Value Pricing

Description

Set your prices based on the actual value that you deliver rather than what it actually costs you.

This requires that you have some way of determining value. One way of doing this is to have your customers define value during pre-price negotiations. You can then quote for what they want, taking into account that you also need to make a fair profit.

Value pricing can also be used when selling commodities by reducing costs other than the basic product, for example by using simple packaging. Supermarkets often have 'value' products which offer basic goods of reasonable quality for low prices.

Example

A retail store sets prices of a product at 99, as this is where sales step significantly upwards. It buys only from manufacturers who can meet this price.

A marketer does research on a product range that finds a value point of 19.95 with a given range of features. The product is then designed to this price point and with the defined features.

Discussion

'Value' is a term that generally means that the customer gets what they want for a price that does not seem excessive. Sometimes also it is used as a synonym for 'bargain', where the customer gets something of what they want for a very low price. A way of calculating value is 'return on investment', or 'what I get divided by what I pay'.

Value can be very difficult to evaluated (note the word), as much is about perception and what comparators of other items of good or bad value are used. In particular customers will use your previous price (as in 'sale bargains') and the price charged by competitors for comparative products.

In the end, customers seek value in all purchases and if you can demonstrate value they will consider you to be fair and will trust you more, even if they do not buy from you today.

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Value Pricing

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Theories

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