28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

Value-based pricing means setting a price customers are willing to pay based on the

perceived value to them of your product or service - not on the cost of providing it.
Pricing strategist Mark Stiving of Pragmatic Pricing (http://pragmaticpricing.com/)
explains

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 1/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×
Value-based pricing (or value pricing) is the most highly recommended pricing
technique by consultants and academics. The basic idea is to set a price
(https://www.marketingdonut.co.uk/marketing-strategy/pricing/price-your-product-or-
service) that's based on what your customers are willing to pay.
Before I explain value-based pricing, though, let's look at how your customers make
decisions about which product to buy.

Buying or selling overseas can make your small business much more
successful – but it’s not without challenges. How do you overcome them?
Read our fact-packed mini guide to buying and selling overseas.

Find out more (https://www.startupdonut.co.uk/buying-and-selling-overseas-

free-guide)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 2/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×
Imagine you're at the supermarket and you want to buy a can of green beans. Two
cans catch your eye - the store's own-label can and a branded product. The rst costs
£1.49 and the second costs £1.69. How do you choose? You ask yourself, is the brand
name can worth 20p more?

To answer this, you think of everything that is di erent between the two cans. You may
have had better experiences with one variety. One may have less salt. One may be cut
di erently. One may have a prettier label. It's completely up to you as to what you
think is important.

After you've determined the important di erences, you place a value on them and
then decide if the branded can of beans is worth 20 pence more than the own-label
can.

Of course you don't actually overtly make these calculations. But that is how your
mind makes the decision.

Notice that there is no right or wrong answer. People are di erent and value things
di erently.

For your business, the important thing is to ask your customers

(https://www.marketingdonut.co.uk/market-research/questionnaires-surveys-and-
focus-groups/how-to-create-e ective-customer-questionnaires) what they would have
bought, if not your product or service. Their answers tell you who your toughest
competitors are.

Now, choose one of these competitors (https://www.marketingdonut.co.uk/market-

research/market-analysis/keeping-your-eyes-on-the-competition) and do the value-
based buying maths for yourself. How much is your product or service? How much is
your competitor's? What are all of the di erences? (Don't be biased. Be sure to list the
areas where your competitor is better.)

How would you value these di erences? How do you think your customers value these
di erences?

Value-based pricing is about setting a price that represents the value the customer
receives from your product or service - not the cost of providing it.

Here are the steps:

1. Identify your customer's 'second-best option'. If your customer can't buy your
product or service, then what would he or she choose?
2. Find out the price of the second-best option.
https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 3/13
28/5/2019 Why value-based pricing works best | Marketing Donut

3. List all of the ways that your o ering is –better.

BuyingEstimate how much you think these
di erences are worth to your
FREE GUIDE
customers.
DOWNLOAD NOW
and selling overseas
×
4. List all the ways that the second-best o ering is better. Be very honest here. How
much do you think these are worth to your customers?
5. To calculate the best price:

take the price of the second-best option;

add the value of your advantages;
subtract the value of the second-best option's advantages.

All customers are di erent, so which ones do you think about when doing this
analysis?

First o , choose a customer that purchased from you and do the analysis. Then, choose
a customer who didn't buy from you (harder to nd) and do it again. Customers who
buy from you and those who don't value your o ering di erently.

As a marketer, your target market (https://www.marketingdonut.co.uk/marketing-

strategy/your-target-market/your-target-market-overview) should be the customers
who value your advantages. You should price for those customers. If you are trying to
reach a broader market, you may want to lower the price. However, a better strategy
may be price segmentation (https://www.marketingdonut.co.uk/marketing-
strategy/your-target-market/make-customer-segmentation-work).

This process does not give you the 'right' answer, but it gets you close. It lets you see
how your customers are making decisions, and calculates a possible price so you can
see if it makes sense. Eventually, you may have to tweak this price up or down based
on your judgment and experience.

Don't skip through the process. Even if it gives you the same price range you are
currently using, it forces you to think about your customers'
(https://www.marketingdonut.co.uk/customer-care/understanding-your-
customers/understanding-your-customers-overview) decision processes. This is
valuable to you.

