Value Based Pricing: Difference between revisions

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VBP ~~(value based pricing~~) also known as VOP ~~(value optimized pricing~~) is a practice ~~where a business sets a~~ price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.

Value Based Pricing (VBP), also known as Value Optimized Pricing (VOP), is the practice of setting the price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.

==How it works - a worked example==

A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the ~~costs~~.

A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users.

This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the loss.

==Why it is a problem==

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==Examples==

[[Walmart]] & Kroger plans of using smart pricing on its in-person retail products

[[Walmart]] & Kroger plans of using smart pricing or "surge pricing"<ref name="WalmartSurge">[https://www.dailydot.com/news/walmart-surge-pricing/ Walmart Surge Pricing]</ref> on its in-person retail products. Walmart denies this claim.<ref name="WalmartLabels">[https://www.msn.com/en-us/money/companies/walmart-is-replacing-its-price-labels-with-digital-screens-but-the-company-swears-it-won-t-use-it-for-surge-pricing Walmart Denies Surge Pricing]</ref>

[[Cloudflare]] charging you higher rates for the same plan as other users.

[[~~Cloudflare~~]] charging ~~you higher rates for~~ the ~~same plan as other users~~

[[Doordash]] charging users hidden fees based on how they use the app and what device they were ordering from.

~~[[Doordash]] charging users hidden fees based on how they use the app and what device they were ordering from~~

==References==

[[Category:Common terms]]

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-VBP (value based pricing) also known as VOP (value optimized pricing) is a practice where a business sets a price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.
+Value Based Pricing (VBP), also known as Value Optimized Pricing (VOP), is the practice of setting the price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.
 ==How it works - a worked example==
-A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.
+A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the company then increases the price offered to those specific customers (e.g. from $4 to $6 per month), while continuing to offer the lower price to other users.
+This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the loss.
 ==Why it is a problem==
@@ Line 16: / Line 18: @@
 ==Examples==
-[[Walmart]] & Kroger plans of using smart pricing on its in-person retail products
+[[Walmart]] & Kroger plans of using smart pricing or "surge pricing"<ref name="WalmartSurge">[https://www.dailydot.com/news/walmart-surge-pricing/ Walmart Surge Pricing]</ref> on its in-person retail products.  Walmart denies this claim.<ref name="WalmartLabels">[https://www.msn.com/en-us/money/companies/walmart-is-replacing-its-price-labels-with-digital-screens-but-the-company-swears-it-won-t-use-it-for-surge-pricing Walmart Denies Surge Pricing]</ref>
+[[Cloudflare]] charging you higher rates for the same plan as other users.
-[[Cloudflare]] charging you higher rates for the same plan as other users
+[[Doordash]] charging users hidden fees based on how they use the app and what device they were ordering from.
-[[Doordash]] charging users hidden fees based on how they use the app and what device they were ordering from
 ==References==
 {{reflist}}
 [[Category:Common terms]]