Willingness to pay is the maximum price threshold companies can charge up to for their products.
The value stick further comprises four components: Lastly, the bottom of the stick represents the firm’s suppliers and is called the supplier surplus. The middle of the stick is called the firm’s margin and represents the value obtained by the firm. The top of the value stick is called customer’s delight and captures the value received by the end consumer. Identifying the Right Price Point Using the Value Stick FrameworkĪccording to Harvard Business School, the value stick framework is an effective way to visualize the different aspects of value-based pricing. Value-based pricing thus requires companies to accurately determine the true willingness of target consumers to pay for a particular product. The above example is a case in point that the consumer’s readiness to pay a certain price depends on different factors. She’d probably be more interested in Macy’s if she’s looking for a fashionable accessory. If she only cared about covering her head, a Walmart hat would suffice. For example, if a consumer is looking to buy a new winter hat, she could place an order from Walmart at $5 or Macy’s at $25. The price of a product often helps consumers numerically evaluate the value they are getting out of the item. Value-Based Pricing: A Key To Higher Profitability.3 Misconceptions Regarding Value-Based Pricing.Advantages of Implementing Value-Based Pricing.3 Examples of E-Commerce Brands Using Value-Based Pricing Strategies.Maximizing Value & Increasing Profitability Using the Value Stick.Identifying the Right Price Point Using the Value Stick Framework.
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