If set using the value-based approach, its price will reflect factors such as age, cultural significance, and, most importantly, how much benefit the buyer is deriving.
[4] This pricing strategy should have an even power balance between the seller and the buyer, maintain a long-term and service-based exchange and prioritise a strong relationship with consumers.
[6] Within this method, value is considered a crucial driving force for every business decision, as ultimately, value determines the price the potential customers are willing to pay for the added benefits received.
[8] A business looking to adopt the value-based pricing strategy must ensure that its product or service offering is of certain qualities.
[10] Choosing a pricing approach to assist a business in achieving a profit is a difficult decision, however, can be made easier when considering their goals and objectives.
The cost-based approach is useful as it is easy to calculate and can guarantee that the firm will cover costs of production.
[11] Conversely, this method fails to recognise consumer and competition perspectives, the overall business environment and positioning of product.
[6] Businesses using this approach simply define their price in relation to internal costs and abilities, thus, potentially missing profit making opportunities or building customer retention.
[4] However, value-based pricing takes these factors into consideration and assists businesses in understanding what consumers value and what they are willing to pay.
[11] Value-based pricing presents many challenges regarding its implementation into a businesses marketing environment.
However, the focus of B2B (business-to-business) pricing method has transformed into the concept of appreciating and raising the value of a product in a market, such as value creation and value capture (Aspara and Tikkanen, 2013).
Thus, fencing and versioning are just the ways of how we can address different segments with the willingness to pay at different price point.
Periodically, some marketers have eliminated their competitors by driving down cost or developing upsetting technologies (Paranikas, Whiteford, Tevelson and Belz, 2015).
Additionally, it is often seen that companies, salespersons, entrepreneurs, or freelancers are anxious to lose a deal when customer just takes the price down.
Companies with most successful VBP initiatives invest the time upfront to build a unified view across their commercial functions on some fundamental questions like 'What is Value?'