Value-Based Pricing

Refere for Customer Lifetime Value (CLV) vs. Customer Perceived Value (CPV) https://www.garudax.id/pulse/clv-vs-cpv-your-guide-targeted-marketing-arun-singh-16pmc

What is Value-Based Pricing?

Value-Based Pricing is a customer-centric pricing strategy where the selling price is based on the perceived value of the product to the customer, rather than only on cost or competitor prices.

Formula: Value-Based Price = Next Best Alternative Price ± Differential Value

• Next Best Alternative Price (NBA Price): What the customer would pay if your product didn’t exist, i.e., the price of the closest substitute.

Example: For an iPhone, the NBA could be a Samsung Galaxy or Google Pixel.

• Differential Value: The quantified benefit (positive or negative) your product offers compared to that alternative.

Differential Value can

• Be tangible (better battery, ecosystem, durability, resale value).
• Be intangible (brand status, emotional appeal, design aesthetics, community).
• Be positive (adds value) or negative (a shortfall you must discount for).

So, the customer’s willingness to pay (WTP) = value of substitute + value difference.

Apple Case Study: iPhone Pricing

Let’s apply the formula to Apple.

Step 1: Identify NBA

Suppose we’re pricing the iPhone 15 Pro in the UK.

Closest NBA = Samsung Galaxy S23 Ultra. Price of NBA = ~£1,200.

Step 2: Identify Differential Value

Apple compares iPhone vs. Samsung across benefits:

Total Differential Value = +£600 (gains) – £100 (loss) = +£500.

Step 3: Calculate Value-Based Price

NBA Price (Samsung) = £1,200 Differential Value (Apple) = +£500

Value-Based Price (iPhone) = £1,700

Step 4: Strategic Pricing

Apple doesn’t charge the full £1,700 (would risk backlash). Instead, it anchors high but prices slightly below WTP to ensure adoption. Actual iPhone 15 Pro price in UK ≈ £1,599.

How Apple Makes Use of It

• Brand Premium: Apple prices significantly above NBA because customers perceive higher value.
• Ecosystem Lock-In: Apple highlights “It just works together” → justifies higher willingness to pay.
• Differentiation Marketing: Apple rarely talks “cheapest phone” — instead, it sells lifestyle, privacy, status, performance.
• Controlled Discounts: Unlike Samsung or OnePlus, Apple doesn’t slash prices aggressively → protects the perception of value.
• Result: Gross margins > 40% (vs. industry avg. 20–25%). Customers willingly pay the premium.