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Definition

Value-based pricing

Value-based pricing refers to offer just the combination of quality and good service at a fair price.

It is a pricing method in which the list price is determined by estimating what consumers are willing to pay for a product and then backing off a bit to provide a cushion. A firm influences its customer’s perception of the value through positioning, branding, and the other elements of the marketing mix. Most experts recommend value-based pricing because it hinges on the perceived value of a product or service rather than cost-plus markup, which as stated previously, is a formula that ignores the customer.

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