Value Based Pricing Strategy: Value of the Product Perceived (Essay Sample)

Value Based Pricing Strategy
Value Based Pricing is a pricing strategy used by marketers on the basis of the value of the product perceived or estimated by the customer. This approach disregards the cost of the product or any other historical prices of the product (Taylor, 2013). The basic knowledge that marketers have is that customers are looking for products that are very good but not overly priced (Taylor, 2013). Using the value based pricing approach for product calls for a very rational decision thereby taking into account all the factors that might have an effect on the end result. Different approaches are used for different products depending on whether the product is a new one or an old one, whether the product it made for the masses or caters to a niche market (Taylor, 2013). This makes it important for companies to look into the perspective of judging the value of the product. There are two approaches to the value-based pricing model,
1 Cost-based pricing model (Based on the economic value of the product)
2 Competition based pricing model (Based on the relative attributes positioning)
Marketers estimate or find out from research the value a consumer puts for their product. This model is used in both B2B and B2C scenarios. Proponents of the cost-based pricing model suggest that it is easy to calculate the cost of the product and minimum information is required. Moreover this model is easy to administer and manage. The model also provide and transparent judgment about the price of the product. Marketer can more or less account for and adjust for the variable changes in the cost of the product due to the external factors that might affect the cost of the product. Therefore they need to insure themselves against this sudden fluctuation in the market dynamics. However, this model is not always used by marketers when thinking of value-based pricing. The critics to the cost-based model are that it does not account for the opportunity cost. Moreover it ignores the role of the customer as well as the other players in the competition. Moreover, all the expenses it absorbs are treated as sunk costs (Taylor, 2013). This does not justify the total value of the product and this strategy is sometimes treated as a side tools in assessing the value of the product.
The second approach to value based pricing is based on competition. The marketers assess the value of the product by analyzing it with the products the market has to offer (Taylor, 2013). The other players in the market, who directly compete with the product, are used as a benchmark to assess the quality of the product and the price tag attached to it. Since the data is easily achievable there is nothing new in assessing what you competitors would not. Moreover, in order to analyze the positioning of the product assessing it with that of the competition gives a fair idea. This model takes into account the difference pricing strategies of the competitor’s product also and provides a dynamic strategy to change in a given situation. However, this is more of a reactive approach than a proactive one.
The competition based pricing model allows marketers to focus on the attributes of the purchase decision of the consumer. Moreover, it gives an idea of the market share of the product through research of the competition (Taylor, 2013). However critics to this model of pricing suggest that the available data may not always be right and may be subjective. Secondly, the attributed in determining the consumers purchasing behavior make not take into account the right factors (Taylor, 2013). Marketers do acknowledge that consumers buying decision is irrational and is based on complex calculations of the brain. Using this approach does not accounts for these factors and ignore the psychological and emotional variables affecting the buying behavior of the customer (Taylor, 2013).
Marketers find it hard and tiresome in assessing the perceived value of their product in t...