In the value pricing method, the price set is based on the value recognised by the customer. It is mainly a customer based pricing strategy, where price is not decided on cost of production.
It is different from cost plus pricing. In cost plus pricing, price is determined based on product price. This type of method works for the companies, who are focusing on specific needs of customers. This strategy was useful for the products which are sold on customer sentiments or emotions.
Value based strategy is used by various businesses to price their product/services. This strategy is based on the following −
The characteristics of the value pricing method are as follows −
The formula for the value pricing method is as follows −
Vp = Bv + Pv
Here Vp = Value based pricing, Bv = Brand value, Pv = product value
The advantages of the value pricing method are as follows −
The disadvantages of the value pricing method are as follows −
The examples of the value pricing method are as follows −