What is value-based pricing?Value-based pricing is simple: as the name implies, it’s a pricing structure that uses a product’s perceived value to customers. In many cases products are priced based on other factors, such as research of other similar product prices, or as a relative figure based on their production cost. Value-based pricing involves pricing a product based on how much a customer wants it, needs it, or will enjoy it.
What are the benefits to consider?
So why give value-based pricing the time of day? One clear benefit is that it can help you to improve the overall quality of your brand perception. If you’re trying to grow and develop a more premium brand, value-based pricing is going to have to become a core part of your pricing structure. Customers are always willing to pay more for perceived quality and exclusivity.
Another clear, and somewhat obvious, benefit is that it can help you increase your cash-flow. Generally, value-based prices are going to be higher than prices that are relative to a product’s wholesale or production costs. This is going to mean you can increase your profit margins on every single product that you apply value-based pricing to.
Value-based pricing can also provide invaluable willingness-to-pay data. This data is basically an indication of the upper levels of what your customers are willing to pay for products. This will help you to map out a clearer picture of the overall demand for your products, and ultimately help you develop the most accurate pricing plan for your ranges possible.
To learn more about value-based pricing, and what it can do for your business, contact Highwood & Associates today.