When deciding on pricing for your product or service, there is a sweet spot that will allow you to outprice your competition while still raking in sales. This sweet spot will allow you to make a significant profit margin while remaining competitive in the marketplace. Finding this sweet spot, though, requires you to have one magical thing: a value-based pricing strategy.
Cost-Based Pricing vs. Value-Based Pricing
A cost-based pricing strategy is a default for many businesses. You consider the minimum cost it takes to produce a product or service, then mark it up based on what a customer is willing to pay for the features and benefits you’re offering. But, of course, the cost can fluctuate depending on the stability of the market and the prices of your competitors’ products.
On the other hand, a value-based pricing strategy has little to do with the product itself and everything to do with how it’s perceived. Think about luxury brands such as Gucci or Rolex. While some of the elevated costs have to do with the premium materials used to produce a quality final product, let’s face it—you’re mostly paying for the prestige of the brand name.
Pricing a product higher than the rest of the market implies an inherent value. Whether it’s true or not, people usually associate low prices with a cheaper, lower-quality product. On the other hand, to some extent, if they’re paying a lot for something, it must be good.
How to Price Your Services
Although you should strive to stay competitive, you shouldn’t settle for a lower price for your product just because it’s what the competition is doing. Instead, it would be best if you increased your prices with a value-based pricing strategy to match the value you truly bring to the table.
Value-based pricing allows you to earn more profit per product sold in general, although you may lose some sales to lower-priced competitors when customers are looking for something quick and cheap. The key is to demonstrate a perceived value by creating an aspirational image of your product.
You can achieve this image through strategic marketing, luxurious branding, and accumulating a solid reputation over time. You can also increase perceived value through years of industry experience, higher-quality materials, additional features and benefits, limited editions or quantities, and generally making your product seem more desirable than the competition.
While it might not be the preferred strategy for every single business, the fact is that almost any company can implement a value-based pricing strategy to increase its profits. Even if you’re not offering luxury goods, you can still sell the customer an experience that outmatches the competition. All it takes is a little imagination and some creative brand storytelling.
A business coach can help you uncover how to price services for a business . Please fill out my contact form for a complimentary coaching session to discuss building your value-based pricing strategy. You can also click here to sign up for my free weekly blog articles for more valuable small business content.