Value Based Pricing: Difference between revisions
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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. | 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 | ==How it works== | ||
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. | 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. | ||