The two most profitable pricing decisions any company can make are:
- Adopt value based pricing
- Use price segmentation
Let’s briefly define these terms…
- Value based pricing simply means to charge what a customer is willing to pay. In other words, charge equivalent with how much your buyers value your product.
- Price segmentation – different buyers value products differently, so we should try to charge different prices accordingly.
Both of these decisions rely heavily on the singular concept of VALUE.
How do your buyers and customers value your products?
Value is the Most Important & Least Understood Concept in Business
Why is VALUE so important?
Knowing how much your customers value your products enables you to use value based pricing and price segmentation. These add significant profit to your bottom line. Think about: how much more effective your salespeople would be selling your product if they understood how buyers value your products; how much more impactful your marketing messages would be if your team talked about what your buyers value; how much better your product would be if you only built products buyers value.
Value is pervasive in your entire company. I believe your company exists to create value – and pricing alone captures value. This is true whether or not you understand value.
Why is VALUE so poorly understood?
Here’s a very simple test. Pick any one of your products and any recent buyer. Then, describe the value the buyer perceived and considered. It feels impossible, yet this is the simplest step. Thinking about decisions individual buyers make creates the building blocks you use to target market segments.
This is top of mind for me because I’m putting the finishing touches on an online course to teach companies how to do this on their own. This is an exercise I’ve taught to hundreds of companies, and it creates ‘aha’s’ for participants every time I lead it. It’s not easy, but it’s a phenomenal step toward making value more important to the decisions your company makes.
Tags: pricing foundations, value-based pricing