Definition

Value-based pricing is a pricing strategy used by companies to price their products/services. This strategy involves adjusting of price as per its perceived value instead of going by its historical price. Companies mostly use value-based pricing strategies to boost revenues through price increases, especially when the company does not want to significantly raise its volumes.

Example

Suppose a SaaS company plans to price its product that is patented, meaning it won’t have to deal with competition over price with other companies in the near future. Also, since the product is unique, it is likely to have a high demand.Such a product makes for a perfect example to try out a value-based pricing strategy. First, since other companies can’t offer the same product legally, the company does not need to lower the product price to stay in competition. Additionally, since the product is unique and the latest in the industry, customers may be willing to pay more for it. Thus, the perceived value of the company's product rises.

Why it matters

Some of the top reasons why value-based pricing is crucial:a. Could lead to higher pricing levelsb. May give a boost to brand valuec. Attracts customer loyaltyd. Clarifies the specific price range that a customer is willing to pay for a product/servicee. Allows companies to consider customer feedback while releasing future products

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