What is your product’s point of difference? What does your product offer that other comparable products do not? Next, you will need to identify your performance differential and determine its value to potential customers. In these cases, try to find the “next best alternative” – what your customer may purchase to fill that particular niche if they were not to purchase your product. Note: For new technologies and cutting-edge innovative products, identifying comparative products can be very difficult, as they may simply not exist. ![]() This latter approach is particularly valuable if you run a B2B business, where competitors’ prices are not always widely publicised, but this information can be useful for B2C also. Of course, researching your competitors is a great way to find this out, and you can also ask your customers, whether through client calls, surveys, and interviews. Consider what your competitors are charging for comparable products. When implementing a value-based pricing strategy, keep the concept of True Economic Value in mind. How To Use A Value-Based Pricing Strategy Now that you know the value-based pricing definition, you should know that the ultimate is to set the price at the maximum amount that your customer would be willing to pay for that product, thus maximising your sales price and your profit. This approach can result in the greatest profit margins when the product is in short supply, and therefore its value goes up in the eyes of the consumer. Gaining ground as an eCommerce pricing strategy, value-based pricing has been used for many years in all types of sales, notably in niche markets and for products associated with emotion-driven sales. In other words, a customer will pay more for your product if it offers them something extra, up to the amount which that extra something is worth to them. According to Harvard Business School’s Marketer’s Toolkit, TEV is defined as the “cost of the best alternative + value of performance differential”. In economics, this perceived value is also known as True Economic Value (TEV). In this pricing strategy, rather than pricing a product based on its net costs to the seller, the seller sets the price according to its perceived value, as seen by potential customers. Value-based pricing (or customer value-based pricing) comes down to how much a customer thinks a product is worth, or the “economic value to customer”. This, in turn, helps you increase your profit margin while maintaining sales levels, and ultimately bringing strong revenue for your business.Įven now you might be asking “what is value-based pricing”, so let us explain:Ĭonclusion: The Importance of Value-Based Pricing What Is A Value-Based Pricing Strategy? The value-based pricing approach can be a great way to determine, with reasonable certainty, the maximum price your customers will pay for your product, without overshooting and scaring away sales. In this blog we have written previously on subjects such as Product listing optimisation and A9 optimisation & algorithm, but how do you go about setting the prices themselves? Want to make sure your customers pay you the maximum price?īut how do you set a price for your products which will capture this best possible price, without setting it too high and potentially losing sales?Īs an experienced Amazon consultancy which has worked with over 200 businesses to increase their sales through Amazon, we know the importance of getting every element right in order to maximise sales.
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