Value-based pricing

Value based pricing, or Value optimized pricing is a business strategy. It sets selling prices primarily, but not exclusively, on the perceived value to the customer, rather than on the actual cost of the product, the market price, competitors prices, or the historical price.^{[1] [2]}

The goal of value-based pricing is to better align price with value delivered. Price for any individual customer can be customized to reflect the specific value delivered. Examples could include metrics such as number of users and the value per users, number of annual transactions and the value per transaction, size of revenues and the impact on revenues, cost savings, or other measurements. Value based pricing is intended to make companies become more competitive and more profitable than using simpler pricing methods. It can also be used in product development and product management to configure products to maximize value for specific customers.

Value-based pricing is dependent upon an understanding of how customers measure value, through careful evaluation of customer operations. Survey methods are sometimes used to determine the value, and therefore the willingness to pay, a customer attributes to a product or a service. Frameworks for value-based pricing include Economic Value Estimation^[3] are Relative Attribute Positioning, Van Westendorp Price Sensitively Meter, Conjoint Analysis.

Another value pricing method uses Customer Value Research, which is Bernstein & Macias' method for gaining the customer's perception of value through the use of both qualitative and quantitative research methods.

See also

• Pricing
• Value (marketing)
• Pricing strategies
• Price discrimination

References

1. ^ "Practical advice for business". Business Link. http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073790697. Retrieved 2007-06-20. 
2. ^ "Price Optimization is Catching on". Bank Systems and Technology. http://www.banktech.com/showArticle.jhtml?articleID=201800905. Retrieved 2011-07-01. 
3. ^ Nagle T. and Hogan J., The Strategy and Tactics of Pricing, 4th Edition, Prentice Hall, 2005

[1] [2]

"value-based pricing: sell your product at different prices to different consumers, according to how much they are willing to pay for it." Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal R. Varian, Harvard Business School Press 1998