Analysis of Cost-Based and Value-Based Pricing Techniques

This assignment provides a detailed comparison between cost-based and value-based pricing strategies. It defines cost-based pricing as a method where the selling price is determined by adding a profit margin to the cost of the product, while value-based pricing sets the price according to the customer's willingness to pay, disregarding the product's cost. The assignment highlights key differences, such as the emphasis on product features versus customer benefits, and the scope of price ranges. It illustrates that value-based pricing can be more expensive but focuses on the value added to customers, while cost-based pricing helps identify product costs and ensure profitability. The document uses examples like cars (cost-based) and coffee shops (value-based) to illustrate product suitability, and includes references to academic sources.

Cost based pricing
& value based
pricing

Cost based pricing
 Cost based pricing:
a.) Pricing method.
b.) Determine selling price.
c.) Selling price of product.
d.) Profit figure is
added to cost
(Nagle and Müller,2017).

Value based pricing
Value based pricing:
a.) Value optimized pricing.
b.) Price is set according to
the willingness of the
customers to pay.
c.) Cost of the product
is not considered
(Liozu et al.,2015).

Compare Cost based pricing and value
based pricing
• Value based pricing and cost based pricing
comparison:
Value based pricing Cost based pricing
1.) It emphasizes
on the benefits of product offered
to
consumers
1.) It emphasizes on the features
of the products.

Compare Cost based pricing and value
based pricing
• Cost based pricing has less range of prices as
compared to value based pricing.
• It is because in value based pricing the focus
is on what the customers will pay
to achieve benefits but in
Cost based pricing the cost is
related with certain amount.

Compare Cost based pricing and value
based pricing
Value based pricing Cost based pricing
3.) It is expensive as compared to cost
based pricing (Danzon, Towse and
Mestre‐Ferrandiz, 2015).
3.) It is less expensive as the companies
offer competitive prices to the customers
, so that it could be easy to compete
among the competitors.

Compare Cost based pricing and value
based pricing
Value based pricing Cost based pricing
4.) It helps in emphasizing on the value
that will add to the customers and it
relates with the demand of the customers.
4.) It helps in identifying the cost of
selling the product with enough margin
to make profit.

Compare Cost based pricing and value
based pricing
Value based pricing Cost based pricing
5.) This method is used to develop the
value of the product among the
customers (Hinterhuber and Liozu 2017).
5.) This pricing method emphasizes on
the situation of the company at the time
of determining price.

Cost based pricing and value based
pricing ( Products)
Cost based pricing:
a.) It is best suited for the products
Such as for cars.
Example: Every car that is offered in the market by
Chevrolet consist of some inputs which are used
like: the steering wheel, wires. The cost is same of
the unit produced , but it is different with the
number of units produced. So, at last the, total costs
are the sum of the fixed and variable costs for the
production level.

Cost based pricing and value based
pricing ( Products)
Value based pricing:
a.) It is best suited for coffee shops and for
clothing sector.
Example: Starbucks
The company is using
this strategy to boost
their profits.

Cost based pricing and value based
pricing ( Products)
• So, it can be concluded that cost based
pricing and value based pricing are different
from each other.
• Cost based are best suited for the products
such as Cars and on the other hand value
based is suited for clothing sector and coffee
hubs.

References
• Danzon, P., Towse, A. and Mestre‐Ferrandiz, J., 2015. Value‐based differential pricing:
Efficient prices for drugs in a global context. Health economics, 24(3), pp.294-301.
• Hinterhuber, A. and Liozu, S.M., 2017. Is innovation in pricing your next source of
competitive advantage? 1. In Innovation in Pricing (pp. 11-27). Routledge.
• Liozu, S., Boland, D., Hinterbuber, A. and Perelli, S., 2015. Mindful Pricing:
Transforming Organizations Through Value Based Pricing. In Marketing Dynamism &
Sustainability: Things Change, Things Stay the Same… (pp. 412-421). Springer, Cham.
• Nagle, T.T. and Müller, G., 2017. The strategy and tactics of pricing: A guide to
growing more profitably. Routledge.