Value-based pricing
Encyclopedia
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.
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 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.
Strategic management
Strategic management is a field that deals with the major intended and emergent initiatives taken by general managers on behalf of owners, involving utilization of resources, to enhance the performance of firms in their external environments...
. 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.
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 are Relative Attribute Positioning, Van Westendorp Price Sensitively Meter
Van Westendorp's Price Sensitivity Meter
The Price Sensitivity Meter is a market technique for determining consumer price preferences. It was introduced in 1976 by Dutch economist Peter van Westendorp. The technique has been used by a wide variety of researchers in the market research industry. The PSM approach was a staple technique for...
, Conjoint Analysis
Conjoint analysis
Conjoint analysis, also called multi-attribute compositional models or stated preference analysis, is a statistical technique that originated in mathematical psychology. Today it is used in many of the social sciences and applied sciences including marketing, product management, and operations...
.
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
- PricingPricingPricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a...
- Value (marketing)Value (marketing)The value of a product is the mental estimation a consumer makes of it. Formally it may be conceptualized as the relationship between the consumer's perceived benefits in relation to the perceived costs of receiving these benefits...
- Pricing strategiesPricing strategiesPricing strategies for products or services include the following:-Competition-based pricing:Setting the price based upon prices of the similar competitor products.Competitive pricing is based on three types of competitive product:...
- Price discriminationPrice discriminationPrice discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...