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Pricing Your Product or Service
6. Value-based Pricing
The alternatives to cost-plus pricing focus on what customers are willing to pay.
This perceived-value pricing takes a number of forms:
6.1 Convenience - a late-night convenience store can charge much more than a supermarket for a pint of milk.
6.2 Brand - there may be little to choose in technical terms between a branded and an unbranded product, but big spenders will go straight for the expensive product if the brand is well marketed.
6.3 Fashion - some people will pay a premium for hot items (eg the latest trainers or cars).
6.4 Monopolies and cartels - if one company, or group of companies, exclusively supplies a product or service, it can set its own prices.
6.5 Pure perceived value - fine art is a good example. A sculpture is priced at £20,000 or £60,000 based on its estimated value to the purchaser, rather than simply the cost of its creation.
6.6 Supply and demand - tickets for top-level sports events can be highly priced as there will be more committed potential customers than available seats.
- Higher prices can give you fat profits. But beware - they may also alienate customers and draw in new competitors who fancy a share of the spoils.
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