Do anyone have a foolproof approach for value-based pricing?
Do anyone have a foolproof approach for value-based pricing?
Hi,
Not sure if we can apply a systematic approach. However I can explain the concept, this will for sure help to think about to proceed when in situation.
For value based pricing (by opposition to cost based pricing), you will define the pricing of your product / service based on the value it creates for the client. So you will always have to compare with the cost for him to proceed without your service / product.
Example 1 : Asusme you offer a service / product reducing the produciton cost
- Estimate the current of similar service / product paid by client
- Estimate how much he can save with your product /service : this could be FTE, raw material, energy, etc.
- Define your pricing based on the savings of your client
Example 2 : Assume you offer a high response service to fix production shutdwon
- Estimate the cost of prouction shut down / hour
- Estimate by how much you can reduce shutdown time with your service
- Define your pricing based on the above savings.
Hope this helps
Best
Benjamin
Hi,
Value-based pricing can be done in 2 ways:
Best
I want to second what Benjamin said! This is the essence of what you need to understand. Just a clarification to avoid any confusion: we have to identify the value forthe client's customer (i.e., the user of the product), thereby deriving their maximum willingness to pay (WTP).
Cheers, Sidi