Ever heard of pricing? Well, I’m sure it does ring a bell! Pricing is nothing but the amount charged for any of the products or services provided by a company. It is also one of the important factors that determine whether the customer chooses you.
The price of any service or product is an aggregation of the manufacturing cost, the brand and competition, the product quality, and many other hidden factors. Pricing directly affects the market share, affecting the income of the organization. Pricing has four to eight times an impact of improving the other aspects of any business.
Types of pricing strategies
Pricing strategies are nothing, but the methodologies used by the businesses to price the services and products being offered by them. The most common pricing strategies are:
- Value-based pricing is also known as the customer-based pricing, where in the customers decide the price of the service that is being offered to them. In literal sense, price value of a commodity is decided based on the value perceived by the customer.
- Competitive pricing is also referred to as strategic pricing, where the price of a commodity is determined by the competitor’s price of that service or product. It is a good strategy when the business has just started but you need to know the market.
- Price skimming is the strategy where businesses enter market with a very high price of a service or product, to earn as much profits as possible.
- Cost-plus pricing is a sum total of the various costs involved in bringing the service or product to market along with a mark-up cost that acts as a profit for the businesses.
- Penetration pricing is a technique of entering the market at with a very low price of the service and then gradually yet subtly increase the prices of the same services once customer have been enticed.
- Economy pricing is a strategy well suited for retailers and wholesalers in which the goal is to keep the prices of the product low and make money by selling the same product in bulk.
- Dynamic pricing depends on the demand of the product in the market and the price varies as and when the demand does.
While pricing is all about how much to charge for the services, pricing strategy is about how to determine what that charge should be.
Examples of Value-Based Markets
Brand, fashion, SaaS, pharmaceuticals, cosmetics, technology, and personal care are few industries that are using value-based pricing strategy.
In fashion industry, pricing depends not only on the brand or the designer but also depends on who the ambassador is. When a celebrity decides to carry a look on the red carpet, the perceived value skyrockets. Also, when thing go the other way, the brand image along with the market share and perceived value, all drops.
What makes Satva different?
Here at Satva, we do not follow the classical approach of pricing. We do not come to you and tell you what we will charge for our services, instead, we listen to you, your needs and then let you decide what our services are worth of.
We value creation and we value your money. We follow value-based pricing strategy where we base our pricing strategy based on how you as our customer perceive our product and what you are willing to pay. Basically, offering you a complete package of both pricing perspective and packaging and a positioning perspective. We run research in customer development and that helps in improving your product continuously.
Value based pricing is calculated based on several factors such as the current customer base, the amount that the customers are willing to pay. This extensive research on the target audience helps you increases your profits.
We assess customer needs and value perceptions then set up a target price to match the customer perceived value rather than on seller’s cost. Determine the cost that will be incurred during the development and until it reaches market. Then design the desired product based on the target price that was perceived by the customer.
When successfully used, it generates higher profits through higher prices without affecting the sales.
We follow what we preach and that’s what makes our pricing strategy our strength.
Pros of value-based pricing
Although different businesses have different needs, value-based pricing fits well with all the types.
- Higher Perceived Prices
As the customers perceive the value of the service or the product that is being offered, they decide the price and their willingness to pay higher helps starting off at a higher price and gradually adjusting the prices of the offerings as and when new features are added.
2. No more guessing
As value-based pricing is all about the customer’s willingness to pay for the services being offered, this strategy provides data that will help you assess the situation and charge, accordingly, resulting in higher profits.
3. Customer is the Key
The interaction that happens during the research helps strengthen the rapport with the current customer base and helps make the product or service better with each interaction as you know what your customer exactly expects from you. The attention that customers receive build their trust in your business, thereby increasing customer engagement.
4. Better quality products
Researching not only helps in setting prices it also helps in generating new ideas assuring growth. Progressing with new ideas means improving the already existing features and at the same time innovating, which in turn boosts profits.
5. All variables are considered
Value-based pricing is more strategic as it helps you differentiate yourself from the market while considering the different factors when price is being decided.
Cons of value-based pricing
Nothing is perfect and same is the case with value-based pricing.
- Research is tedious
Researching is a continuous process. One survey or an interview is not enough as every customer has varying needs. And this data needs to be built up to day in and day out to track the engagement and to gauge the performance of the product. And all this research requires both time and resources as quantifying on collected data is tedious.
2. Research data is an approximation
As pricing depends on various factors and varies with market, it is not absolute and cannot be relied on completely
How to set up value-based pricing?
- Know your audience
Knowing who your customers are, and what their requirements are will help in determining how your product affects them. Reach out to your target audience, both old and new, to get feedbacks, to create strong connections and to fix the problems, if any.
- Know your competition
You need to know what makes your product different from the market, what makes you stand out from your competitors. Charging a higher price without prior knowledge of both the market and your product features, will only end up in you losing customers. You need a justification for the higher price that you are charging.
- Know your product value and your market
Do not assign a value for every feature that you offer but do assign a quantitative value of the key features—features that differentiate you and your product from the market.
What determines a successful pricing?
When the consumer’s perception of value matches the services or the products that are being offered, your brand is a success. As value-based pricing is a mix of pricing and marketing, once established, value-based pricing strategy not only strengthens your relationship with the customer, it also gives you a clarity of the customer’s requirements. Of course, quality matters but image does wonders, and the loyal customer base pay high-end prices for the services.