Many companies (brand new and established alike) struggle with pricing their products and services effectively, and most miss out on their profitability potential because of this.
That’s because a company’s pricing strategy is the single most important detail to get right.
Don’t believe me?
Think about the last important purchase you made. Whether it was a new laptop, a new pair of jeans, or even a pair of sunglasses, you were probably influenced by price more than you even realize.
Typically, if an item incurs a higher cost it we perceive it as being higher quality. Consequently, they feel better to purchase than budget products do...and, if they are indeed of higher quality, they usually are a better buy.
Those higher cost, higher quality items also inspire brand loyalty much more so than budget products do.
That’s why it’s up to you to pick a price that’s going to make your business more successful, but more than that you have to establish the value of your products or services.
But just how do you do that?
It’s not a simple process, but getting it right is worth the work, and that's just what this article is going to help you do.
First, I'll explain the difference between budget and value-based pricing. Then we'll explore why a price strategy based on value is better for business, and finally, I'll give you 5 methods to help you implement value-based pricing for maximum success.
And I've created a step-by-step resource to help guide you through the process. Simply fill out the form below and you'll have a detailed Value-Based Pricing Guide in your pocket for use anytime.
There are two types of pricing strategies, and really two types of companies.
There are price-based (or budget) companies, and there are value-based companies.
Budget companies focus on offering the lowest prices possible, and they do this by selling in high volume and with small profit margins. Driving on a price-focused strategy often means they're going after price-sensitive shoppers, who are typically primarily concerned less about quality and more about price. Examples of this include Walmart, Dollar stores, all-you-can-eat buffets, closeout stores and more.
Value-based businesses are the companies that focus on providing a high-quality product and experience. Companies like Apple, Nordstrom, and Hilton all charge a premium for their products, but they do it while demonstrating greater value and a better experience all around. And as a result, they’re perceived as much higher quality.
Determining your pricing model must be in line with your level of quality and customer service. Value-based companies typically drive less customers, but higher margins (as well as higher fixed costs for more expertly trained staff). Price-based strategy is high-volume, low-touch, lower margins and a less skilled workforce.
Neither are wrong, it’s just determining what your brand stands for and aligning your company with the right customers and buying experiences.
It’s natural to assume that selling products near the bottom of the market will encourage buyers to purchase your stuff AND like your company even more.
This is true for some customers, but not for the ones that will help your business grow.
Budget shoppers are looking for the cheapest products and most impressive deals. They aren’t as worried about quality, features, or customer experience as value shoppers are. Instead, they scour through dozens of product listings to find the cheapest option and they cut costs whenever possible.
These are the customers that wait in lines on Black Friday, that love picking through shelves at closeout stores, and that are happiest when they’re saving big.
They are NOT loyal customers who will help build a successful business, and they often aren't repeat customers.
Selling budget priced products works, but it requires selling in volume, and often losing money. Put simply, it’s just more work to run a budget company, and unless you can compete at the scale of businesses like Walmart or Amazon, most likely you probably won’t achieve the same profit levels.
Don’t make the mistake of making price the focus of your products. Heck, don’t even focus on the product itself.
Instead, focus on the value or benefit your product offers your customers. How does it make their life better?
Value based pricing is about what you are getting from the investment. If you're able to demonstrate that then you can much more easily charge the price you want for your product or service.
Doing this allows you to:
I dig into each of these benefits more below.
Higher Perceived Quality
I hope you're offering high-quality products and services to your customers, but even if you’re not, a good value pricing strategy will make buyers see your product as higher quality than the alternative.
Looking back to my example earlier, Apple computers are made up of the same hardware as many Windows machines. Regardless, buyers often see Apple products as better quality and more capable, and they're willing to pay premium prices for such. That’s the power of a value-based pricing strategy.
Enhanced Customer Loyalty
Often, the customers who buy based on value want to know the story behind the product, the craftsmanship, and the details. They want the best and are willing to pay for the quality. When your customers both perceive and experience the value of your services or products, they’ll come back to buy from you every single time.
Other companies or brands won’t even compare, and you won’t have to fight for repeat business (it's hard work to shop around!). By creating high perceived value (and then delivering on that promise), you'll build a following of loyal customers, which is arguably one the biggest benefits of value-based selling strategies.
Better Profit Margins
A value-based pricing strategy will help you earn more for each product/service you sell.
Not only will your products sell at higher margins, but your customers will come back to purchase more often. These two benefits together result in a healthy profit boost.
