“How much do you charge for your products or services?” It sounds like a simple question, but how exactly should you work out your price. Pricing is a critical part of your marketing strategy, and if you get it wrong you’ll feel the pain on your profit and loss statement very quickly.
It might be tempting to look to your competitors (Competitive Pricing) or your cost of production (Cost Plus Pricing), but the smartest, most effective and profitable approach is to look at the consumer value you are creating to determine the real value of the product or service you have created. This approach is known as Value-Based Pricing and at it’s simplest involves setting your price based on how much your customer believes what you are selling is worth.
Before we can do that we need to understand the difference between price, cost, and value, to find the answer to the question, “How much do you charge?” we need to understand more about consumer value.
When the global pandemic hit in 2020, the way consumers looked at value changed. Online shopping became the norm, and with it, in-home consumption increased. There was a rebalancing of the things that people valued and online became the new offline.
What is Consumer Value?
A simple explanation for what consumer value is, it’s the satisfaction a customer will experience when doing business with you. If you provide enough value, it gives you the confidence and the right to continue to promote your products or services to recruit new customers.
Consider your own buying patterns; you buy from people you trust and like and where you see value in their product offerings.
You often hear customers talk about getting value for money, especially when dealing with price-sensitive customers. Those who aren’t price-sensitive are willing to pay for what they perceive as the valuable benefits they gain from doing business with you. Consumers compare the perceived value of your products or services to similar products or services when making a buying decision on their path to purchase.
What Drives Value?
According to Harvard Business Review, when consumers evaluate a product or service, they weigh its perceived value against the asking price.
Consumers perceive value according to their view in the world. It doesn’t matter what price the consumers pay; it is what they are willing to pay and what they get in return. They assign value to a product or service based on several factors such as quality, service, price, brand, points of differentiation, the function of a product along with their existing relationship, and personal bias.
Consumer value is how they perceive your product or service compared to other alternatives. Worth is how that consumer feels about the benefits or services received over what they paid. The cost to a consumer doesn’t just refer to monetary value. It also refers to costs such as the time and effort they spend on research and the energy they spend on their path to purchase. Inconvenience also comes into consideration when consumers weigh up the cost of purchase.
Perceived Benefits – Cost = Perceived Consumer Value
Weighing up the perceived value
Consumer Value Can Only be Influenced, not Controlled.
Some these you can control, some you can’t.
The only time products compete on price is when consumers compare two identical products with identical exposure. You don’t need to compete on the cost; you can also differentiate on other factors. For instance, Toyota differentiates itself on brand. Other car manufacturers can produce an almost identical car; however, they perceive other brands as not being as reliable as Toyota.
To drive consumer value, understand that consumers have a choice. Find out what represents value to your customers by merely asking them. Then ask yourself, how can you create value for your customers. Look for opportunities to create new value propositions and communicate value at the right time using the right marketing channels. For instance, content marketing creates, distributes, and communicates value.
How to Increase Consumer Value
Marketers in the past have spent a great deal of time on managing price because price increases mean more profit. However, it is far more important to understand more about consumer behavior and manage their perceived value from using your products or services. When you take a closer look at the elements of the value triangle, you are far more likely to succeed in your marketing efforts.
A business can employ strategies to increase the perceived value a consumer has while simultaneously increasing the customer’s lifetime value to the business. The easiest way to do this is to exceed their expectations. This requires market research to help understand what consumers expect from the products or services you offer so you can then go above and beyond to deliver value.
Incorporating feedback into your business processes demonstrates to your customers that you care about them and care about what they think. It also gives you a platform from which to increase the value of your product or service offering. Offering something your competitors can’t or don’t is a great way to increase consumer value.
When marketing your products and services throughout the South West of Australia, it is critical to keep consumer value top of mind. Contact us and find out more about how you can add value to your customers. With recent changes in consumer behavior, now is the time to Rethink Your Marketing Strategies?