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Value Based Pricing

This document discusses different pricing methods such as cost-oriented pricing, value-oriented pricing, and competition-oriented pricing. It then discusses assessing the true economic value (TEV) and perceived value (PV) of products using formulas that take into account factors like costs of alternatives, performance differentials, and perceived costs and differentials. The document poses the question of whether to charge the same or different prices to customers based on their assessment of a product's TEV versus its PV.

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surinder
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120 views19 pages

Value Based Pricing

This document discusses different pricing methods such as cost-oriented pricing, value-oriented pricing, and competition-oriented pricing. It then discusses assessing the true economic value (TEV) and perceived value (PV) of products using formulas that take into account factors like costs of alternatives, performance differentials, and perceived costs and differentials. The document poses the question of whether to charge the same or different prices to customers based on their assessment of a product's TEV versus its PV.

Uploaded by

surinder
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Pricing methods

• Cost oriented pricing – Mark-up, Break-even


• Value oriented pricing
– Value orientation
– Process to capture value for the firm
• Competition oriented pricing
Cost-Based Versus
Value-Based Pricing
Major Considerations
in Setting Price
The Value-Pricing Thermometer
Assessing True Economic Value
• TEV = cost of the next-best alternative + value
of the performance differential
Assessing TEV
Diesel car Petrol car

Life 100000 km 100000 km

Cost of each service (every 10000 5000


10000 Km)

Cost of running Rs 3 Per Km Rs 6 per Km

Price To be determined Rs 500000


TEV
• TEV = price of next best alternative + value of the
performance differential
• TEV = price of next best alternative + (Difference
in cost of running) – (Difference in cost of service)
• TEV = 500000 + {(6*100000)-(3*100000)} –
[(10*10000) –(10*5000)]
• TEV = 500000 + 300000 – 50000
• TEV = 750000
Assessing PV
Diesel car Petrol car

Life 100000 km 100000 km

Perceived Cost of each 15000 5000


service (every 10000 Km)

Perceived Cost of running Rs 4 Per Km Rs 6 per Km

Price To be determined Rs 500000


PV
• PV = price of next best alternative + perceived
value of the performance differential
• PV = price of next best alternative + (Perceived
difference in cost of running) – (Perceived
Difference in cost of service)
• PV = 500000 + {(6*100000)-(4*100000)} –
[(10*15000) –(10*5000)]
• PV = 500000 + 200000 – 100000
• PV = 600000
Value Price Therometer
Assessing Perceived Value
Assessing TEV
Assessing PV
Question
• Should you charge same or different price
from the two customers ?

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