VALUE BASED AS AN APPROACH OF PRICING

Value-based pricing

Value based pricing is the practice of setting the price of a product or service at its perceived value to the customer. This approach does not take into account the cost of the product or service, nor existing market prices. Value based pricing tends to result in very high prices and correspondingly high profits for those companies that can persuade their customers to agree to it.

Value based pricing is usually applied to very specialized services. For example, the price of Samsung Galaxy S5 is 1.2million even if the price is too high but still the customers are capable of buying the cellphone, so the company has a possibility of getting high profit due to the value based pricing.

Value based pricing is also more applicable to situations where customer approval is made at the executive level, rather than by the procurement department. The purchasing staff is more skilled in evaluating supplier prices, and so would be less likely to allow such pricing.
 

Advantages of using the value based pricing, 

• Increases profits, this method results in the highest possible price that you can charge and so maximizes profits.

• Customer loyalty, despite the high prices charged, you can achieve extremely high customer loyalty for repeat business and recommendations, but only if the service or product provided justifies the high price. This advantage tends to also derive from the nature of the sales relationship, which needs to be both close and trusting before value based pricing can even be contemplated.  

                      Bachubira Zaituni