Conceptualization and implementation of value-based pricing strategy

Abstract

Value-based pricing is one of the three conventional pricing strategies along with cost- and competition-based pricing strategies. Value-based pricing strategy refers to pricing decisions that are made based on information on customer value. According to this strategy, the price level should be set to match the customers’ interpretation of the product’s value.

Customer value is a complex concept that is affected by multiple factors. It is each customer’s individual perception of how they value a product or service. Customer value includes perceptions of a product’s tangible attributes, such as quality, and intangible attributes, such as convenience, and how these gains compare to losses that purchasing the good requires.

Value-based pricing is proven to have significant benefits over other conventional pricing strategies, but implementing the strategy faces various obstacles. These obstacles arise mainly from negative attitudes and a lack of comprehension and skills. Overcoming the obstacles requires a clear understanding of different factors that affect customer value as well as continuous value assessment, customer segmentation, value communication, and value creation efforts.