Posted in Operations and Supply Chain Terms, Total Reads: 1320
Definition: Value based Pricing
It is the pricing strategy based on the benefits perceived by the buyer rather than the common parameters of market price and competition. It is assigned prior the product development stage taking into consideration the factors that account for value perception. The process involves stages of primary and secondary research.
Such a product is priced high keeping in mind not only its margins but also because of the special utility offerings to the buyer . These products are designed to be placed in a niche product category . Usually to understand the value derived from a product is done using a conjoint analysis . It gives a measure of tradeoffs done by the buyer. It takes into account not only the functional and service attributes but also evaluates the emotional and physiological aspects .
The ideal pricing strategy would be to price your product lower than the market price and try to increase the awareness level to obtain higher volumes and finally when the required volumes are maintained the prices can be raised. In some cases take an example of a rolex watch which has a sense of uniqueness to it . The user considers it as a prestigious and status brand . Although the product attributes are similar to other watches in the market .It charges a very high premium above its base manufacturing cost . The buyer considering Rolex to be a very premium brand is readyto pay the cost of acquisition.