One of the hardest parts of running a business is setting the prices for your products or services. Many businesses make the mistake of setting their prices too high, too low, or without any real thought. The key to effective pricing strategies is to focus on the value.
Value based pricing is what occurs when you truly consider the real worth of a product or service – as opposed to focusing on offering the lowest price or making the most money.
Avoid Prices Based on Competition
When you focus on beating your competitor’s prices, you end up in a bidding war to see who can get to zero the fastest. No wins, everyone loses, especially the customers and clients. They do not end up with a quality service, due to businesses cutting corners and doing everything they can to offer the lowest price.
Underselling your product or service is going to get you nowhere fast. You cannot expect to continue to cover costs and keep your business afloat, by constantly cutting costs and cutting corners.
Selling Too High or Too Low
There is also no guarantee that consumers will automatically choose the product or service that is offered at the lowest price. In fact, more often than not, if presented with three price points for a similar product – most consumers will choose the price in the middle.
The given impression is that the cheapest item may not be as effective at whatever solution it provides, while the most expensive is likely over priced, which leaves the majority of consumers to assume the middle price provides the best value.
Base Your Prices on Real Value
Instead of worrying too much about your competition, focus on your own goals and offering your clients that best service or product that you can. Base your prices on the real value that your clients will get. If your product or service really provides the solution for the problem it is being used for, people will pay a fair price.
Value based pricing is set on the actual value that you perceive. As you come up with a price, always pause and consider if you would be willing to pay that much for the service or product that you are promoting.
Determining the Worth of Your Product or Service
The concept of value based pricing should be applied to all of your products or services. To do this, you need to consider what goes into making your product or service. Look at the costs of production, creation, or the amount of time spent developing your product.
Remember to avoid under selling your product or choosing a price that is too high – both of which will cut off a portion of your potential market base.
Let Customers Test the Waters
If you think that your prices are too high, compared to your competitors, but feel that they are fairly based on the real value that they provide – let your customers funnel through. The consumers that can see the actual value your product or service provides will come back around to you.
Listen to any feedback that you get from customers. Consider adding a feedback form when customers complete a purchase online or by sending out an email after fulfilling a contract or completing a service.
If the majority of your clients exclaim about the value that they are getting, perhaps your pricing was a little low. On the other hand, if you see a steady stream of comments about the high costs, then you may have set your sights too high. Pay attention to what your clients or customers have to say about your pricing and any other details that you could use to improve your products or services.
Value based pricing is about setting a fair price based on the real worth and value of your products or services. Take your time when setting prices. Do not focus too much on your competition’s prices. Listen to what your clients have to say about your pricing.
Keep these suggestions in mind, every time that you need to come up with the price of an item. These are simple concepts that every business can benefit from. When you use value based pricing, you will get customers. Consumers respect an honest price for a quality product or service. Start being honest with your customers and yourself and always use value based pricing.