Every discussion about strategic pricing eventually arrives at the same recommendation: charge for the value your product delivers, not what it costs to produce. It is the most common advice in pricing literature, yet one of the least applied in practice. Most small and midsize Brazilian companies still use cost-plus pricing—not out of laziness, but because true value-based pricing requires a structure that almost none of them have.
The problem is not conceptual. Customer value is easy to define: it is the difference between everything customers gain from a product and everything they give up to obtain it, including the price. The challenge begins when that value must be converted into a defensible figure in Brazilian reais that supports a specific price. This is where most companies get stuck, and it is worth understanding why before dismissing the idea as theory far removed from the realities of selling in Brazil.
What “Value” Means in Practice
Pricing literature breaks customer value down into layers, each narrower than the one before it. At the top is value in use: everything the product delivers on its own, without comparison to any alternative. The value in use of industrial equipment is defined by the productivity it delivers, period—regardless of whether a similar competitor exists in the market.
Below that is total economic value, which compares the product with the best available alternatives: it combines the value of a reference product with the value of what sets your product apart, for better or worse. Further down is perceived value—the portion of that total value the customer actually recognizes, since customers are not perfectly rational evaluators. At the bottom is willingness to pay: the share of perceived value the customer is prepared to spend, adjusted for how fair they consider the price.
Each layer is smaller than the one above it. A product may objectively be worth a great deal and still have a low willingness to pay because the customer did not perceive its value or felt the price was disproportionate. That is why value-based pricing is not simply about “charging what the product is worth”—it means deciding which of these four layers to base the price on, knowing that each choice has a different consequence.
Why the Calculation Breaks Down
Calculating value in use or total economic value requires a clear reference product, customer segments with similar needs, and a method for quantifying the attributes that set the offer apart—expert interviews, focus groups, importance surveys, or analyses comparing how customers respond to different combinations of attributes and prices. None of these methods is cheap, and they all require staff time that small businesses rarely have to spare.
The result is a familiar pattern: the harder it is to estimate value reliably, the more a company falls back on cost, because cost is at least documented on the invoice. This is one of the strongest forces pushing businesses back toward cost-plus pricing, even when the owner knows, in theory, that pricing should reflect the value the product delivers to the customer.
This does not mean that value and cost are incompatible. The markup added to cost can reflect value—when it varies by product and customer, it shows that factors beyond cost are being considered. The problem is using the same markup across the board: that is when pricing becomes anchored to cost and stops considering what each sale is actually worth to the buyer.
Whether You Set or Take Prices Determines the Right Question
Before investing time and effort in value-based pricing, it is worth confirming whether the company has enough room to do so. A price taker—one that must match prevailing market prices because its product is not differentiated enough—does not have that choice: charging more than a competitor sends customers elsewhere, so the only real option is to compete on cost and efficiency. A price maker, on the other hand, has a product or market position differentiated enough not to rely on competitors’ prices, giving it the option to anchor prices to value. This article on the difference between the two profiles explains how to determine which one applies to your company.
This self-assessment is worth doing before taking any other step: trying to use value-based pricing without the differentiation needed to support it means forcing an approach that the market will not allow to succeed.
An Example with Numbers
A small manufacturer sells a piece of equipment that replaces a competing model in the customer’s operations. This competing model serves as the market benchmark and costs R$ 5,000 per year under a contract that includes maintenance. The new equipment reduces the customer’s maintenance costs by R$ 1,200 per year—a positive differentiator—but requires a one-time R$ 300 production line adjustment—a negative differentiator. Adding it all up—the R$ 5,000 benchmark, plus R$ 1,200, minus R$ 300—the total economic value comes to R$ 5,900.
That does not mean the price should be R$ 5,900. Charging the full value delivered often feels unfair to customers, who will only buy if they can see that they are keeping part of the benefit. For example, the manufacturer could set the price at R$ 5,300, leaving the customer with R$ 600 in perceived value while still capturing far more than it would with cost-based pricing.
Compare that with cost-plus pricing: if the equipment costs R$ 3,000 to produce and the company applies a 35% markup to cost, the price would be 3,000 × 1.35 = R$ 4,050. Compared with the value-based price of R$ 5,300, that leaves R$ 1,250 per unit on the table—not because the customer would not pay it, but because the formula never asked how much they were willing to pay.
Where Pricing Fits into a Quality Strategy
Pricing literature also maps quality levels against price levels: from a premium pricing strategy—high quality and a high price, aligned with each other—to a rip-off strategy, which charges a high price for low quality and rarely survives its own reputation. In between is the good-value strategy, offering high quality at a lower-than-expected price to gain market share quickly.
For product launches, two other strategies are worth considering: price skimming, which starts with a high price close to the product’s full value and decreases over time; and market penetration, which sets a low price relative to the value delivered to build a customer base quickly. Neither is about charging too little—it is about choosing when in the product life cycle the company wants to capture value.
What You Can Apply Without Setting Up a Research Department
The full version of value-based pricing—focus groups, attribute analysis, and formal willingness-to-pay research—is beyond the reach of most small businesses. But a scaled-down version is possible:
- clearly identify which competing product the customer uses as a point of comparison, even informally;
- ask the sales team, who hear from customers every day, what they truly value—time savings, lower maintenance costs, less risk—and try to put an approximate figure on it;
- vary the margin by product and customer segment instead of applying the same margin across the board, because this variation is what connects cost to value;
- review the price when the product's differentiator changes, not just when its cost changes. The REVEMA selling price calculator helps you test the new price against the margin before applying it.
None of these steps replaces a formal study, but they all move pricing away from the cost-plus autopilot that most small Brazilian businesses still rely on for lack of a practical alternative.
Value-based pricing remains the most widely advocated and least commonly applied approach because it requires information that is costly to obtain accurately: the quantifiable benefit customers actually receive compared with what they would spend on the alternative. The answer is not to abandon the idea because it is difficult, but to accept a workable version—approximate, reviewed frequently, and using margin as a bridge—instead of waiting for research resources that most companies will never have.
