Pricing insights vol.2 - issue 1
Value based pricing
One aspect that is often overlooked is that price is a proxy of something much more fundamental: value. This value is far from being universal and it depends on many attributes. Still, traditional pricing focuses on cost covering with a constraint of profitability.
Value based pricing takes a fundamentally different perspective. While traditional pricing has a bottom up approach (from production to distribution), value based pricing starts with the values of the customer and fixes a price matching the perceived value of the product or service. Shifting from traditional (cost plus) pricing towards value based pricing, allows the manager to enter in a logic of “profitability maximization”.
“Arguing about price will lead to never ending discussions in which buyers and sellers
can never win. Talking about value will let them both leave the room richer.”