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.