What does value-based pricing focus on when setting prices?

Value-based pricing emphasizes the perceived value of a product or service to the customer rather than simply considering production costs or market competition. This approach recognizes that the price a customer is willing to pay is often influenced by how much they value the benefits and features of the product, which can vary significantly from one customer to another.

When setting prices based on perceived value, businesses conduct research to understand customer preferences, needs, and willingness to pay, enabling them to align their pricing strategies with what customers truly find valuable. This method aims to maximize revenue by capturing the value that customers derive from the product, often leading to higher profitability compared to cost-plus pricing strategies where price is determined solely by adding a markup to the cost of production.

By focusing on perceived customer value, companies can differentiate themselves in a competitive market, allowing them to potentially command higher prices and promote customer loyalty, which is crucial for long-term success.