If a product is a certain percentage faster, longer-lasting, or more durable than a competitor, then these differentiated features can be assigned price values. Perceptions of brand value tend to be difficult to assess relative to differentiated features. A brand’s value is key to value-based pricing.
For example, if two computers have identical specs except for screen size, this feature may be the most important for setting value-based prices of these products. In reality, value-based pricing often uses assessments of different features among products to gauge perceived value. This would be a monumental task for even the simplest of products. A common misconception is that value-based pricing means marketers assess customers’ perceived value of every single feature of a product, adding them all up to find a final price. Value-based pricing means companies have to consider every single feature of a product.Even if a company engages in thoughtful value-based pricing, its success depends on a number of other factors as well most importantly, how wisely their competitors have priced products. Companies engaging in value-based pricing should not assume that it will necessarily lead to success in selling their products. Value-based pricing is a guarantee of sales success.Swiffer can charge more for replacement pads if customers need to use that particular brand because they are the only ones that fit exactly. Once those run out, they will have to decide whether to buy additional Swiffer brand pads as replacements or look for alternatives in brands that may not fit their Sweeper.
Customers who buy a Swiffer Sweeper will receive a small number of sweeping pads with the initial purchase. Branded products with add-ons or replacement components are another example of a value-based pricing opportunity. Because one carton of milk is essentially interchangeable with another, sellers have incentives to sell for the lowest reasonable price. A reason for this is that in a highly competitive, price-sensitive market such as milk products, the price of goods typically settles at what customers are willing to pay. Many different brands of milk are available for sale at most grocery stores, but the price across comparable products is usually quite close. Milk is a good example of a product in this category. Some products are subject to value-based pricing without being luxury goods or those with inelastic demand.
In this case, buyers must consider the perceived value of a house before making an offer, as another buyer will likely swoop in if they don’t act quickly. Particularly in a seller’s market, where buyer demand is especially high, lowering the price of a home will have very little impact on the likelihood that it will sell. Many housing markets are subject to inelastic demand, meaning that demand remains high for homes regardless of whether prices are relatively lower or higher. A luxury automaker may attempt to highlight the prestige of its brand by increasing the price as a signal for how exclusive its products are. A convertible is perceived as a prestigious, luxury vehicle that draws attention in a way that traditional automobiles typically do not.
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