Framework library
Willingness to pay and value-based pricing
How to use it
Identify the next-best alternative and quantify the extra value the offer provides. Use observed choices or experiments to test what customers will pay.
Worked example
For inventory software, estimate time saved and avoided stockouts, then compare with renewal and downgrade behaviour.
Common pitfall
Surveyed willingness to pay can differ from buying behaviour. Validate with a consequential choice.
- Frame the questionWhich unit, period and cost convention make the alternatives comparable?
- Apply the frameworkUse Willingness to pay and value-based pricing on the worked example above.
- Produce an answerShow the base case, one downside and the threshold where the decision flips.
Apply it to a case
Read the companion story: The price rise that pays for itself