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The term is used when prices are based on the value of a product as perceived from the customer's perspective. The perceived value determines the customer's willingness to pay and thus the maximum price a company can charge for its product.
An essential component of value-based pricing is the necessity to determine the value for the customer. In order to define the value a customer associates with a product, the customer value model can be applied. This concept evaluates the economic benefits a product can offer to the customer.
If business consultants determine their rates as a percentage of costs saved for their clients due to their work, they apply value-based pricing. In this case they calculate their rates depending on the benefits they generate for their clients.