Value pricing is a pricing strategy in which prices are set according to the client’s perceived value of a product. Customer-centricity helps benefit businesses that offer unique and valuable features and provide excellent performance.
In this article, you’ll learn the advantages, disadvantages, and examples of value-based pricing and get to know how to implement it.
Advantages and Disadvantages of Value-Based Pricing
Often price formation is a difficult process. Based on your prices, customers decide whether your product is worthy or they can easily find a substitute product from a competitor at a lower cost. Companies with products or services that have some distinct unique and valuable features can reap several advantages after carrying out value-based pricing. In this approach, the customer is the top priority. Brands charge people a price based on the value a customer assigns to a certain product. The actual or perceived value of a product and the client’s evaluation is essential.
With this pricing strategy, you won’t have any limitations and can increase your sales volume and revenue. Over time, you can earn even more when you get to know your customers better and what they value. Your offer will become even more personalized, and customers will be eager to purchase more. Eventually, you can even raise prices if the product's value increases (new features, services, and upgrades).
Customers who get the best option out of all available appreciate the brand for providing the best services. They become loyal and purchase often. If they are very satisfied with your product, they will recommend it to friends and refer them. As a result, your customer base will expand.
When you know your customers and their preferences well, you can craft an exceptional product that brings value. One more advantage of value-based pricing is the opportunity to provide products people need. Researching before you set prices will help determine the features you can add to make people happy.
The disadvantages include a limited number of customers who can purchase a product, a highly competitive environment, high production costs, and difficulties during business growth.
Now that you know the pros and cons, let’s discover how to make value pricing work for your business.
How to implement value-based pricing?
To implement the strategy, you need to be aware of the key processes. Our guide will help you do everything step by step and achieve the necessary result.
- Determine an audience segment you want to target. Since value-based pricing focuses on the value your product can provide to certain customers, you need to choose a specific audience segment. This way, you’ll be able to meet their needs and address their desires. However, if you want to reach several audience segments at once, you’ll need to shape a value-based strategy for each.
- Check out the price of the next best alternative. You need to find a proper alternative for your product. Study competitors’ products to select the one with similar features and can be a perfect substitute. This product or service should bring the same benefits yet differ in performance. Once you identify such an item, check out the prices. It will help you determine the prices for your product. Customer research will come in handy to discover the prices.
- Identify your product’s value. You need to identify aspects that differentiate your product from the alternative. Focus on the performance aspect.
- Calculate the price your product is worth. At this stage, you need to determine the unique features and performance that provide you with a competitive advantage. These features are essential for setting the price. The more value your product brings to customers, the higher the price they can pay.
It’s time to delve into some examples to figure out how it works in real life.
Examples of Value-Based Pricing
Once you know how to implement the strategy, but are confused about where to start, consider reviewing the examples. Many companies operate based on value pricing and have happy customers. We’ve prepared several examples of famous companies to inspire you.
The well-known fashion house is often associated with luxury and wealth. The strong brand image and famous logo are associated with stylish and expensive clothes and accessories in regard to its strong brand image and the famous logo. The brand has premium pricing, and not every person can afford to purchase from Louis Vuitton. However, many loyal customers are still willing to pay more to receive high-quality and fashionable clothes, jewelry, and bags.
Unlike other modern brands, LV stays classic and uses a recognizable color scheme and logo. People appreciate the fashion house for exclusivity, gender-neutral design, and more affordable price compared to more expensive brands.
You can’t skip an excellent example of a technology company that brings valuable products to the target audience. The brand succeeded in winning loyal fans worldwide. When creating and selling its products, Apple focuses on customers. Its team designs iPhones, iPods, and Macs that are simple and easy to use for clients. Now the company holds 39% of the US market share. People consider Apple’s products valuable because of their simple and modern design, familiar iOS and macOS, and seamless work.
The next outstanding example is Framer. This design tool helps create websites and apps in minutes and communicate with a team to stay consistent. The service doesn’t require you to pay or insert credit card details to start a free trial. This company allows users to try a free plan. However, users will need a more advanced plan with a certain monthly fee to get more valuable features. So before making a purchasing decision, customers can decide whether this service suits their purposes. Users can also watch the educational video to understand how everything is organized. Different plans target different audience segments. Framer prepared a plan for teams and organizations.
Congrats, now you know how to use value pricing. Hope our examples inspired you to develop a unique strategy for your company.
- In this article, you’ll find some pros and cons of value-based pricing.
- This article defines the term and provides readers with examples.
Last Updated: 10.01.2022