Customers and pricing
Economic value to the customer (EVC)
The most a rational customer should pay, given their next best option.
Facts checked against sources onWhat does Economic value to the customer (EVC) mean?
Economic value to the customer is the price of the customer's next best alternative plus the extra value (or minus the extra cost) our product brings compared with it. If the alternative costs 1,000 and our product saves the customer another 400 over its life, the EVC is 1,400. Pricing below EVC gives the customer a reason to switch; the gap between cost and EVC is the room for value-based pricing.
Where does it come up in case interview prep?
Related terms
- Value-based pricingSetting the price from what the product is worth to the customer.
- Price elasticity of demandHow strongly the quantity sold reacts to a change in price.
- TAM, SAM and SOMTotal market, the part you can serve, and the part you can win.
- Market shareOur sales as a share of total market sales.
- Relative market shareOur share divided by the largest competitor's share.
- Penetration rateThe share of potential customers who already use the product.
- Share of walletOur share of what one customer spends in the category.
- ARPU (average revenue per user)Revenue divided by the average number of users.
Learn it in context
See Economic value to the customer (EVC) at work in a lesson from Customers and growth: the economics of marketing, with checks as you go.
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