Value-Based Pricing

What is Value-Based Pricing?

Value-based pricing is a price-setting strategy where prices are set primarily on a consumers' perceived value of the product or service. The term is used when prices are based on the value of a product as perceived from the customer's perspective. The perceived value determines the customer's willingness to pay and thus the maximum price a company can charge for its product. The value-based pricing principle applies mostly to markets where possessing an item enhances a customer's self-image or delivers unrivaled experiences.

Value-based pricing also considers other factors such as Manufacturing costs, labor and additional direct and indirect costs. Value-based pricing as a concept evaluates the economic benefits a product can offer to the customer.

Three Main Common Pricing Strategies

Cost Based

Setting a nominal price above your total product costs to ensure a designated margin or profit

Competition Based

Pricing in sync with what your competition offers to remove price as a differentiator

Value Pricing

Charging the customer based on what you and the customer agree to be the worth of the product