9 Examples of Value Pricing

John Spacey, April 04, 2018

Value pricing is the practice of setting prices based on estimates of how valuable a good is to the customer. This ignores the prices of competitors and your costs and focuses on what the customer is willing to pay based on their needs, preferences and perceptions. The following are illustrative examples of value pricing.

Services

A restaurant prices all appetizers below $10, including those that contain more expensive ingredients than several main dishes that cost $25. This is done because in the restaurant's experience, customers value appetizers less than main dishes and are unwilling to pay more than $10.

Fast Moving Consumer Goods

A fast moving consumer goods firm prices hair treatment higher than hair conditioner despite the costs of the two being more or less the same.

Art

Art is typically priced based on its perceived value.

Capital Goods

A capital good such as an industrial robot may be priced based on its ability to generate revenue for customers. For example, if an industrial robot can improve customer profits by $1,000,000 a price of $500,000 would allow the customer to achieve a return on investment of 100%.

Niche Markets

A book is of very high value to geologists but of little interest to anyone else. In this case, the author has incentive to charge an unusually high price because the few people who want it place a high value on it.

Consulting

A highly specialized IT consultant finds that clients often have big problems when they need her services. As such, they are generally willing to pay high prices.

Medicine

People value their lives and are often willing to pay a high price for medical treatments far beyond their cost. This can raise situations whereby a high price is charged for a treatment that has a low cost. In many cases, a public healthcare system prevents this type of pricing.

Superior Goods

Luxury items such as a fashion brand with high social status may price items based on customer perceptions of value. For example, a particular brand may find that they can charge $500 for shoes but can't charge more than $100 for an umbrella. In theory, the umbrella could be more expensive to manufacture.

Veblen Goods

Veblen goods are products and services such as a wedding where people feel they should spend a high price and may actively avoid lower cost options. For example, a wedding venue may charge a similar price for seafood, meat and vegetarian selections despite large differences in cost.

Overview: Value Pricing
Type	Pricing Strategy
Definition	The practice of setting prices based on estimates of how valuable a good is to the customer.
Related Concepts	Pricing Strategy » Value » Goods » Price Competition » Willingness To Pay » Customer Needs »