Value based Pricing

Posted in Marketing and Strategy Terms, Total Reads: 1868
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Definition: Value based Pricing

Value based pricing is a pricing strategy in which the price of a product or a service is decided on the basis of perceived value or benefit it can provide to a customer. Value based pricing is more evident in places or markets where exclusive products are offered which offer more value than the generic or standard products.

Customer Perceived value is the basis for pricing here. Proper study of the market may be required to know the perceived value here as target audience might not value the product as much as the marketer thought or assumed. This would result in losses as no one would buy the product as it would be too costly for the target audience.

In other types of pricing e.g. Cost Based Pricing, the price is decided simply on the basis of cost which is fixed or known for the marketer.

Example of Value based Pricing:

Let us assume a computer mouse makers. The first one makes generic optical mouse which is sold in large numbers but the other maker makes specialized ergonomic mouse which can be used by high end users for long term use without any discomfort. The former would most probably use cost based pricing as there would be lot of competition in market for similar offerings but the latter might want to use value based pricing as the offering is unique and would offer more value than a regular mouse.

Hence, this concludes the definition of Value based Pricing along with its overview.

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