Perceived Value Pricing - Definition & Meaning
What is Perceived Value Pricing?
Business marketing managers conventionally focused their pricing strategy on relevant cost criteria, often without regard to the value of the item to the consumer. In perceived value pricing, the seller assesses the value of the good or service to each customer and charges a price based upon the customer's perceived value of the characteristics of the product offering that each receives. It doesn’t depend upon the production cost or delivery cost but on the value of the product in the eyes of the customer.
Explanation
It is very difficult job to estimate the price of a product as it should be below the perceived price in the minds of the customers but at the same time should be more than the production cost so that the company is able to get its share of margin. The technique is a bit arbitrary but is very effective in determining the ideal price for the customers.
Inaccurate pricing policy could be a huge loss to the company, if the product is over-priced the customers will not buy it or if under-priced the company’s profitability will suffer.
Advantage
1. When consumers are offered a price range then they may choose as per their perception and can make an informed decision about the purchase.
2. This method offers huge profit margins to economic priced product lines. The brand value, customer service and quality improve the perception of the product.
3. Customer loyalty will help generate repeat business for the company which is a huge benefit for any firm.
Disadvantage
1. The trust needs to be established for the products.
2. Customers always look for good deals. They want more benefits and features at a given price.
3. The labour cost can be a concern in service business as the company needs to pay its employees under all circumstances.
4. It is not very useful for large organization as the profit is not generated through volumes but by loyalty.
5. Competitors might offer lower price for the same product.
Hence, this concludes the definition of Perceived Value Pricing along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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