSame(pp.412-421).Springer,Cham.  Value-basedpricingoffedcattle:Challengesandresearchagenda,Schroeder,T.C.,Ward,C.E.,Mintert,J.R.,&Peel,D.S.(1998).Value-basedpricingoffedcattle:Challengesandresearchagenda.ReviewofAgriculturalEconomics,20(1),125-134.  Valuedeliveryandvalue-basedpricinginindustrialmarkets,Hinterhuber,A.(2008).Valuedeliveryandvalue-basedpricinginindustrialmarkets.InCreatingandmanagingsuperiorcustomervalue(pp.381-448).EmeraldGroupPublishingLimited. Value-basedpricing,Hughes,D.A.(2011).Value-basedpricing. Reducinguncertaintyinvalue-basedpricingusingevidencedevelopmentagreements,Willis,M.,Persson,U.,Zoellner,Y.,&Gradl,B.(2010).Reducinguncertaintyinvalue-basedpricingusingevidencedevelopmentagreements.Appliedhealtheconomicsandhealthpolicy,8(6),377-386.  Therevenueriskofvalue-basedpricingforfedcattle:asimulationofgridvs.averagepricing,Anderson,J.D.,&Zeuli,K.A.(2001).Therevenueriskofvalue-basedpricingforfedcattle:asimulationofgridvs.averagepricing.TheInternationalFoodandAgribusinessManagementReview,4(3),275-286. value-basedpricing RelatedArticles Marketing5Ps-Promotion PrimaryMarketResearch-Explained MarketingPlan-Explained DAGMAR(Advertising)-Explained Close Expand