Value based Pricing

Posted in Operations and Supply Chain Terms, Total Reads: 1665

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 .

Example :

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 ready to pay the cost of acquisition.

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


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