Value Based Pricing

An increasing number of companies are basing their prices on the product's perceived value. Value-based pricing uses buyers' perceptions of value, not the seller's cost, as the key to pricing. Value-based pricing means that the marketer cannot design a product and marketing program and then set the price. Price is considered along with the other marketing mix variables before the marketing program is set.


A company using value-based pricing must find out what value buyers assign to different competitive offers. However, measuring perceived value could be difficult. Sometimes, consumers are asked how much they would pay for a basic product and for each benefit added to the offer. Or a company might conduct experiments to test the perceived value of different product offers. If the seller charges more than the buyers' perceived value, the company's sales will suffer. Many companies overprice their products, and their products sell poorly. Other companies under price. Under priced products sell very well, but they produce less revenue than they would have if price were raised to the perceived-value level.

During the past decade, marketers have noted a fundamental shift in consumer attitudes toward price and quality. Many companies have changed their pricing approaches to bring them into line with changing economic conditions and consumer price perceptions. The best way to hold your customers is to constantly figure out how to give them more for less." Thus, more and more, marketers have adopted value pricing strategies - offering just the right combination of quality and good service at a fair price. In many cases, this has involved the introduction of less expensive versions of established, brand-name products. In many business - to - business marketing situations, the pricing challenge is to find ways to maintain the company's pricing power - its power to maintain or even raise prices without losing market share. To retain pricing power - to escape price competition and to justify higher prices and margins - a firm must retain or build the value of its marketing offer. This is especially true for suppliers of commodity products, which are characterized by little differentiation and intense price competition. In such cases, many companies adopt value-added strategies. Rather than cutting prices to match competitors, they attach value-added services to differentiate their offers and thus support higher margins.