Differences among cost based, value based and competition based pricing

Point
Definitio
n

cost based pricing

Cost-based pricing involves
setting prices based on the costs
for producing, distributing, and
selling the product plus a fair rate
of return for its effort and risk.

value based pricing

Value-based pricing uses the buyers
perception of value, not the sellers
cost

basis

manufacturing or production costs

as its basis for pricing.
Cost-plus pricing
Break-even pricing
Target profit pricing

company considers the value of its

product or service.
Good-value pricing
Everyday low pricing (EDLP)
High-low pricing
Value-added pricing
the company sets its pricing in a
range determined by what customers
are willing to pay. Generally, the
value-based price is higher.

Types

Prices

Benefit
s

Focus

Driven

When a company uses cost-based

pricing, it prices between the price
floor and the price ceiling. The
market conditions dictate where,
between the floor and the ceiling,
the company sets its pricing.
Cost-based pricing generally
results in competitive prices.

Cost-based pricing focuses on the

company's situation when
determining price.
Cost-based pricing is productdriven.

competition based pricing

Competitive Pricing' Setting
the price of a product or
service based on what
the competition is
charging. Competitive pricing is used
more often by businesses selling
similar products,
based on what competitors are selling
a similar product for.
i.
Premium pricing
ii.
Discount pricing
iii.
Going rate pricing
iv.
Tender pricing
the company tries to maintain the
price of its products more or less at
par with its competitors price.

Value-based pricing companies often

earn high profits on each item sold,

This pricing method is useful when

the product is homogeneous and
market is highly competitive.

value-based pricing focuses on the

customers when determining price.

Competition based pricing focuses on

the competitor when determining
price
Competition based pricing is
competitor-driven

Value-based pricing is customerdriven.