Perceived Value Pricing

Knowledge Center



Summary, forum, best practices, expert tips and information sources.

Contributed by: Devendra Vyavaharkar

24 items • 38.393 visits


Summary

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)?

  • NICHE MARKETS that target specific customer needs (e.g. office desk toys/decorations)
  • When a product holds an EMOTIONAL VALUE for the customer (e.g. commemorative watches)
  • CAPTIVE PRODUCTS: Items designed specifically to be used with another core product (e.g. printer cartridges)
  • In case of SHORTAGES (e.g. food and beverages sold in an open-air music concert)
Pricing demand graph

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).

  • Identify the Alternative Product for your customer (If not your product, then what would the customer choose?)
  • Determine the price of this Alternative Product - 'A'
  • List down the additional benefits your product has over the Alternative Product. Estimate the additional price your customer would pay for these additional benefits - 'B'
  • List down the additional benefits the Alternative Product has over your product. Honestly estimate the worth of these additional benefits to your customer - 'C'
  • Calculate the best price using the formula: True Economic Value (TEV) = A + B - C

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?
  • A customer who has purchased from you earlier.
  • A customer who hasn't purchased from you earlier.
  • A customer who has purchased from you, but didn't value your product differently vis-a-vis a competitor's product.

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).


Sources:
Dolan, Robert J. (1999), "Pricing: A Value Based Approach", HBS Note 9-500-071, Boston, MA: Harvard Business School Publishing
Kotler, P. & Keller, K. L. (2016), "Marketing Management", 2016, pp. 516-518
ET Online (2016), "Perceived Value Pricing", The Economic Times
Sheehan, A. (2019) "Finding Your Niche: 8 Niche Market Examples to Inspire You", Shopify Blog.


Special Interest Group

Join

Perceived Value Pricing Special Interest Group.



Special Interest Group (9 members)

Forum

New Topic

Forum about Perceived Value Pricing.


Why Digital Goods are Valued Less Than Physical Goods
The digitization of goods has benefits for our lives as consumers. A wide range of products, including books, documents, (...)
3
 
9 comments
Reasons and Methods for Customized Pricing
Every marketer must understand that in most cases, the value of a product or service varies significantly across individ (...)
3
 
2 comments
🔥 NEW Pricing Strategies for Customer Experiences and Transformation
We know commodities when they're customized become products, products when further customized become services, services (...)
2
 
Research on Perceived Value Pricing
This method of pricing, I believe requires a lot of market research. The perceived price for the product may not cover t (...)
2
 
Consulting Pricing Strategies
What strategies do consultants use when costing their work? (...)
0
 

 

Best Practices

The top-rated topics about Perceived Value Pricing. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Advanced insights about Perceived Value Pricing. Here you will find professional advices by experts.


Information Sources

Various sources of information regarding Perceived Value Pricing. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Overview of Pricing and Pricing Strategies

Pricing
This presentation contains an overview of various pricing strategies, including for example pricing based on competition (...)

Research Links

Automatically jump to further useful sources regarding Perceived Value Pricing.


News Videos Presentations Books More

News

Videos

Presentations

Books

More


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

Special Interest Group

Do you have a keen interest in Perceived Value Pricing? Become our SIG Leader

 
 

Return to Management Hub: Marketing & Sales


More on Management  |  Return to Management Dictionary

 

This ends our Perceived Value Pricing summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2021 12manage - The Executive Fast Track. V15.8 - Last updated: 4-12-2021. All names of their owners.