Hand sketching Value Price puzzle concept with black marker on transparent wipe boardRetail experts and academics consider value-based pricing as the ideal pricing technique. With value-based pricing, you set a price that would ideally reflect the price that your target customers would be willing to pay.

What Exactly is Value-Based Pricing?

Generally speaking, value-based pricing isn’t based on tangible metrics like labor and material costs for example, which are easily calculable. Rather, it relies on customers’ perception or view of a product’s value. Because it’s not concrete, many different things could impact it, including current trends or the feeling that an idea or item evokes in an individual.

To illustrate, a business selling basic, black athletic shirts would normally implement cost-plus pricing since their product doesn’t offer any special or unique features. On the other hand, a business selling athletic shirts that have unique features such as dri-fit, sweat-wicking material would be better off using value-based pricing, which means that they could sell their shirts at a higher price point since it offers something more valuable and unique to athletic customers.

In short, while the focus of cost-plus pricing is based on the main purpose of recovering costs, value-based pricing is more about finding a price that’s higher, without turning off potential customers because of the higher price point.

Main Considerations

When thinking about implementing value-based pricing, the first thing you have to remember is that individuals are different, which means that they value things differently as well. That said, to get the best price, you need to keep your target customers’ input. Ask them what they would’ve purchased instead of your service or product to try and figure out your main competitors. Next, select a competitor and determine that sweet pricing spot by considering the following factors:

  • The current price of your service or product.
  • The average price of your competitors’ service or product.
  • The unique and special features your service or product offers.
  • The value that you would (from an average customer’s standpoint) place on these special features.
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Also, if your business distributes products through other sellers, especially online, make certain that you have a minimum advertised pricing policy in place and that your sellers adhere to them. This would help make certain that your product’s value remain intact.