What You Need to Know About Value-Based Pricing

With prices readily available online and in-store, transactions are likely much more facilitated to happen faster. Companies that employ value-based pricing need to think about answering customer questions. There are a lot of aspects that surround value-based pricing including its pros, cons, and other details. You will discover how much revenue you will get by employing a value-based pricing model in your business as compared to other pricing strategies. Value-based pricing is a pricing strategy used by businesses to charge products and services at the rate they believe consumers are willing to pay. This as opposed to calculating production costs and applying a standard markup, businesses instead gauge the perceived value to the customer and charge accordingly.

Artwork, cars, amusement parks, and even social media influencers all make use of value-based pricing to sell their products and services. All three of these industries take into account some standard aspects of value-based pricing. The market influences how much a consumer will be willing to pay for a product. The benefit that the product provides to the customers influence the value of that product. Competitor’s pricing can also influence how valuable consumers perceive a product to be. Value-based pricing thrives in the grey areas of sales and one factor that consumers factor in on the same is negotiation. Consumers and sales reps should have a conversation to determine the benefits and value that a product has, for the consumer to pay a price that reflects on the value.

Here are some examples of value-based pricing;

Housing

Inelastic demand happens when the need for the product is so high that a lower price would have little or no impact on unit sales. An example is by looking at the real estate market. It is a market considered seller market where buyers are paying thousands of dollars above home asking price. Although the housing market might flip between a buyer and a seller, the truth remains that even as the demand for housing soars, a lower price would have very little impact on the sale of most houses. This, therefore, means buyers must consider the perceived value of the house they plan to purchase.

Milk

Highly competitive and price-sensitive markets usually settle at the price consumers will be willing to pay. Charging any more could turn away interested buyers who are looking for a good deal. If you walk into a grocery store, you will see that milk falls squarely on this category. While you might see different brands of milk on display, they are priced within a few cents to each other. In this case, the value of the milk is based on the third truth that competitor pricing can influence how valuable consumers perceive a product to be. For lower-priced products, value-based pricing is similar to competition-based pricing.

Hermes Birkin Bag

Brands tend to promote prestige with higher than usual markups that denote the exclusivity and grandeur of the product. Hermes, the popular luxury handbag producer, shows us how exclusive its products are. The bags resale for tens of thousands of dollars online but buying one directly from the manufacturer is nearly impossible.

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