Value-based pricing is a strategy where a product's price is set primarily based on the perceived value it offers to customers rather than on the cost of production. This approach considers how much customers are willing to pay for the benefits they receive, which can lead to higher profits if the product meets their needs effectively. Companies using value-based pricing often conduct market research to understand customer preferences and willingness to pay. This method is common in industries like software, luxury goods, and pharmaceuticals, where the perceived value can significantly exceed the actual costs involved in creating the product.