Value-Based Pricing

What is 'Value-Based Pricing'

Value-based pricing is the setting of a product or service's price, based on the benefits it provides to consumers. By contrast, cost-plus pricing is based on the amount of money it takes to produce the product. Companies that offer unique or highly valuable features or services are better positioned to take advantage of value-based pricing, than companies whose products are services are relatively indistinguishable from those of their competitors.

BREAKING DOWN 'Value-Based Pricing'

A company that sells basic, white, 100% cotton athletic socks would probably use cost-plus pricing, because its product does not have any special features. However, a company that sold sweat-wicking, extra-padded athletic socks could use value-based pricing and sell its socks at a higher price, because it provides something unique and valuable to athletic consumers.

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