Pricing Strategy : Value-Based versus Cost-Based

There are many critical elements involved in running a retail business. You might think that establishing pricing would be one of the easier steps to accomplish; however, this isn’t necessarily the case. Wholesalers may establish Manufacturer Suggested Retail Prices (MSRPs) to assist retailers in determining what to charge. Even with pricing guides, with rampant competition, you may find the need to sell your goods at a price lower than the MSRP. How do you determine what your pricing should be? There are two popular methods for determining prices: Value-Based Pricing and Cost-Based Pricing. How do these methods work? More importantly, is one better than the other?

To establish Value-Based Pricing, it is necessary to determine the value of a product or a service. As value can be subjective, this method is commonly used in the pharmaceutical industry, for computer software, artwork, and other subjectively priced items or services. Alternatively, to effectively establish Cost-Based Pricing, one must first determine how much it costs to obtain or make a product. After calculating this amount, prices are set accounting for profit.

Though one method might appear to work better for the products you are selling, neither method is better than the other. There are additional factors that can affect which pricing method is the best one for you to use. If, for example, your competition is selling identical products at a sale price, you may find it necessary to meet or beat this price. Similarly, if you notice products are moving slowly, you may opt to implement sale pricing. Doing so may result in greater sales that you may not see with higher prices. Though pricing may have been established using one method, altered prices may be calculated using the other.

At the end of the day, whether you use Value-Based or Cost-Base Pricing, accounting for both cost and price are critical in making a profit. By keeping an eye on your competition, and your sales, you are on the right path to find the right pricing for your business.

About Bed and Brand

Bed & Brand. We know Bedding. We know Branding. We are your premier wholesale and dropship source for all things bedding - from pillows to bedsheets, to mattress protectors, and more. We only sell the highest quality bedding products at the best prices. Located in South Florida, Bed & Brand was started with the mission of providing top-grade, value-priced, bedding products to businesses like yours. Our low prices and our high-quality products are what makes your business successful. Our expertise in branding and private labeling make your business stand out from the crowd. With Bed & Brand by your side, you know you will receive exemplary customer support, vast product selection, and years of experience from our certified experts.