You may have created an amazing product but there is still one challenge remaining; deciding what to charge for it. Many businesses miss out on potential profits by failing to come up with a proper pricing strategy. The traditional pricing structures are simple but they come with many disadvantages. For a truly imaginative option, you should consider value-based pricing.
What are the traditional pricing options? Most companies price their products in one of two ways; cost-plus pricing or competitor-based pricing. Cost-plus pricing works by calculating all of the costs associated with the creation of your product and then adding a percentage mark-up. It’s an easy method but it could mean that you end up selling your product for far less than customers are willing to pay. The value of a product comes down to more than the cost of the raw materials needed to create it. Customers are willing to pay a premium for features such as convenience or fun which cost-plus pricing doesn’t take into account. Competitor based pricing is also very simple; you look at your competitors’ prices and charge a similar amount. The problem with this is that you will never stand out from the crowd. Charging the same as your competitors send the message that your product is of equal quality when you should be telling people that it’s far superior.
What is value-based pricing? Value-based pricing puts the customer in charge by finding out exactly how much they are willing to pay. It takes time and effort. You will need to consult with your customers regularly through focus groups or by trialling different prices. Your profits may dip initially as you spend time and money on this research, but it will pay off eventually. You will reach a point where your customers are dictating the value of your product, meaning that you are not missing out on any potential profits. This strategy will also help you to build a detailed customer profile, making it easier to create appealing products in the future.