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Why Your Small Business Should Implement Value Based Pricing

by | Nov 8, 2017

Why Your Small Business Should Implement Value Based Pricing

A value-based pricing strategy is one which sets prices primarily, (but not exclusively), in line with the perceived or estimated value of a product or service to the customer rather than according to the cost of the product or historical prices.

 

value based pricing

Value-based pricing is not about racing to the bottom along with your competitors. It’s all about knowing your product or service’s value, understanding what you’re selling, and being able to effectively communicate that value in a way that puts your cost into perspective.

 

The best brands price their products and services based on what they think people are willing to pay. For example, Apple produces iPhones quite cheaply however the company knows that loyal customers are willing to pay a premium for the latest handsets. As such, they price the latest versions at a premium and enjoy better profit margins as a result.

 

If you want to charge more than your nearest competitors, you need to be able to differentiate your product or service in some way. For example, your firm might offer better customer service. We recommend you read Blue Ocean Strategy and use it to structure a team exercise where you plot all of your competitors based on different values and attributes. For example, classic vs modern or high quality customer service vs cheap price.

 

So, in order to create a value-based pricing strategy in your business, you need to be inquisitive. You need to ask your customers better questions, and make them feel like you understand their world. You need to listen to what your clients really want and respond to those requirements.

 

If you can build this into your product or service offering, you should be able to develop a pricing model with a better profit margin while simultaneously keeping your customers happy.

 

[Read The Importance of Cash Flow Forecasting and The Importance of Budgeting and Forecasting]

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