Value based pricing: the least valued pricing strategy

Abstract

Pricing has been one of the least researched topics in marketing, although within these pricing strategies: cost-plus pricing is considered as the leading pricing strategy worldwide. Why should companies use such an unprofitable strategy, where fighting for a higher market share due to low prices is more a rule than exception? VBP is one of the most underestimated strategies by organizations. The definition of VBP is: 'value pricing applies to products that have the potential of being differentiated from competitors' products' (Farras, 2012, p.35). Taking this definition into account, a VBP strategy gives organizations the unique opportunity to sell an offering by its value instead of price. Nonetheless, two conditions need to be fulfilled: to what extend can organizations differentiate their offering (1) and is it perceived as a commodity? (2) In case the offering is perceived as a commodity, VBP is not likely to occur. The same logic applies for oligopolistic markets, as the definition of oligopolies states that differentiation between organizations' offerings is low and few players dominate the market. These two conditions are the only two conditions forcing organizations towards a cost-plus strategy. As long as organizations can differentiate, at least on one specification (i.e. differentiation is possible), a VBP strategy is a relevant strategy.