“Let’s make a better product than the competition, and sell it for less.”
I hear this statement over and over from clients. After they peel me off the ceiling and ask me what’s wrong – I ask them this question: Why not sell it for more? I usually get a puzzled look back.
Living under the influence of Costco and Wal-Mart, we are conditioned to think about offering our products at the lowest price possible. Positioning a superior product at a lower price point has several negative consequences:
- The customer may not readily understand or believe that you have a better product. If it’s better, why is it cheaper?
- You are giving away your profits. A 5% price decrease equates to a 5% decrease in bottom line profits.
- You affect the value of your brand.
Value based pricing is hard to do. You have to know the intricacies of your competitor’s product, and understand feature-by-feature the value you deliver to your customer. This can be a monetary value such as cost savings due to better miles-per-gallon in a car, or an intangible value such as sunglasses that make you look cooler.
Value based pricing must be reflected in your messaging, promotional strategies, packaging, and even your sales channels. It requires a corporate commitment to a pricing methodology, and a strong will to stay the course.