# Value-Based Pricing and the Value Stick Guide

URL: https://3ammarketer.com/blog/value-based-pricing-value-stick-guide
Published: 2026-10-04

> Value-based pricing relies on customer perceived value to boost revenue. This guide maps Felix Oberholzer-Gee's value stick to price and packaging models.

Prices under value-based pricing strategies are always equal to or higher than those set under cost-plus pricing strategies, boosting revenue without causing a significant effect on sales volume. Value-based pricing, also known as value pricing, relies primarily on customers' perceived value of goods or services to determine cost rather than calculating production expenses alone. [1][2][3]

## The Four Components of the Value Stick Framework

According to Harvard Business School Professor Felix Oberholzer-Gee, customer value is the difference between appreciation of a product or service and what customers must pay for it. The value stick framework breaks this relationship down into four distinct components: willingness to pay (WTP), price, cost, and willingness to sell (WTS). [2]

Willingness to pay represents the highest price a customer is willing to pay for a product or service. Customers are more likely to complete a purchase when companies charge any amount up to that threshold, but charging even a cent above it increases the risk that customers will decide against buying. At the bottom of the structure sits willingness to sell, also known as willingness to accept, which is the lowest price a firm's suppliers are willing to accept for raw materials. [2]

## Balancing Firm Margin, Customer Delight, and Supplier Surplus

A product's final price can be set at any point between a firm's cost of production and customer willingness to pay. How a firm positions that price establishes three distinct value wedges across market participants. [2]


| Wedge Name | Position on Stick | Operational Formula |
| --- | --- | --- |
| Customer Delight | Top wedge | Customer willingness to pay minus final purchase price |
| Firm Margin | Middle wedge | Price charged minus cost of creating the product |
| Supplier Surplus (Supplier Delight) | Bottom wedge | Amount charged to the firm minus suppliers' willingness to sell |

Customer delight captures the value retained by the end consumer when the purchase price stays below their maximum ceiling. In the middle, the firm's margin captures the difference between the price charged and the cost associated with creating the product. At the bottom, supplier surplus, also called supplier delight, reflects the difference between suppliers' willingness to sell and the amount they charge the firm. Lengthening the value stick occurs when a company raises customer willingness to pay and lowers supplier willingness to sell, expanding the total value shared by all parties. [2]

## Good Value Pricing vs. Value-Added Pricing: 2 Strategic Paths

Setting a price based on the quality or service delivered to a customer defines good value pricing, exemplified by Mercedes-Benz introducing entry-level CLA Class models starting at US$31 500 with a 208-hp turbo inline-4 engine. In contrast, value-added pricing attaches features and services to differentiate offerings and command higher rates, as demonstrated by Bose pouring resources into research and innovation for over 50 years to support premium prices rather than discounting. [4][5]

## Packaging Persona-Aligned Pricing and Scarcity Contexts

Context directly alters perceived customer value and willingness to pay. For example, in scarcity pricing, bottled water may sell for $6 at a concert while the identical bottle costs $1 from a vending machine outside the venue. Pricing decisions require evaluating customer willingness to pay within specific buying environments to capture margin without exceeding the purchase ceiling. [1]

Value-based pricing in agencies can succeed when selling outcomes to clients while utilizing internal time and cost data to safeguard margins. Agency practitioner Jack Porter-Smith reported having a client pay over $100,000 per month for five years on value-based pricing while generating over $20 million in profitable monthly revenue, avoiding scrutiny over time and effort because value delivered outpaced cost. [6]

## Questions

**What is an example of value pricing?**
Contextual scarcity provides a clear example: bottled water selling for $6 inside a concert venue while the identical bottle sells for $1 from a vending machine outside.

**What happens if a company prices above willingness to pay?**
Willingness to pay represents the highest amount a buyer will spend. Charging even a single cent above this threshold increases the risk that the customer decides against making the purchase.

**How do good value pricing and value-added pricing differ?**
Good value pricing sets a price based on the quality or service delivered to a buyer. Value-added pricing sets prices based on the perceived value created by specific product features.

## Sources

1. [Value-Based Pricing - Definition, Example, Use](https://corporatefinanceinstitute.com/resources/management/value-based-pricing/)
2. [A Beginner’s Guide to Value-Based Strategy](https://online.hbs.edu/blog/post/value-based-strategy)
3. [A Quick Guide to Value-Based Pricing](https://hbr.org/2016/08/a-quick-guide-to-value-based-pricing)
4. [Understand Value-Based Pricing: Key Strategies and Benefits](https://www.investopedia.com/terms/v/valuebasedpricing.asp)
5. [Understanding and Capturing Customer Value: Pricing Strategies - CliffsNotes](https://www.cliffsnotes.com/study-notes/33784534)
6. [💡 Is value-based pricing a myth? | Michael Murdoch](https://www.linkedin.com/posts/murdoch-brand_agencylife-valuebasedpricing-timebasedpricing-activity-7379058756887719936-EBEY)