Customer value-based pricing strategies: why companies resist
Published by Andreas Hinterhuber
Hinterhuber and Partners
Pricing has a huge impact on profitability. Pricing strategies vary considerably across industries, countries and customers. Nevertheless, researchers generally concur that pricing strategies can be categorised into three groups:
1. cost-based pricing;
2. competition-based pricing; and
3. customer value-based pricing.
Of these, customer value-based pricing is increasingly recognised in the literature as superior to all other pricing strategies (Ingenbleek et al, 2003). For example, Monroe (2002, p. 36) observes that: ‘‘… the profit potential for having a value-oriented pricing strategy that works is far greater than with any other pricing approach’’. Similarly, Cannon and Morgan (1990) recommend value pricing if profit maximisation is the objective, and Docters et al (2004, p. 16) refer to value-based pricing as ‘‘one of the best pricing methods’’
Practitioners have also recognised the advantages of value-based pricing strategies. Several companies have successfully adopted such strategies. These include pharmaceutical companies such as Sanofi-Aventis, information technology companies such as SAP and Vendavo, wireless internet service providers such as the Australian company Xone, airlines such as Lufthansa, vehicle manufacturers such as BMW, and biotech companies such as Tigris Pharmaceuticals.