Value-Based Pricing & Willingness to Pay Flashcards

Which approach segments customers for value-based pricing by identifying differences in the economic value each segment derives?

Answer: Economic value segmentation

Economic value segmentation groups buyers by the measurable monetary benefit they receive, enabling differentiated pricing across segments.

A company's product saves industrial buyers $50,000/year in labor costs. The next best alternative costs $5,000. What is the maximum theoretical price using EVE?

Answer: $55,000

EVE = reference value + differentiation value = $5,000 (competitor price) + $50,000 (incremental saving) = $55,000 theoretical ceiling.

What is the primary risk of setting price equal to full economic value in a B2B transaction?

Answer: The buyer captures no consumer surplus, reducing incentive to switch

Capturing 100% of economic value leaves the buyer with zero surplus, providing no financial motivation to switch from the incumbent solution.

In value-based pricing, a 'reference value' is best defined as:

Answer: The price of the next best competitive alternative available to the buyer

The reference value anchors EVE calculations as the price the customer would pay for the best substitute if they did not buy from you.

Which research technique uses hypothetical purchase scenarios to estimate price sensitivity without directly asking 'how much would you pay?'

Answer: Discrete choice modeling / choice-based conjoint

Discrete choice modeling presents respondents with realistic trade-off scenarios, indirectly revealing WTP through their choices.

Value leakage in pricing occurs when:

Answer: Prices are set below the economic value delivered, leaving money on the table

Value leakage means the firm fails to capture a fair share of the economic value it creates, typically through under-pricing or excessive discounting.