Most companies now recognize the fallacy of cost-based pricing and its adverse effect on profit. They realize the need for pricing to reflect market conditions. As a result, many have taken pricing authority away from financial managers and given it to sales or product managers. In theory, this trend is clearly consistent with value-based pricing, since marketing and sales are that part of the organization best positioned to understand value to the customer. In practice, however, the misuse of pricing to achieve short-term sales objectives often undermines perceived value and depresses profits even further.
The purpose of value-based pricing is not simply to create satisfied customers. Customer satisfaction can usually be bought by discounting sufficiently, but marketers delude themselves if they believe that the resulting sales represent marketing successes. The purpose of value-based pricing is to price more profitably by capturing more value, not necessarily by making more sales. When marketers confuse the first objective with the second, they fall into the trap of pricing at whatever buyers are willing to pay, rather than at what the product is really worth. Although that decision enables marketers to meet their sales objectives, it invariably undermines long-term profitability.