Perceived Value Pricing
Contributed by: Devendra Vyavaharkar
24 items • 37.176 visits
What is Perceived Value Pricing? Meaning.
Perceived Value Pricing or Value-Based Pricing or Value Optimized Pricing is a market-based method of setting the price of a product (or service), primarily on the value perceived by the potential customer(s), rather than basing it on the cost of the product or on past prices of the same/similar product.
Usage of Perceived Value Pricing. Applications
What circumstances are conducive to Perceived Value Pricing (PVP)?
In general, the use of PVP often depends upon how strongly the company can demonstrate the benefits of the product to its potential customers.
Steps in assessing the Product's Value to the Customers
Obviously marketing research is a very important component of this type of pricing. Note that the primary objective of pricing in marketing is to create a strategy that profitably extracts the maximum from a consumer's surplus (the gap between the price that consumers are willing to paybased on their preferencesand the market equilibrium price) and dead weight loss (the loss of economic efficiency in terms of utility for consumers/producers such that the optimal or allocative efficiency is not achieved).
Note that the True Economic Value calculated could differ from the actual value perceived by the customer. It is the marketer's job to bridge the gap between these 2 values through customer education (to push the perceived value towards the TEV). True Economic Value is the upper limit to what the customer might pay for the product.
How should we choose the customer to base the PVP on?
Based on the prices obtained from determining the Best Price for each of the above sets of customers, we can come across a price band. Finally, a price is set within this price band for our target market (i.e., for customers who value our product offering).
Compare with: Psychological Pricing | Promotional Pricing | Competitive Pricing | Discount Pricing | Cost-plus Pricing | Standard Cost Pricing | Marginal Cost Pricing | Target Pricing | Penetration Pricing | Price Skimming
Return to Management Hub: Marketing
This ends our Perceived Value Pricing summary and forum.
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