Value Based Pricing: Difference between revisions
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Revision as of 16:57, 11 April 2025
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 it's 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 consumer subscribes to service x for $4.00, the service offers movies, tv shows etc... The company makes a decision to increase profits for shareholders based on collecting info on how users used the app, along with collecting recent purchases from credit card companies to build a profile on specific groups of their user-base that are currently subscribed to them. Some consumers are shocked to find out the subscription has risen from $4.00 to $6.50 despite service x not providing any new features or content to justify the increase. But instead of switching those targeted consumers pay the bill anyways because it is currently not worth their time to unsubscribe or switch to a competing service at the time.
Why it is a problem
Artificial price raises
When renewing a subscription or purchasing an item, would you care it was subject to price hikes regardless to how much profit the company is already making? Certain services may have collected information about you that helps them identify how much you are willing to pay them or use 3rd party tools to approximate how much to charge you the consumer specifically.
Price gouging individual consumers on an individual basis
With specific apps that you buy stuff from may collect your data without your consent. This allows companies to charge more for the same items that you may buy again later on. These apps likely also share this type of purchase history with other providers that share similar products for profit.
Targeted smart pricing with AI
Examples
Walmart & Kroger using smart pricing on it's products when checking out items
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