Value-Based vs Cost-Based Pricing

1a. Value-Based Pricing In value-based pricing, the business concentrates on the value of services or products rather than the costs incurred in production. Doing this requires the company to establish the value its product will give to the client. The value could be attributed to elements such as satisfaction, stability, or increased efficiency (Rawes, 2017). This pricing method is commonly used by enterprises that deal with software, artwork, chemicals, and medicine. Cost-Based Pricing In cost-based pricing, the business considers the production costs as its pricing basis. The enterprise utilizes its costs to determine the lowest price and the highest price limit. The price floor and the price ceiling imply the maximum and minimum prices it could set for a particular product. If the current competitive price is below the price floor, the business might set its prices at the floor or try to reduce its costs to lower the floor (Rawes, 2017). However, the firm should preferably price between the floor and the ceiling. Most companies that have mass production such as construction materials and textiles apply this strategy.