“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:

  1. The customer may not readily understand or believe that you have a better product.  If it’s better, why is it cheaper?
  2. You are giving away your profits.  A 5% price decrease equates to a 5% decrease in bottom line profits.
  3. 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.