When selling a product or service, it’s tempting to offer discounts in order to attract new customers. 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 that something costs, but value is the amount that someone is willing to pay for it. 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 a customer more than just the item itself.
Pricing strategies that only consider an item’s cost is missing the mark. Value-based pricing takes the entire customer experience into consideration. This doesn’t always result in a rate that seems competitive at first. However, there’s a lot that 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 of 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 the ways that 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 market or a 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 do item and price advertising, show fewer items but 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 that your offering is a commodity. In the consumer’s mind, cheaper means lower quality. Value-based pricing strategies allow you to charge what your items are actually worthwhile still coming out on top and creating a loyal customer base.