Value Based Marketing refers to a business that charges a price on certain products that customers perceive as giving them a good value. Businesses generally practice three types of pricing strategies.
1) Cost Based Pricing is when a firm determines the cost of producing its product, then adds a preset amount above the total cost to arrive to a selling price
2) Competitor Based Pricing is when a firm prices products below, at, or above a competitor’s offering.
3) Value Based Pricing is when a firm determines the perceived value of the product from the customer’s point of view.
For example, a jewelry store may increase their prices on princess cut diamonds because princess cut diamonds are considered to be more attractive as a gift then most other cut diamonds.
Pricing is a strategy that influences revenue. If a price is set too high, sales volume is low; and if prices are set too low, profit margins are compromised. Therefore many marketers argue that price should be based on the value that the customer perceives.
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