Value: is what your customer believes the product is worth.
Price: is the amount you charge customers for the product.
Cost: is what you spend to produce your product.
Profit: is what's left over after you subtract costs from price.
Pricing: is the process of figuring out how much to charge per sales unit. A bookstore's sales unit would be a single book, while a housecleaner's sales unit could either be an hour of work ($10 an hour) or a specific job (clean the garage for $50.00)
In pricing, the cost is often called the floor. You can't go below it, otherwise you will be given the product away.
Value: is the ceiling. It's the maximum your customers will pay, based on what they think your product is worth. That means your costs should be as low as your brand identity (i.e. quality, and positioning) permits, and your value should be as high as possible. One perfect example is real estate: If a 1,200 sq ft home located in the best school district and in a very desirable area, this house will have a premium, high value and a high demand.
Demand: refers to the amount your product that customers are willing and able to buy at a specific price. A customer who has $10 to spend might be willing to buy two pillows if your price is $5 per pillow, but only one if your price is $7 per pillow. Being able to afford the product is an essential part of demand; just wanting the product doesn't count!
Check out what is happening to the auto industry with high price of petroleum. As the price per gallon of gas increases the demand (driving) decreases. Also, customers will look for alternatives such as smaller cars versus SUVs.
The pricing objectives depend on a variety of factors, including your production costs, brand identity, competitive environment, and so forth. The most common pricing objectives are: