Why should price be a reflection of value not the firms cost

Why should price be a reflection of value, not the firm\'s costs? In what way does cost-based pricing limit the marketer\'s creativityWhy should price be a reflection of value, not the firm\'s costs? In what way does cost-based pricing limit the marketer\'s creativity

Solution

Pricing should reflect what the customer is willing to pay for your product not the amount that covers your cost. A customer doesnot care how much your product has cost you to manufacture it, it cares only how much value it is recieving from that product. If they are happy and satisfied with the product they are willing to pay more. Value based pricing is just a reflection of how the customer feels about your product.Unlike cost based pricing value based pricing focuses on making the product unique and different from others which adds value to it. Moreover it helps a company develop higher quality products.

Cost based pricing generally covers the cost that incurred in manufacturing the product. Here the focus is to keep the price low so as to have a makertable price.In such a budget oriented approach it is not possible to focus on being creative and innovative with the products to make it different from others.