Last Updated on June 15, 2023 by Dave Schoenbeck
When selling a product or service, offering discounts to attract new customers is tempting. However, low pricing leads to lower profits and a less sustainable business model. When considering different methods of pricing, it’s important to consider the relationship between the cost of the item and its value, both real and perceived.
Is Value the Same as Price?
As the old saying goes: the price is the amount something costs, but value is the amount someone is willing to pay. Value-based pricing is the concept of setting the price of a good or service depending on its value to your customers. Perceived value allows you to charge more for your products and services by offering customers more than just the item.
Pricing strategies that only consider an item’s cost is missing the mark. Value-based pricing assumes the entire customer experience. This doesn’t always result in a rate that seems competitive at first. However, a lot goes into determining an object’s value.
How to Add Value to Your Offerings
You can get away with charging reasonable rates for your products and services by tapping into their real and perceived value rather than slashing prices to attract customers. Here are some actionable ways to add value to your offerings when determining your pricing strategies:
- Emphasize your extensive experience and the longevity of your business. If your product or service has been around for a while, it automatically has more value than a new product with no reputation.
- Emphasize areas of your business outside the product or service where you go above and beyond customer service, product knowledge, etc. Value-based pricing strategies are about the experience in addition to the item itself.
- Play up how your product or service saves the customer time and effort.
- Add an irresistible, gutsy guarantee that takes pricing fear off the table
- Understand your costs and your gross margin requirements. Discounting is very expensive and rarely increases sales enough to offset the discount.
- Reshape your offering to a new or more discreet market that is more price-tolerant (one that is more affluent and less demanding.)
- Expand your product or service assortment so that you are perceived as unique.
- Find a way to generate marketing buzz in your marketplace and build pricing power.
- Create bundles of products and services and make the optics of your pricing strategies fuzzier. Your competitors are likely just using a simple price markdown.
- If you need to advertise items and prices, show fewer items at more competitive prices.
- Upgrade your look at anything the customer sees, like your website, sales collateral, packaging, uniforms, etc. A snappy brand will build more trust upon the first impression.
- Create a sense of urgency by making your products harder to buy or limited in nature.
- Improve and expand your testimonials. This creates social proof.
- Over-deliver on your promises. Get your customers their products faster and with better service than your competitors.
- Personalize your business. Add in a glimpse at the humanity of you and your team. Emphasize cultural underpinnings and beliefs.
You don’t want your consumers to perceive your offering as a commodity. In the consumer’s mind, cheaper means lower quality. Value-based pricing strategies allow you to charge what your items are worthwhile, still coming out on top and creating a loyal customer base.
If developing a value-based pricing formula feels overwhelming, a business coach can help. Please fill out my contact form, and let’s schedule a time to work on your value-based pricing strategies.
Coach Dave
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