Value-based pricing: a framework

This chapter presents a comprehensive framework for value-based pricing, emphasizing its critical role in enhancing company profitability and performance. It contrasts value-based pricing with traditional cost-based methods, highlighting its foundation on understanding and influencing customer willingness to pay. The framework encompasses four key steps: defining pricing objectives aligned with profitability, analyzing critical elements through customer value quantification, price elasticity, and perception analyses, evaluating internal factors such as competitive advantages and break-even analyses, and implementing pricing decisions effectively within and outside the organization. Practical tools such as economic value analysis and behavioral insights are discussed to manage customer price perceptions strategically. The chapter underscores the necessity of internal alignment and external negotiation capabilities, presenting actionable insights and methods for successfully adopting value-based pricing to drive competitive advantage and maximize profitability.