Value-based pricing
Value-based pricing is defined as a strategy for determining the price of a product based on the customer’s view of it. This strategy focuses on the customer and not just the product. This method is more widely used by companies that offer distinctive and high-value products than other companies.
Characteristics of value-based pricing
By defining value-based pricing, we can identify some characteristics that show us how to apply and benefit from it.
- Value-based pricing refers to one specific segment
This strategy focuses on one business and one segment. Marketers cannot use this strategy except after identifying a specific segment. If there is more than one segment, the price is determined based on the appropriate value for each segment.
- Comparison with a competing product
Marketers choose to use the Value-based Pricing strategy when a product competing with their own product appears for the same segment, so that the main point of comparison for consumers is the price corresponding to the value.
- Pricing for differentiated features
This step is one of the most difficult steps of this strategy, as you have to estimate the different features and the additional value that they add to the product, and then add the estimated amount to the basic amount of the product.
When can companies use value-based pricing?
- Value-based pricing is used if there is a high value for the product, as this strategy depends on the presence of products that have a high status and unique level.
- The strategy is also used when the purchasing decision is coupled with emotion, which prompts someone to buy a product for a large sum of money simply because the customer has an emotional connection with the product.
- Another case in which Value-based Pricing is used is the presence of an element of scarcity in the product, such as the high price of water in an area that is scarce with available natural water, so the price of water there is higher in price compared to other places where water is available.
Disadvantages of value-based pricing
Despite the many advantages included in pricing products based on value, this strategy may not benefit some companies, and its application may result in many problems, as value-based pricing depends mainly on estimation and determining value through consumers’ perception, unlike based pricing. At the expense of cost and evaluating competitors' prices, the other problem that makes some companies reject this strategy is that it is based on quality and excellence, while these companies are concerned with competitive prices and looking for customers who are more interested in prices than other elements of the product.
Mistakes some marketers make when using value-based pricing
This strategy is used in all industries, especially those concerned with specific segments and categories, but some marketers may make some mistakes when applying this theory, such as:
- Get paid for each feature individually
Marketers may think that the perception and desire of customers and the payment for each feature added to the product are evaluated and they are calculated for each product individually and then adding the calculation of this cost to the original price. This step may cause the failure of the marketing campaign, as the company does not have to place a financial value on each feature individually. Rather, you must know the features that make your product superior to other competitors and consumers’ evaluation of these features.
- Ignoring competitors' pricing methods
Pricing based on value will not be effective if the competitor offers an unexpectedly low price, which is known as smart pricing, so you must study competitors and know their marketing plans.
- Bind value trade mark The value of the product
The main goal of value-based pricing is to provide financial compensation for the various features of the product that add value to the customer. Brand value cannot be dealt with in this manner in any way, so brand value has no relationship to product value and pricing.
Therefore, value-based pricing is one of the best pricing strategies used by major companies. The strategy depends on the perception and perception of consumers and is presented to a specific segment, which makes it one of the most difficult pricing methods that may cause an increase in production and implementation costs. Therefore, in If you want to implement this strategy, you must conduct comprehensive and extensive research to reach the best pricing decision and obtain a large investment to be able to differentiate your product over competing products.
Read also - How to target more than one segment
