How to Price a Product? | Value Based Pricing Explained | Harvard Business School |

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What Is Value-Based Pricing?

Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of a product or service.

Value pricing is customer-focused pricing, meaning companies base their pricing on how much the customer believes a product is worth.


Value-based pricing is different than "cost-plus" pricing, which factors the costs of production into the pricing calculation. Companies that offer unique or highly valuable features or services are better positioned to take advantage of the value pricing model than companies which chiefly sell commoditized items.


KEY TAKEAWAYS
Value-based pricing is a strategy of setting prices primarily based on a consumer's perceived value of the product or service in question.
Value pricing is customer-focused pricing, meaning companies base their pricing on how much the customer believes a product is worth.
Companies that offer unique or highly valuable products and features are better positioned to take advantage of the value pricing model than companies which chiefly sell commoditized items.

Understanding Value-Based Pricing

The value-based pricing principle mainly applies to markets where possessing an item enhances a customer's self-image or facilitates unparalleled life experiences. To that end, this perceived value reflects the worth of an item that consumers are willing to assign to it, and consequently directly affects the price the consumer ultimately pays.

Although pricing value is an inexact science, the price can be determined with marketing techniques. For example, luxury automakers solicit customer feedback, that effectively quantifies customers' perceived value of their experiences driving a particular car model. As a result, sellers can use the value-based pricing approach to establish a vehicle's price, going forward.

VALUE BASED PRICING SOURCES:
https://www.investopedia.com/terms/v/...
https://citeseerx.ist.psu.edu/viewdoc...
https://scholar.google.co.uk/scholar_...