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Value based pricing is a pricing strategy based upon the potential value the product or service will bring to its customers; based on the amount they are willing to pay for the product or service. The company determines how much value the prices will bring to customers from factors such as efficiency and stability…
The consumer lacks consideration, but the cost of production is considered. It is favorable for goods sold to highly sophisticated customers. (Hilstrich 2000 page 12).
The benefits of value-based pricing are the ability to set prices that are likely to attract buyers because of the market consideration. The major challenge for this approach is the extensive need of advertisement to sell the brand name to customers for them to accept its benefits. The profit margin is also extremely low, and it is not easily accounted for entirely. It can also alienate some customers who purchase based on pricing. (Hilstrich 2000 page 24). Cost based pricing benefits ranges from the high profit margins by goal setting by the company. The greatest drawback is the high pricing that may exceed the consumer threshold, which leads to a struggle in the generation of enough volumes for the market. It also ignores the image of the product to consumers and thus lower profit per sale than would otherwise be realized.
The IKEA Company uses the value based pricing strategy in the pricing of its products. This is the best pricing strategy that the company uses to provide the home products to its customers. ...
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