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Value-pricing strategy: “We’re not the cheapest but…”

By Henriette Martel

In this highly competitive online marketplace, it can be difficult to persuade customers to buy from you when you offer a similar product to your opposition but with a higher price tag. And trying to beat competitors on price alone is a cut-throat business, very risky and not recommended. It attracts bargain hunters ready to defect to competitors for a better deal.

Using a value-pricing strategy is a better proposition because it attracts loyal customers. Why do customers buy designer-labelled clothes and luxury cars? Why are those items more expensive when they don’t cost so much more to make? The answer lies in the perceived value. Value is not an inherent attribute of the product but it commands a higher price.

Customers do not buy features and benefits, they buy VALUE.

Value is subjective. Value is a benefit but a benefit is not necessarily of value to all customers.
For example, a vendor offers free installation and free updates for his software. Customer-A considers "free installation" as "value"’ because he has no technical knowledge and this will save him time and effort. Customer-B rates the free installation as "nice to have" but the drawcard or "value" is the free updates that will save him money in the long run. Customers do not assign value to the same benefits.

Behind value-pricing strategies there are a few important concepts:

• Customers are value conscious rather than price conscious e.g. some customers will pay extra for prompt delivery.
   
• Customers assign a personal value to a product or service e.g. a teenager is willing to pay a premium price for a concert performed by his idol.
   
• The selling price is based on customers’ perceived value rather than on the vendor’s costs e.g. an ebook costs less to produce than a paperback but readers will pay more for it because of the value placed on format and instant delivery.

When customers evaluate competing products, they are usually comparing value. To increase the value of your products, you can either add benefits or reduce the perceived risk factors rather than resorting to reducing your price.

Adding benefits

Value-added benefits do not replace comprehensive product information but are complimentary strategies to help converting website visitors into customers and giving you the competitive edge.

Try these value-pricing strategies:

• Special packaging e.g. recyclable containers, gift wrapping with card
   
• Package deals (for convenience) e.g. bundles, "all inclusive" value pack
   
• Fulfillment options e.g. "white glove" delivery service, instant download
   
• Payment options e.g. monthly and yearly plans
   
• Free training material e.g. online manual, video, audio
   
• Personalised service e.g. "I oversee each account"
   
• Free product updates or refreshers (for courses)
   
• Bonus offers
   
• Certification e.g. licence, training certificate.

Reducing perceived risks

For new customers, there is always an element of risk in purchasing from a new vendor, especially over the internet. These are examples of value-pricing strategies to boost confidence and credibility:

• A professionally designed website
   
• Free trials or samples
   
• Extended warranty option
   
• Free after-sales service
   
• Your credentials, length of time in business, list of important clients
   
• Guarantees of satisfaction "100% satisfaction guarantee"
   
• User-friendly privacy, security and refund policies
   
• Testimonials, endorsements, reviews
   
• Easy access with contact options e.g. toll free number, chat live.

Naturally, everyone loves value for money but does not necessarily want the cheapest option. What value do customers perceive in your product and how much are they willing to pay? Value comes at a price!

Next time you consider reducing your selling price, think value.

“We’re not the cheapest but…we offer value.”

© 2005 Henriette Martel