Those are some pretty great benefits to using a value-based pricing strategy, but that doesn’t mean it’s easy to charge a premium for your products. You can’t just raise the price of your items and expect eager, high-end buyers to flock to your website or storefront and hand over all their money to you. There’s a bit more strategy to making it work, and we're going to dive into the process now. (And don't forget to get your free step-by-step guide by opting in below!)
Now that you know why to use value-based pricing it’s time to learn how to implement it for success.
I'm going to give you 5 things you must keep in mind when establishing your value-based pricing. Follow these steps and you'll be able to effectively sell based on value instead of price.
1) Create a Specific Customer Profile
Find out who your most likely customer is. These are the people who will buy your product most quickly and most reliably. Is that customer male or female? How old is the customer? Where do they work? What are their hobbies? These considerations will help you craft an accurate profile, which is key if you’re going to sell buyers effectively.
Use social media, local interactions, friends and family and anyone else that fits this profile to help you learn more about your customer base and what their needs are. Don’t think of your customer profile as a static idea, but always be evolving it instead as you get new information from your customer interactions.
Now, think about the most important problem your product solves for your specific customer profile.
Back to our Apple example earlier — Apple sells computers to buyers interested in efficiency first and foremost. Their most painful problem is wasted time and wasted work potential. Apple products are reliable, durable, and they are simple to use. Buying them just makes sense to people looking for efficiency in business and in their personal lives.
Determine the most important problem your business solves.
Once you know what the most painful problem of your target customer is, you’re ready to frame your product/service as the solution to that problem.
In each customer interaction take time to mention the customer’s most painful problem. You'll want to explain all the reasons why the problem is an issue that needs to be solved right away. (This often means explaining how the problem is costing the company or the individual money). By helping your audience picture their problem and its consequences so vividly that they have to solve it as soon as possible is key to successfully selling value-based products.
Now that you’ve pinpointed your audience's painful problem, and they now have a desperate need to solve the issue you specialize in solving, it’s your time to shine!
Use focused examples, case studies and a few key features of your product or service to explain how your product is the most effective way to solve the issue. What makes your product special and why should they care? In other words, what is your unique selling proposition (USP)?
If you were Apple you would explain how your laptop is the simplest and most reliable around. As a First-class airline you would explain how you offer the most comfortable seating or perhaps the best environment for work and rest.
You don’t have to beat your competitors at everything to make the sale. (In fact, if you try to do that, you’ll ruin it every time). You just have to beat your competitor in one thing...solving the biggest problem for your customer.
Know what that is and show how you’re the best solution, and you’re guaranteed more success than your competitors. And remember, value-based pricing is all about showing how much more value your product provides over the cost you are charging.
So, if you show $5,000 in perceived value for a $500 product, that’s a much easier sale to make. The key is that you have to demonstrate that value.
Make your customer feel appreciated every time your business interacts with them.
And please don't waste their time. Customers who pay premium prices, often don't have much to waste. Answer questions directly and succinctly. Keep meetings short and to the point.
If your customers feel like every interaction with your company provides value and is beneficial to them, they’ll continue to buy from you whenever they need your services.
That’s why Apple customers usually have a household of Apple products and they replace one MacBook with another as needed. That’s the kind of loyalty you want to inspire in your own business as well.
Finally, make buying from you as simple as possible.
This goes along with the step above, i.e. provide value in every interaction (and don't waste their time!).
If you're an online store, streamline the buying process by getting rid of forms whenever possible, accepting multiple payment methods, and keeping questions to a minimum.
If you offer other services, don't make it complicated for your audience to figure out how to contact you, schedule a consult or hire you!
If you work to refine your sales process, you can make the buying experience as effortless as possible — another characteristic that can boost your perceived value.
Using a value pricing strategy will help your business become more profitable, attract higher quality customers and enjoy a more loyal following over time.
The trick is setting your price at a level where you can generate a comfortable profit, while also effectively proving the value of your product or service. Do both of those things and you’re much more likely to succeed than businesses that focus on price alone.
If you are a business owner that is serious about growing his or her business with valuable strategies like this, then I would like to personally invite you to schedule a free consult with my agency.
We'll discuss your road map to success and how we can add value to your company by creating and implementing intelligently designed marketing strategies, video, graphics, and copywriting into your business. Click here to schedule your free consult.
Daniel Bussius is an award-winning Infusionsoft Certified Partner who is highly sought after Marketing Agency CEO and Professional Consultant, Daniel and his agency, Built By Love, work with celebrities, New York Times best-selling authors, Fortune 500 companies and over 1,000 small business owners from around the world.
Daniel is the world's only dual certified StoryBrand Certified Agency and Infusionsoft Certified Partner. His agency holds a long list of certifications and hires top talent that has one primary goal: to make the client achieve their wildest dreams.
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