Almost all industries use value-based pricing, which is all about setting a price that takes into account the value of a product and the willingness of the target market to pay for it. Despite the popularity of value-based pricing, however, there are still some misconceptions floating around that make some businesses wary of it.
But the trick here really is aside from calculating the value of your product’s unique features, monitor also competitor prices for similar products, and regularly evaluate if your tactics are working or not.
Below are the three most common misconceptions about value-based pricing:
1. Implementing value-based pricing will always lead to success.
The success of this pricing method would depend on finding the right price. For instance, even if you sell a mobile phone at an extremely low price, there’s just no guarantee that it will sell. If you decide to sell your mobile phone at $599 instead of $499 like your competitor because your product has a larger screen, then you might be more successful because you could justify the higher price due to the larger screen size.
2. The value of the brand should always be calculated with the product’s value when setting a value-based price.
Not necessarily, because the main objective of this pricing method is to find the right price on a product’s unique features that give it more value, such as the larger screen size of your mobile phone, than similar products. Plus, you can’t put a dollar amount on the value of a brand.
3. You need to assess the willingness of your target market to pay for every feature of your product.
This is probably one of the top reasons that businesses shy away from value-based pricing. You don’t really need to calculate the value of each of your mobile phone’s features. You just need to find the value that your target market would pay for unique features, such as your large screen size and go from there.
Done right, value-based pricing could really be effective in increasing profit and brand value. You just have to learn how to set prices that won’t turn off your target market.