Value-Based Pricing

An enlarging number of companies are basing their cost on the product's perceived value. Value-based pricing utilized buyers' perceptions of value, not the seller's price, as the key to pricing. Value-based pricing refer that the marketer cannot design a manufactured goods and marketing program and then set the cost. Price is considered along the other marketing mix variables before the marketing program is fixing.

Given figure compares cost-based pricing along value-based pricing. Cost-based pricing is product driven. The company designs which it considers to be a good product, sum the costs of making the product, and fix a price that covers costs plus a target profit. Marketing has to then encourage buyers that the product's value at that cost justifies its purchase. If the price turns out to be too big, the company has to settle for lower mark-ups or lower sales, both resulting in disappointing profits.