Value pricing is a customer-centric strategy that sets prices based on the estimated economic value of a product or service rather than purely on market benchmarks or internal costs. When executed correctly, this powerful approach can increase profits and customer satisfaction. The challenge is aligning price with value delivered.
Return on Investment (ROI) is a common metric for assessing the efficiency of an investment by comparing its gain to its cost. Often, when estimating the ROI for a solution, an exceptionally high customer ROI could be the result.
There are two primary reasons why this could occur:
Alternatively, if your price isn’t based on value, you are likely underpriced. There are a variety of underlying reasons for underpricing, including a lack of confidence in the offering, fear of losing to the competition, or simply not understanding the full extent of the value delivered. Underpricing not only leaves money on the table, but can inadvertently leave customers thinking that the offering is not valuable.
To ensure that your pricing reflects the true value of your offerings, consider taking the following steps:
While a high ROI for customers will generally lead to more sales, it can also have unintended consequences for your business. For example, it may lead to situations where customers expect the same high ROI indefinitely, making it difficult to raise prices later.
Additionally, it can lead to internal complacency that allows a competitor’s offering to start delivering even more value. You could then find yourself in a situation where your offering is actually overpriced, even when delivering a high ROI.
Value pricing is a nuanced strategy that requires a deep understanding of your customers and the value you provide. If your ROI calculations reveal that customers are getting an exceptionally high return, it could be a sign that you are not fully capturing the value you deliver.
By reassessing your pricing strategy and ensuring it aligns with the value received by customers, you can optimize your profitability while maintaining customer satisfaction. Remember, the goal of value pricing is not just to sell, but to sell at a price that reflects the true worth of your offerings.
Here’s how ROI Selling can help you thrive in tough times.
Connect with Darrin Fleming on LinkedIn.
Join the Value Selling for B2B Marketing and Sales Leaders LinkedIn Group.
Visit the ROI Selling Resource Center.