Customers and pricing
Value-based pricing
Setting the price from what the product is worth to the customer.
Facts checked against sources onWhat does Value-based pricing mean?
Value-based pricing sets the price from the value the product creates for the customer, such as money saved or earned, and aims to capture a fair share of it while leaving the customer better off. It usually allows a higher price than cost-plus pricing, but needs good evidence of that value.
Where does it come up in case interview prep?
- Brands, trust and pricing powerLesson in Why some businesses win: competitive advantage and the economics of strategy
- Cost leadership or differentiation: what must be trueLesson in Why some businesses win: competitive advantage and the economics of strategy
- Positioning and why customers choose: value to the customer and willingness to payLesson in Customers and growth: the economics of marketing
- Revenue models, cost structure, unit economics and operationsLesson in Pharma, biotech and medical devices
- Main players, trends 2024 to 2026, regulation and casesLesson in Pharma, biotech and medical devices
- PricingLesson
- How luxury and fashion make moneyLesson in Luxury and fashion
- How the chemical industry works: commodity and specialtyLesson in Chemicals
- Pricing lensesWhy reciting it fails, and what to do instead
Related terms
- Economic value to the customer (EVC)The most a rational customer should pay, given their next best option.
- Cost-plus pricingPrice = cost plus a fixed markup.
- 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.
Learn it in context
See Value-based pricing at work in a lesson from Why some businesses win: competitive advantage and the economics of strategy, with checks as you go.
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