Value-Based Pricing
Costs set the minimum sustainable price; customers’ perceived value and willingness to pay determine the profitable range above it.
A product does not become correctly priced just because you added a respectable markup to its production cost. The startling claim is that what it cost you may say almost nothing about what it should sell for.
E1Cost sets the floor; demand maps the upside
Cost-plus pricing begins inside the business: calculate the expense, add a margin, and publish the result. Value-based pricing begins with the buyer. The relevant question is how much value the customer expects to receive—and therefore how much they will surrender to get it.
That creates two boundaries. Costs determine whether a sale is sustainable; willingness to pay determines whether it happens and how much value the seller can capture. But willingness is not a single fixed number: as the price changes, the pool of buyers changes too, which connects value-based pricing to Price Elasticity of Demand and the Revenue Maximization Curve.
E1Value is not permission to ignore cost
Customer willingness to pay cannot rescue a product whose achievable price remains below its cost. Nor does perceived value reveal itself automatically: without evidence about buyer behaviour, a supposedly “value-based” price may be little more than the seller’s optimistic guess.
Test the buyer’s range before choosing the markup
For one product, write down its cost floor, then test several prices with real customers instead of applying one customary percentage. Track how purchase rates change at each price; use that demand evidence to choose the price rather than letting the cost calculation choose it for you.
Episodes that teach this
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Why We Pay More Than Others? Product Pricing Psychology | Future IQ
· explained at 5:04
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"price should be based on how much people are willing to pay not how much it cost you"