Value-Based Pricing is on everyone’s lips nowadays. It’s modern, and it’s the preferred way of pricing your products or services since it signals high-margin business. There are, however, several schools of thought as to which “value” should determine price.
Is it the value your product or service generates in your customer’s life or business? Is it the value your offer is worth when all your production and other costs have been taken into account? Or it is the potential future value of your offering (such as in the case of immaterial rights)?
In our view, the value of your product or service should be based one factor, and one factor only: the individual customer’s perception of your offer.
It really doesn’t matter how much it costs to produce the service or product. The only thing that matters is how the customer perceives, compares and values your offer. And since customers’ “willingness-to-pay” can differ widely, the Value-Based Price is a variable in an equation where you decide which customers you want and what sales volume you’re aiming for.
Since there are so many interpretations of the meaning of Value-Based Pricing, we have decided to narrow it down to Customer-Based Pricing. This, accordingly, is our definition of Value-Based Pricing. It is also the core of the pricing concepts that we use in all our pricing projects.
We believe that Customer-Based Pricing increases customer satisfaction. The customers that you choose to address will perceive your offerings as being worth more. There will of course be those who are unhappy with your pricing, and it simply might not be worthwhile spending time and money on trying to satisfy these customers. Alternatively, you can of course offer different price (and margin) packages targeted at selected customer categories.
Customer-Based Pricing will always maximise your profits since the customers you target will be more satisfied, and happy customers mean higher sales and lower costs in terms of support and customer services. It’s logical and simple arithmetic. In addition, your sales and marketing costs will drop. With the right price and packaging, the need to convince customers of the benefits of your product or service will become less crucial. Your sales cycle will be shortened, and advertising and other audience communication costs will be reduced.
This clearcut concept of Customer-Based Pricing will radiate throughout and affect every aspect of your operation. Everyone in your organisation – and particularly your sales people – will no longer be in the slightest doubt as to who is in charge of price-setting: the customer.
If you want to learn more about Customer-Based Pricing and how to set the optimal price to achieve desired business results, please read our whitepaper on how to boost profits >>