Deciding On The Right Price According To Customer Value

A company may decide the price of the product it offers depending on the cost to manufacture them and remain sustainable. Another idea would be to think about the target profit you want, and knowing the cost of the product, you can set an optimal price. However, the customer is the one that will decide how much a product is worth and whether they are willing to pay that.

This is why customer value-based pricing is the best policy to determine the price of your goods and services. Since the customer’s idea about the product is a crucial factor in finding the right price, the price should be decided at the beginning of the marketing strategy. Defining customer value-based pricing, we would say it uses the consumers’ perception regarding the value of the product to determine the price. Remember, the actual cost of the product is completely irrelevant at this point. 

The four steps of customer value-based pricing

Customer value-based pricing has four steps to be completed. In the beginning, we have to assess the needs of our audience and their perception regarding the value. 

Then we can select the right price for the product and the values it offers to the potential clients. 

Once we are done with that, we have to focus on how we can manufacture the product, sell it at the decided price, and still have profit from that. In other words, how can we lower the costs? 

As a final step, we cannot forget about the quality. At this point, we design the product keeping in mind that it has to carry the value for which we set its price in the first place, which is why consumers will actually buy it.

Good value pricing

This strategy is oriented toward low-cost products. When the company uses low prices to attract customers, we talk about good value pricing. Most industries use different prices to deliver the same products with different customer values. For example, flying to a destination can be done with low-budget companies, and it can also be done with more prestigious companies. Cheap provides competitive prices to transfer people from one place to another. However, they sacrifice luxury during the travel, so the whole experience can be underestimated. Seats will be smaller, and no meals will be provided. This lowers the cost, and the only value of the product delivered to the client is transportation. 

Having the same trip with a different company for a higher price will provide a different experience and make the passenger feel ok that they spent a few more dollars since they got other stuff in return. The flight was a part of their vacation rather than an unpleasant step necessary to reach the destination. 

The second scenario refers to value-added pricing. Here, companies add value to their product to justify a higher price. They do not care to compete in the market with low prices. On the contrary, in many cases, the high cost can act as a differentiating factor to help the brand stand out from the competition.

What determines the value

Finding the right price that is in accordance with the value the customer meets in the product they buy is quite challenging. The thing about value is that it is not always an objective matter. In many cases, what may be worth a lot for someone can, at the same time, mean nothing for someone else. 

For that, two parameters have to be checked in this case; the customer and the situation. Financially unstable people will not find any reason to buy a luxurious car if they only want to move. Also, a wealthy person may not need an expensive car if they happen to move to a dangerous district where a costly car may cause further trouble. 

To obtain a raw estimation of the product value they are about to launch, companies conduct experiments to see how consumers respond to the values they are about to offer.

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