Creating Targeted Value

Value-based pricing research for a product or service can even take place before the product development begins. If the goal of R&D is to maximize technical performance, the firm is likely to “over-engineer” products beyond the customers’ willingness-to-pay.

By evaluating customers’ perceptions, we can estimate how the value delivered to the customer changes when individual product attributes change. R&D resources should be concentrated on achieving high performance for those attributes where the difference between the value delivered and the end-cost is maximized. This way, a price based on the perceived value of a product will be maximized.

A true understanding of the value delivered to and perceived by the customer is indispensible in order to

• optimally design products and services based on customer requirements (not too much, not too little) and costs
• properly position one’s product or service relative to the competition
• determine profit-maximizing prices.

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