What is value based pricing?
Value based pricing, also written value-based pricing, sets a price from what a product is worth to your shoppers, not from what it costs you. Your cost is the floor. The ceiling is the price of what shoppers would buy instead, plus what your extras are worth to them. You price between the two.
How do you calculate value based pricing?
Add what your extras are worth to the price of what shoppers would buy instead, then price between your cost and that total. Say a waxed canvas tote costs you $14. The plain canvas tote shoppers would buy instead sells for $30. Yours is waterproof and lined, which shoppers might value at $20 more. That puts the ceiling at $50. Price it at $42, and buyers still come out $8 ahead. At the full $50, they gain nothing by picking yours.
To learn what your extras are worth, talk to your customers, run surveys and read reviews, as Shopify's pricing guide advises. Then test the price. In the product description, name what the extra $12 over a plain tote buys.
Value based pricing vs cost plus pricing
Cost plus pricing starts from your $14 and adds a markup. At 50%, the tote sells for $21, under the $30 plain tote.
| Cost plus | Value based | |
|---|---|---|
| Starts from | Your cost | What shoppers would pay |
| Tote price | $21 | $42 |
| Work | Minutes | Research and a price test |
| Suits | Plain items bought on price | Products that stand out |
You can use both: cost plus for the lowest price you accept, value based pricing for the price you ask. Matching what other stores charge is a third route.
Value based pricing examples
Say a plain tee costs you $6 and sells for $25. Stitch a name on it and it sells as a gift for $40. The stitching adds $3 to your cost and $15 to the price. Prestige pricing is the far end of value based pricing, where a high price signals top quality. Shopify's guide says value based pricing works well for art, fashion, collectibles and luxury items.
What are the pros and cons of value based pricing?
On a product that stands out, value based pricing can earn more per sale than a markup. What shoppers will pay stays a guess until a price test shows it. Perceived value can also shift with culture and the economy, Shopify's guide warns.
See what buyers value, with Sledge
Sledge does not set, test or change your listed prices. Sledge Reviews collects star ratings, written reviews and photos from buyers and shows them on your product pages. Reading them shows which of your extras buyers mention. On any paid plan, Growth Intelligence can flag when too few products have reviews. The fixes it suggests add up to one sales estimate in your store's currency, labeled "Est. potential".
