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Value based pricing

Definition updated on November 2023

What is value-based pricing and how does it reflect customer preferences and product attributes?

A pricing strategy where the price of a product or service is set based on the perceived value it offers to customers rather than on the cost of production or historical prices. This means that if customers perceive a product as highly valuable or unique, they might be willing to pay a higher price for it. Conversely, if they see the product as of lesser value, they might not be willing to pay as much. The goal of this strategy is to capture the maximum amount a customer is willing to pay for a particular product or service. To determine this price, businesses often consider factors like the customer's willingness to pay, the perceived benefits of the product, and the value the product brings in comparison to competing products. Value-based pricing is common in industries where products or services can be differentiated in ways that are important to customers, like the sneaker resale market, where the value of a sneaker can be highly subjective and based on factors like brand collaborations, rarity, and cultural significance.

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