While trying to apply value based pricing, we need to consider four aspects. These four aspects can be referred to as the pillars of value based pricing. Now, what are these four aspects? The first aspect is that we should get superior customer insights. Now, getting customer insights is very vital like we saw in the reliance case also. Now, we were bidding for a project had we considered the value which the project could have given to the true reliance, we could have set a better price for the product that we were selling to them.

So getting customer insights is very vital while applying value based pricing. Next we need to consider the price economics. The price economics basically implies that we should be charging a price which is economically viable. That is it should we know that in economics, when the demand increases, the price decreases and if the prices increased the demand decreases. So, we should make a correct balance so that we have the sufficient amount of demand for the price that we are trying to charge the customer. Next pillar is price management.

Price management is also essentially discount management. Now, we should be able to decide what are the latest levels of discounts we are ready to give and when to a customer when setting the price for our products or services. Last pillar is pricing psychology. Pricing psychology essentially means we need to understand the psychology of the customer. How does the customer perceive the price and under what circumstances his perception of the price will be correct for the price that we are trying to charge him. It is very important to understand this.

We will look at each of these pillars individually and dig deeper into it.