![]() ![]() In fact, research has shown that value-based prices for highly innovative products can be up to 100x higher than their competition. And taps into profit areas cost-plus pricing cannot access.Ī value pricing approach also benefits companies that are able to distinguish their products from the rest in an existing market. ![]() This leaves room to raise prices over time when unit production costs sink or customer demand increases. Instead, you define the markup dollar amount based on what you think a customer is willing to pay for the value of the product itself. This makes the value-based pricing strategy attractive for industries with high research and development costs.Ĭontrary to “cost-plus” pricing, you do not orient product prices based on your production cost. Value-based pricing allows you to add higher markups to the cost of your products compared to other pricing methods. Let’s take a look at the advantages of this pricing method. With the definition out of the way, you most likely ask yourself the question: Is value pricing the right fit for your business? Advantages of a Value-Based Pricing Strategy Setting the price too low and you will lose out on the extra profit potential. Setting the price too high and customers will shy away from making a purchase. However, you need to take a considerate approach when estimating what customers are ready to pay for your product. In this case, lower price points would not result in an increase in demand.
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