SHARE TWEET SHARE SHARE

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 4/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

(/market-research/market-analysis/a-guide-to-price-comparison-websites)
A guide to price comparison websites (/market-research/market-analysis/a-
guide-to-price-comparison-websites)

(/marketing-strategy/pricing/seven-ways-to-price-your-product)
Seven ways to price your product (/marketing-strategy/pricing/seven-ways-
t i d t)
https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 5/13
28/5/2019 Why value-based pricing works best | Marketing Donut
to-price-your-product)
FREE GUIDE – Buying and selling overseas
DOWNLOAD NOW
×

(/sales/sales-techniques-and-negotiations/winning-the-sale-without-
dropping-the-price)
Winning the sale without dropping the price (/sales/sales-techniques-and-
negotiations/winning-the-sale-without-dropping-the-price)

Browse topics: Marketing strategy (/marketing-strategy)

Your marketing plan (16) (/marketing-strategy/your-marketing-plan)

SWOT analysis (9) (/marketing-strategy/swot-analysis)

Your target market (17) (/marketing-strategy/your-target-market)

Product development (19) (/marketing-strategy/product-development)

Branding (31) (/marketing-strategy/branding)

Pricing (15) (/marketing-strategy/pricing)

Marketing recruitment and management (12) (/marketing-strategy/marketing-

recruitment-and-management)

Exporting (20) (/marketing-strategy/exporting)

Retail (10) (/marketing-strategy/retail)

Cost-e ective marketing (12) (/marketing-strategy/cost-e ective-marketing)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 6/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

What does the * mean?

If a link has a * this means it is an a iliate link. To nd out more, see our FAQs (/faqs).

Download now
(https://www.st
artupdonut.co.
uk/buying-and-
selling-
overseas-free-
guide#_ga=2.1
(https://www.startupdonut.co.uk/buying-and- 0305333.14589
selling-overseas-free- 17619.1556613
guide#_ga=2.10305333.1458917619.1556613420 420-
-1984532016.1554995206)Find out how to 1984532016.15
succeed when buying or selling overseas. 54995206)
Packed with useful information, download our
Azimo-sponsored free guide.

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 7/13
28/5/2019 Why value-based pricing works best | Marketing Donut

MARKETING HUBFREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

Digital
growth

(/hub/digital-growth)

Why classic billboards are here to stay (/blog/19/05/why-classic-billboards-are-

here-to-stay)

Think you have a marketing strategy? Think again (/blog/19/05/think-you-have-a-

marketing-strategy-think-again)

Marketing and HR - how collaboration can bring bene ts to both

(/blog/19/05/marketing-and-hr-how-collaboration-can-bring-bene ts-to-both)

Branding basics - the 12 brand archetypes (/blog/19/05/branding-basics-12-

brand-archetypes)

Least expensive place to insure a home revealed (/news/least-expensive-place-to-

insure-a-home-revealed)

IES calls for better support for obese employees (/news/ies-calls-for-better-

support-for-obese-employees)

CBI welcomes May’s latest deal on Brexit (/news/cbi-welcomes-mays-latest-deal-

on-brexit)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 8/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

TUC calls on employers to allow more homeworking (/news/tuc-calls-on-

employers-to-allow-more-homeworking)

How to succeed when buying or

selling overseas
(https://www.startupdonut.co.uk/
buying-and-selling-overseas-
free-guide)

(https://www.startupdonut.co.uk/bu
ying-and-selling-overseas-free-
guide)

Powerful ecommerce software -

free trial
(https://bigcommerce.evyy.net/c/
334139/490753/2941?
subId1=OFFER)

(https://bigcommerce.evyy.net/c/33
4139/490753/2941?subId1=OFFER)

Yell Starter Pack - 33% o

(https://business.yell.com/callbac
k/?utm_source=donut-
marketing&utm_medium=websit
e&utm_campaign=o er)

(https://business yell com/callback/

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 9/13
28/5/2019 Why value-based pricing works best | Marketing Donut
(https://business.yell.com/callback/
FREE GUIDE – Buying and selling overseas
?utm_source=donut- DOWNLOAD NOW ×
marketing&utm_medium=website&
utm_campaign=o er)

Sector trends for 200+ types of business (https://www.sectorsdonut.co.uk/)

How we created the YUUbag (https://www.startupdonut.co.uk/start-up-

business-ideas/from-idea-to-reality-how-we-created-the-yuubag)

Commercial disputes FAQs (https://www.lawdonut.co.uk/business/contracts-

disputes/dispute-resolution/commercial-disputes-faqs)

