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“There is no truth. There is only perception.” —Gustave Flaubert

Pricing by value was the topic in my last essay: Your Price Signals Your Value to Your Market. In a nutshell, your price reflects the value delivered to your customer, rather than the cost of the product or service to you – a completely customer-based approach.

The beauty of value-based pricing is not only a fair exchange between buyer and seller, enabling the seller to continue providing good value in the market. Value pricing also sets up marketing to have a significant impact on the price itself. Marketing becomes a pivotal piece of what you do.

Marketing raises (or lowers in its absence) the perceived value of the product or service you offer.

Let’s pull that apart a little so you can see how you can get the value-based price you set.

A lot of times, people are not entirely conscious of all the ways in which a product or service can help them. They may be motivated by a very specific need and focused on that to the exclusion of other, softer needs they have. Good marketing calls attention to all the value that buyer could get from the product or service. And it’s not just any old buyer that marketing focuses on — the value communicated with marketing must focus on the ideal buyer, so all of it is pertinent and resonates.

Communicating all the value increases the perceived value. Now, you can’t control what’s perceived, but you can certainly get all the value out on the table for that particular ideal customer to see and consider.

The effectiveness of this value-based customer-focused marketing depends on understanding your ideal customer. You can’t raise the perception of value to a general customer – that just won’t resonate and will feel a little like spam: making a big deal out of features of your product or service that just don’t matter to the buyer at all. I’m sure you’ve experienced that as a consumer at some point – maybe many times.

Here’s a graphic of how perceived value plays a role in pricing. (Don’t let all the other stuff in this graphic get in the way of seeing this one important gem.) Marketing can both positively and negatively influence perceived value. The other influence on perceived value is the price of substitutes: competitors or other ways to solve the problem. If all the alternatives’ pricing undercuts yours, then you may have trouble getting the full value to be appealing. You can deal with this by distinguishing yourself from substitutes in ways that your ideal customer finds important.

Value-based pricing thermometer

Now, hopefully, you can see why effective marketing makes sense to spend time and resources doing. This applies whether you’re selling a product to consumers or a service to enterprises or anything in between.

“Perception precedes reality.” —Andy Warhol

[Note: This first appeared on my Kathryn Gorges Courses site here.]

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