Differences between value-based pricing and cost-based pricing - QS Study
QS Study

Differences between value-based pricing and cost-based pricing are-

Advantages and Disadvantages of Value-based Pricing

Advantages

  • Increases profits: This method results in the highest possible price that you can charge, and so maximizes profits.
  • Customer loyalty: Despite the high prices charged, you can achieve extremely high customer loyalty for repeat business and referrals, but only if the service or product provided justifies the high price.

Disadvantages

  • Niche market: The very high prices to be expected under this method will only be acceptable to a small number of customers.
  • Not scalable
  • Competition: Any company that persistently engages in value-based pricing is leaving a great deal of room for competitors to offer lower prices and take away their market share.
  • Labor costs

Advantages and Disadvantages of Cost-based Pricing

Advantages

  • Simple: It is quite easy to derive a product price using this method
  • Assured contract profits
  • Justifiable

Disadvantages

  • Ignores competition
  • Product cost overruns
  • Contract cost overruns
  • Ignores replacement costs