Setting your price based on value

By February 25, 2016Business, Marketing, Planning
price-based-on-value

Perception is the way in which something is regarded, understood, or interpreted.

The right price will attract your target customers and ensure you are making a profit. This is one of the most challenging skills you have to learn on your startup or small business journey. Under-pricing prevents you from realising your true profit potential whereas over-pricing might cause you to lose customers. Value-based pricing looks at the price from the customer’s point of view. What would a satisfied customer be prepared to pay?

What do customers value?

When your pricing strategy incorporates perceived value, it is important to understand the perceived value of your business. To do this, consider the following questions:

  • What tangible values do your customers receive by choosing your product or service?
  • What intangible values do your customers recognise by choosing your product or service?

Tangible value can be quantified.

Some examples of tangible benefits are:

  • Customer experience. This can be measured by calculating repeat business rates, customer turnover and evaluating customer complaint data.
  • Productivity. What is average time to complete a task? How many times does a process falls within a set time range? Do you deliver on-time service? How often?
  • Functionality: Does your product or service simply do the job better or faster? Does it provide something over and above what else is available?

What can you do?

Send and email survey that asks customers to grade their experience with your business. These metrics tell you what’s going right (or wrong) and what business results it can expect to see by making specific customer experience improvements. The goal is to collect data that that will lead to meaningful action. Determine what to measure and when to take those measurements.

Practice good time management. Keep track of how long tasks/processes take and what your promise is to your customers. Clearly communicate up front the time required to complete the purchase or service. This information could also be included in your terms and conditions of service. Stay in touch throughout the process to confirm how things are going.

Provide information clarifying the features and benefits of your service or product and how this compares to your competitors’. Include testimonials from satisfied customers.

Intangible value is how your business makes a customer feel

How do you make your customers feel? Important, smart, attractive? Nurturing relationships with your customers is a crucial part of growing a successful business. At any moment, an unhappy customer can share their opinion with the masses through social media and the web and negatively affect your business.

Tips to improve your customer relationship

  • Insure you clearly understand the customer needs and priorities. Listen first and then ask clarifying questions.
  • Follow through on your word – deliver on promises. When you say you will do something, do it when you said you would do it.
  • Monitor feedback – hear what your customers are saying. When listening to your customers, take into account what changes your business should make from this feedback, and then follow through.
  • Be transparent – honesty is crucial when it comes to mistakes. Eliminate negative surprises for the customer. If there is a problem, acknowledge it quickly, apologise if appropriate and do your best to fix the problem to the customer’s satisfaction.
  • Don’t expect the customer to understand that you are busy. They won’t and they shouldn’t have to. Let them know when and how you will help them.
  • Return emails within one business day. You don’t have to solve all the problems straight away but at least let them know you have received their message and will address their concerns.
  • Always have your customers’ best interest in mind. Think of ways you can help them.
  • Use a variety of methods to gather feedback from your customers including surveys, focus groups, observation and social media.
  • Kindness and gratitude will take you far. Customers are more likely to provide return or referred business if they have a history of positive experiences.

Value is just one of the ways to approach price setting. You also need to consider the cost to provide the product or service as well as your competitor’s prices. But it is important that you focus on the relationship between perceived value and the price customers are willing to pay. It is the value provided that will be remembered by your customers.

 

About Caroline

Caroline is a specialist in business creation, growth and change management. Her aim is to empower start-ups and small businesses to drive growth through the development of business ideas, product and service development, strategy and system planning as well as business branding and promotion.

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