Plan your long-term nancial security

(https://www.moneydonut.co.uk/pensions/private-pensions/plan-your-long-
term- nancial-security)

How to nd the best cloud services for your business

(https://www.techdonut.co.uk/the-internet/cloud-computing/how-to- nd-the-
best-cloud-services-for-your-business)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 10/13
28/5/2019 Why value-based pricing works best | Marketing Donut

Get our essential newsletters for small

DOWNLOAD
FREE GUIDE – Buying and selling overseas
NOW and growing businesses.
×
Delivered by us, Atom Content Marketing
(https://www.atomcontentmarketing.co.uk/about-us), via email. We will
never put at risk, share or sell your information. Click "Unsubscribe" in any
email to opt out. Check our Privacy Policy (/privacy-policy) for details.

Enter your email address

Don't be a digital dunce - our tips on tech for #business

(https://twitter.com/hashtag/business) in association with @Microsoft
(https://twitter.com/Microsoft) #digitaltransformation
(https://twitter.com/hashtag/digitaltransformation)… https://t.co/s25rzue7gG
(https://t.co/s25rzue7gG)

@BizDonuts

It'll stay with you forever... Tips for start-ups on making that vital rst #sale
(https://twitter.com/hashtag/sale) #O365 (https://twitter.com/hashtag/O365)
https://t.co/gNw51nokBw (https://t.co/gNw51nokBw)

@BizDonuts

See our special #o ers (https://twitter.com/hashtag/o ers) hand-picked for #SMEs

(https://twitter.com/hashtag/SMEs) just like yours - and save £££: https://t.co/Kvopkg2MT8
(https://t.co/Kvopkg2MT8) https://t.co/GpUhxTfHDu (https://t.co/GpUhxTfHDu)

@BizDonuts

Want to starting #selling (https://twitter.com/hashtag/selling) customers? Need to source

products or services overseas? Read our fact-packed new #free
(https://twitter.com/hashtag/free) m… https://t.co/wSBdCostkt (https://t.co/wSBdCostkt)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 11/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×
@BizDonuts

FOLLOW US

(htt
(htt ps:/
ps:/ (htt /ww
/ww ps:/ w.in
w.fa /ww stag
ceb w.t ram
ook. witt .co
com er.c m/s
/Joi om/ tart
nMy Biz upd
Don Don onu
ut) uts) t)

SITE LINKS EDITOR'S CHOICE

About (/about) Digital Growth Hub (/hub/digital-
Contact us growth)
(https://www.marketingdonut.co.uk/co Start-up guide
ntact-form) (https://www.startupdonut.co.uk/hub/d
Cookies policy (/cookies-policy) igital-growth/how-to-start-your-own-
FAQs (/faqs) business-free-guide)

Privacy policy (/privacy-policy) Newsletter sign-up (/stay-up-to-date-

Terms and conditions of use (/terms- donut-newsletters)

and-conditions-of-use) Small business news (/news)

Sitemap (/sitemap.xml) Small business o ers (/o ers)

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 12/13
28/5/2019 Why value-based pricing works best | Marketing Donut

FREE GUIDE – Buying and selling overseas

DOWNLOAD NOW
×

WORK WITH US MORE DONUTS

Advertise with us Law Donut
(http://atomcontentmarketing.co.uk/m (https://www.lawdonut.co.uk/)
edia-pack/) Money Donut
License our content (https://www.moneydonut.co.uk/)
(http://www.atomcontentmarketing.co. Sectors Donut
uk/content-for-smes) (https://www.sectorsdonut.co.uk)
Start Up Donut
(https://www.startupdonut.co.uk/)
Tech Donut
(https://www.techdonut.co.uk/)

5th Floor, 1 Temple Way

Bristol
BS2 0BY

Registered company number: 02784650

Telephone: 0117 407 0227
Email: info@atomcontentmarketing.co.uk
(mailto:info@atomcontentmarketing.co.uk)
Website: www.atomcontentmarketing.co.uk
(http://www.atomcontentmarketing.co.uk)

(http://www.atomcontentmarketing.co.uk)

© 2019 Atom Content Marketing Ltd

https://www.marketingdonut.co.uk/marketing-strategy/pricing/why-value-based-pricing-works-best 13/13