I am struggling with pricing cases. I know that there are 3 main approaches to pricing cases: cost-based, competition-based and value-based. How I generally approach these cases is I ask for the firm's general objective (generally to make profits from that product, the sooner the better) and then I go through the three main pricing strategies and see if / where they intersect. Cost-based pricing seems relatively straightforward, but I do struggle with understanding the distinction between competition-based pricing and value-based pricing.
If for example we find that the value-added of our product vs. the next best alternative is 100 euros, we might decide to price it 50 euros higher (because of the stickiness of the demand / switching costs). But is that a competition-based or a value-based approach? I would argue it is a value-based approach (eventhough it obliged us to look at what the competition offers). But in that case, what is the competition-based pricing strategy? What concrete calculations does it entail?
Finally, cost-based pricing kicks in: our price (competition price + 50 euros) is only sustainable if it's higher than the contribution margin (as this would allow us to recover fixed costs and then to make profits).
Another problem I face is I am rather limited when answering these pricing cases. I don't really know what to look and ask for apart from computing the added value and contribution margin...
I thank you in advance for your help!