Pricing is the most important thing concerning a business, especially small businesses. There are no other aspects as important as pricing to determine the profits a business will make. However, there are three main strategies for pricing that include;
- Cost-based pricing.
- Competitor-based pricing.
- Value-based pricing.
Here we are going to discuss Value-based pricing in details and delve deep into the value-based pricing advantages and disadvantages;
WHAT IS VALUE-BASED PRICING?
Value-based strategy refers to the strategy where people adjust the prices of goods and services based on their perceived value rather than their historical prices. The businesses use the value-based strategy to increase the revenue by increasing the prices without a major effect on the volume. Such decisions are in use when purchasing includes an emotional drive or when the product is scarcely available in the market.
USE OF VALUE-BASED PRICING?
Businesses use value-based pricing when they perceive the values to be high. Such strategies include those of some prestigious value for the customers and are unique in their description.
One of the major companies that use Value-based pricing is designer apparel. It is a fact that designer shirts cost a little higher than non-designer normal shirts—however, the prices determined by the brand increase the shirt’s value.70% of shoppers surveyed say the ability to shop in-person/ in a store is important when deciding which brand or retailer to buy from.
This shows how brands play a huge role in value-based pricing. Numerous brands of high stature use these strategies to increase the prices of their apparel and reduce the volumes of their sales. 59% of shoppers surveyed say that being able to shop on mobile is important when deciding which brand or retailer to buy from.
Similarly, such a strategy is in use in aspects where emotions drive decisions. Let us make this clear with the help of an example. The price of a piece of art might not be of as much value it is. The value of the art increases because of the artist. The artist’s name convinces the people to go after it; the more value it gets, the more increase is in its price. Here applies the concept of value-based pricing where the price of art increased by leaps and bounds due to the people’s emotional attachment.
Value-based pricing also applies in the area of scarcity of availability. If a product is not available in the amount it needs, then the product’s price increases manifolds. Let us take the example of a cricket match. The snacks available inside will have a higher price than the ones available outside the stadium. It is because people’s demand for snacks is more, compared to its availability.
WHY VALUE-BASED PRICING IS THE BEST STRATEGY?
Determining why value-based pricing is the best strategy, we need to look into the Value-based pricing advantages and disadvantages.
Advantages of value-based pricing:
- Willingness to make more profit:
Numerous companies divert their attention from pricing to the other sectors because they find it easier. They indulge in such callousness because they have a defined landing page to meet the other problems. However, this is a cardinal mistake as value-based pricing helps you determine your profit generation.
The data that you get out of value-based pricing gives you the boost towards steering your profit generation with the help of your pricing strategy.
- Helps you in developing high-quality products:
Besides helping you figure out a price for your product, value-based pricing helps you make improvements in your business as well. When you are in a cut-throat competition, you will understand the pros and cons of your products. Depending on the findings, you can understand the various areas that require improvements to increase sales. Look into the marketing aspects that attract the customers and the strategies that fail. It will help you have a clear understanding of how you should proceed.
- Helps you understand your customers and provide better service:
Value-based pricing helps you understand what your customer wants.
51% of shoppers surveyed say they use Google to research a purchase they plan to make online.
Your strategy lays its emphasis on the customers more than your competitors. Therefore, ask them for their feedback. Their positive feedback will show how your prices are reasonable for them and how your marketing strategy is successful. However, if you get negative reviews, it is time for you to rethink your prices and strategy. Their inputs will help you get ready with all the possible solutions. Customer satisfaction is the main key to your success.
Disadvantages of value-based pricing:
- Takes enough time and resources:
Value-based pricing requires a lot of time and resources to determine what your competitors are doing to strengthen their hold in the market. Analyzing their strategies, prices, and other related aspects consumes a lot of time and pushes your time to make decisions.
- Works in acute situations:
Value-based pricing majorly works for those products that are not so available in the market. Therefore if the availability is more, the concept of value-based pricing favors less. Moreover, it also depends on the emotional quotient, which clarifies that products without emotional drive will not function well with value-based pricing.
VALUE-BASED PRICING VS COST-BASED PRICING:
You can have a better understanding of Value-based pricing if you compare it with cost-based pricing. Concerning cost-based pricing, the company simply figures out the product’s price by adding a premium to the cost of producing the product. Therefore, the main criteria to determine the cost of the product is to decide on the production cost.
When you talk of value-based pricing, it happens to be equal to or little more than cost-based pricing.
EXECUTION OF VALUE-BASED PRICING:
The execution of value-based pricing depends on the consumers. Moreover, as the product’s price is more in value-based appetite than cost-based pricing, it is important to have a strong value. The product needs to have scarce availability or emotional requirements. The absence of these aspects will fail this pricing.
Now that you know the intricacies concerning value-based pricing try to figure out how you can apply it to your business. You need to cross-check the aspects that will propel your business with the help of value-based pricing.
What makes value-based pricing a success is adequate to address search and B2B lead generation. The number of leads will help you understand whether your strategy is running successfully or did not succeed. Various companies like bizprospex provide services in data scrubbing, data verification, data appending services, email appending services, skip tracing services, data scraping services, etc. These services act as major boosts towards your value-based pricing strategy and help you find a way. Their market research and B2B lead generation techniques will help you gather more customers and successfully conduct your business.