Value-Based Pricing Approach

By Raffaele Felaco

The Retail Room

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.

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

Compared to cost -plus pricing which takes into account the costs of production into the pricing calculation, Value-based pricing is completely different . Companies that offer unique or highly valuable features or product usually take advantage of the value pricing model.

Key points regarding value based pricing

Value-based pricing is a strategy of setting prices primarily based on a consumer’s perceived value of the product.

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

Better understanding Value-Based Pricing

The value-based pricing principle mainly applies to markets where possessing an item amplify a customer’s self-image.

Based on that , this perceived value reflects the worth of an item that consumers are willing to assign to it, hence how much they’re willing to pay for it.

In most cases, even though pricing is not an exact science,the price can be determined with marketing techniques.

What details are needed for Value-based Pricing

Companies that chooses a value pricing approach must have a product that differentiates itself from the competition, that’s the starting point.

Products sold must be customer-focused, meaning any added features should be based on the customer’s wants and needs.

The end product must be of high quality if the company’s is looking to have a value-added pricing strategy.

“The company also need an open communication channel and strong relationship with its customers. In doing so, obtaining feedback from its customers regarding the features they’re looking for as well as how much they’re willing to pay is a smooth process.”

Most common Value-Based Markets

The fashion industry is one of the most heavily influenced by value-based pricing, where value price determination is common practice.

Typically, popular name-brand designers command higher prices based on consumers’ perceptions of how the brand affects their image. ( Based on this principle is easy to understand why when an A- Celebrity wears certain things demand and prices can increase dramatically in no time).

For the same principle, when a brand’s image diminishes for any reason, the pricing strategy tends to re-conform to a cost-based pricing principle, meaning that the pricing strategy is factored in the cost process.

Published by Raffaele Felaco

I am an enthusiastic leader with strong background in direct and indirect sales with an exten- sive experience in both retail and wholesale business. I have been fortunate to have worked alongside teams in structured environments both in Italy and abroad over the last 20 years, en- abling me to develop strong leadership skills, a natural approach in effective communication, the ability of positively influencing others and master complex business negotiations.

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