CPP Value-Based Pricing & Willingness to Pay 2 — Questions and Answers
Question 1: Which approach segments customers for value-based pricing by identifying differences in the economic value each segment derives?
- RFM (Recency, Frequency, Monetary) segmentation
- Economic value segmentation (Correct answer)
- Geographic demographic clustering
- ABC inventory classification
Correct answer: Economic value segmentation
Economic value segmentation groups buyers by the measurable monetary benefit they receive, enabling differentiated pricing across segments.
Question 2: A company's product saves industrial buyers $50,000/year in labor costs. The next best alternative costs $5,000. What is the maximum theoretical price using EVE?
- $5,000
- $25,000
- $50,000
- $55,000 (Correct answer)
Correct answer: $55,000
EVE = reference value + differentiation value = $5,000 (competitor price) + $50,000 (incremental saving) = $55,000 theoretical ceiling.
Question 3: What is the primary risk of setting price equal to full economic value in a B2B transaction?
- Price becomes too low to cover costs
- The buyer captures no consumer surplus, reducing incentive to switch (Correct answer)
- Regulatory caps are automatically triggered
- The product appears undervalued in the market
Correct answer: The buyer captures no consumer surplus, reducing incentive to switch
Capturing 100% of economic value leaves the buyer with zero surplus, providing no financial motivation to switch from the incumbent solution.
Question 4: In value-based pricing, a 'reference value' is best defined as:
- The average market price across all competitors
- The price of the next best competitive alternative available to the buyer (Correct answer)
- The product's fully loaded unit cost
- The list price before negotiated discounts
Correct answer: The price of the next best competitive alternative available to the buyer
The reference value anchors EVE calculations as the price the customer would pay for the best substitute if they did not buy from you.
Question 5: Which research technique uses hypothetical purchase scenarios to estimate price sensitivity without directly asking 'how much would you pay?'
- Gabor-Granger price ladder
- Discrete choice modeling / choice-based conjoint (Correct answer)
- Cost-benefit ratio analysis
- Price waterfall audit
Correct answer: Discrete choice modeling / choice-based conjoint
Discrete choice modeling presents respondents with realistic trade-off scenarios, indirectly revealing WTP through their choices.
Question 6: Value leakage in pricing occurs when:
- Production costs exceed budgeted amounts
- Prices are set below the economic value delivered, leaving money on the table (Correct answer)
- Customers switch to competitors after price increases
- Discount approval thresholds are raised
Correct answer: Prices are set below the economic value delivered, leaving money on the table
Value leakage means the firm fails to capture a fair share of the economic value it creates, typically through under-pricing or excessive discounting.
CPP Value-Based Pricing & Willingness to Pay 2
Which approach segments customers for value-based pricing by identifying differences in the economic value each segment derives?