Value based pricing: Difference between revisions

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VBP (value based pricing) also known as VOP (value optimized pricing) is a practice where a business sets a price of a product or service based on ~~it's~~ estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.

VBP (value based pricing) also known as VOP (value optimized pricing) is a practice where a business sets a price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.

==How it works==

==How it works - a worked example==

A consumer subscribes to service '''x''' for $4.00~~, the~~ service offers movies, tv shows ~~etc~~.~~.. The~~ company ~~makes a decision~~ to ~~increase profits for shareholders based on collecting~~ info on how users ~~used~~ the app, along with ~~collecting recent purchases~~ from ~~credit card companies~~ to build ~~a profile on specific groups of their user-base that are currently subscribed~~ to ~~them~~. ~~Some consumers~~ are ~~shocked~~ to ~~find out~~ the ~~subscription has risen~~ from $4~~.00~~ to $6.~~50 despite service '''x''~~' not ~~providing any new features or content~~ to ~~justify the increase~~. ~~But instead~~ of ~~switching those~~ targeted ~~consumers pay~~ the ~~bill anyways because it is currently not worth their time to unsubscribe or switch to a competing service at~~ the ~~time~~.

A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the service will increase the price offered to those customers (e.g. from $4 to $6 per month), without changing the price offered to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.

==Why it is a problem==

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==Examples==

Walmart & Kroger plans of using smart pricing on ~~it's~~ in person retail products

Walmart & Kroger plans of using smart pricing on its in-person retail products

Cloudflare charging you higher rates for the same plan as other users

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-VBP (value based pricing) also known as VOP (value optimized pricing) is a practice where a business sets a price of a product or service based on it's estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.
+VBP (value based pricing) also known as VOP (value optimized pricing) is a practice where a business sets a price of a product or service based on its estimated value to a specific consumer. This practice effectively gauges how much the consumer values what they are paying for before resorting to a competitor or creating their own solution.
-==How it works==
+==How it works - a worked example==
-A consumer subscribes to service '''x''' for $4.00, the service offers movies, tv shows etc... The company makes a decision to increase profits for shareholders based on collecting info on how users used the app, along with collecting recent purchases from credit card companies to build a profile on specific groups of their user-base that are currently subscribed to them. Some consumers are shocked to find out the subscription has risen from $4.00 to $6.50 despite service '''x''' not providing any new features or content to justify the increase. But instead of switching those targeted consumers pay the bill anyways because it is currently not worth their time to unsubscribe or switch to a competing service at the time.
+A consumer subscribes to service '''x''' for $4.00. This is a service which offers movies, TV shows, and so on. To increase profits, the company may decide to collect info about how specific users use the app, along with other data purchased from external sources (such as data brokers) about the individuals in question to build detailed profiles which can be used to predict how much individual customers may be willing to pay to maintain access to the service. Having identified the customers who are likely to have a higher tolerance for price increases, the service will increase the price offered to those customers (e.g. from $4 to $6 per month), without changing the price offered to other users. This is done under the assumption that the profiled individuals will be less likely to react to an increase in subscription costs, either because they don't consider the increase meaningful, or because they are not paying close attention to their expenditure. Even if some of the targeted group do cancel their subscriptions, the increased revenue from the remaining customers will likely more than offset the costs.
 ==Why it is a problem==
@@ Line 16: / Line 16: @@
 ==Examples==
-Walmart & Kroger plans of using smart pricing on it's in person retail products
+Walmart & Kroger plans of using smart pricing on its in-person retail products
 Cloudflare charging you higher rates for the same plan as other users