Importance of Value-Based Pricing Strategy and Why You’re Likely Selling Your Products Short

There are endless ways to configure pricing for your online business, but many pricing strategies leave revenue on the table and can even damage your customer’s view of your brand.


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If you’re not pricing correctly, you could unwittingly tank your business. This is because not all pricing strategies put the customer first. As an online business, finding the right formula for retail markup is one of the most important questions to solve for.

Value-based pricing is potentially the best pricing strategy for your brand, your customer relationships and your bottom-line — but as with most worthwhile endeavors, it isn’t considered “low-hanging fruit.”

This is why most companies turn to sub-par pricing strategies like cost-plus pricing and competitor-based pricing.

The Downside of Cost-Plus Pricing Strategy

Cost-plus pricing is an outdated but nonetheless popular pricing strategy.

It works by simply taking the cost of production and adding a fixed margin to create the retail price. McMaster-Carr, an online industrial parts retailer, uses a cost-plus pricing scheme to ensure that the company makes at least that margin in profit on items that have high production and shipping costs.

Yet cost-plus pricing is problematic because it completely disregards the customer’s perspective. They don’t care about cost of production or what profits you’re looking to make to hit your annual goals. They care about how your product helps them, and ultimately they want to pay what they think it’s worth.


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The price a customer wants to pay may end up being the cost of production plus a margin. But depending on the value the customer is getting from the product and from the experience of purchasing from your company, it might not shake out that way.

You could end up overcharging or undercharging your customers, which is bad for both your company and your customers.

What is Value-Based Pricing?

There’s only one way to make sure that you’re not losing money and customers: value-based pricing.

Value-based pricing ensures that your customers feel happy paying your price for the value they’re getting. Pricing according to the value your customer sees in your product prevents you from short-changing yourself while creating an experience for customers that’s most aligned with their expectations.

You’ll also strengthen your brand name, build better customer relationships, and ultimately improve your bottom line. Value-based pricing is the only true win-win scenario for you and your customer.

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