Everyone pays for value. That is obvious, right? People will be ready to shell out money if they consider how a product will be an asset in their life.
Value-based pricing is the premise that the customer pays for the result.
It is a hugely popular pricing strategy that SaaS companies have also adopted to meet profit margins.
Value-based pricing is when you charge customers for products and services at rates they are willing to pay. This means customers decide how much a product or service means to them. This is why value-based pricing does not work for every business.
Only companies who offer unique aspects, interesting products, and innovative add-ons are considered in the value-based pricing. They can take advantage of the tool and strategically raise the price of goods and services.
Some of the top industries with value-based pricing include-
- Real estate
To get the best of value-based pricing, you also need to keep certain aspects in mind. These can be added factors if you are considering choosing the pricing strategy.
- Your brand or company has trademarked or possesses unique technology
- The brand or company has a lot of goodwill
- Being associated with the brand is considered goodwill
- You are the expert or top-notch spokesperson or influencer in your field
- The company has an amazing track record
- The company has unique sales strategies that make deals
These factors will allow you to charge more money than what you perceive.
Here are some value-based pricing examples that will allow you to get an idea of the unique propositions in the space.
Example 1: Apple in the Technology Space
Apple is a hugely popular technology company charging highly due to its value and work. In fact, despite the unaffordable prices, Apple has the most loyal customers. Apple does it by facilitating ease of use for customers. This was done with an operating system that focused on customers as the key. Now Apple products are everywhere, from wearable techs like watches, and Air Pods, to laptops.
Customers stick on for the following reasons –
- Familiarity with operating systems like iOS and macOS
- Amazing designs that keep innovating for simplicity
- easier to move within Apple products, making it a community or nexus
- Easy integration makes for easy work within the ecosystem
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Example 2: Metro cities for Real estate
The housing market is highly inelastic, and buyers spend millions of dollars on owning a piece of land. The buyer always decides the price and value of the place they want to buy. Even if one buyer considers the price of the house to be expensive, another may be okay with it. This is also the reason top metros have high real estate prices. Top cities like New York, Mumbai, and Toronto, have some of the costliest houses in the world. The demand for homes is always growing in the region.
Example 3: Drift in software space
Drift is a conversational marketing software that focuses on value-based pricing. The way Drift structures its plans is based on users. Users can choose a plan for specific usage depending on what they do. For example- Marketers, sales professionals, enterprises, teams, or product folks can decide how they want to use the product. Companies who want basic features can do the same by picking the same option. Drift does not have a one-size option. Drift ensures that no customer feels the product is not the right fit.
Example 4: Luxury brands in the retail
Top brands like Hermès Birkin look at keeping customers with great products. There is luxury and exclusivity associated with the brand. The buck does not stop with one sale. Customers often resell and upsell the bag to make more money. Limited editions of bags come out every year, so there is a high demand for them. This is why people preorder and keep track of the latest trends.
Example 5: Zenefits for Technology
Zenefits is a software platform that manages HR. It is possible to manage payroll, employees, resources, and more. Personalizing and customizing the pricing plan to suit the user is possible. If the user chooses a specific aspect or feature of the service, they can discuss pricing options that suit them. This way, they are associated with the brand for the value they will get.
Value-based pricing is definitely helpful for companies. There are certain advantages to it. This includes-
Higher price markups
If a company chooses a value-based pricing strategy, it will get higher price points for the product or service. A higher price point will add value to the product and help increase profits. This also sets goodwill to create more reputation around the brand.
Improve product quality
Customers will have more suggestions and improvements when they pay more for the product. This will increase productivity and improve product quality. You can even add a new feature, remove some features, improve UX, and more if you look to understand customers properly.
Increased value of the product
Customers pay because they see value in the product. This value can increase if the marketing of the products is done accordingly. It is necessary to market the products as an exclusive, high-quality, limited edition to be more profitable. Perceived value is important as it can increase markup price and enhance product sales.
There are certain downsides to value-based pricing. These include-23
- Not the only reliable source for prices
- Difficult to get the right set of buyers
- Lower markups on price
- Changes in technological and economic factors
Wrapping it up
Value-based pricing is great if the company understands the pulse of the customers. It is crucial to research well and keep multiple strategies in mind while choosing a solution. Use top trends in marketing, sales, and product to fix and ascertain the exclusivity and demand for your product. This will help you offer the value customers need and ensure they are loyal to the product and company.
Stanley Deepak is an accomplished sales and marketing professional with 15+ years of experience. He loves tech products and book reading. He writes on philosophy and culture on LinkedIn.
Published September 06, 2022, Updated March 02, 2023