QUESTION
Sales Director: One of my Sales persons came back with a comment from a prospect. When explained that we do value-based pricing, the prospect said that this is a technique used only to charge him the highest possible price. What should we answer to that?
ANSWER
Yes, it may be the case that a value-based price is higher than a cost-plus price, but not necessarily.
The point of value-based pricing is not to charge more
If it were, it would be called the “maximum price” approach. The aim of this method is to understand what customers truly value and what they do not value. Value-based pricing points to the maximum price customers are willing to pay, but only for the features that bring them real benefit. You price what they value. But most importantly, you don’t price what they don’t value. Customers do not value certain features? Then take them out and reduce the price accordingly. Ultimately, the product features and their benefits should match exactly the customers’ needs and their willingness to pay.
Value-based pricing is a commitment you make to your customers
For the customer, value-based pricing is the commitment that the price is always aligned with their needs and their willingness to pay.
Value-based pricing serves is the “value lighthouse” throughout your company
For you, as a supplier, it is essentially a way to focus on what delivers real value to your customers and to trim out what does not (features, and thus costs as well). As the monetary translation of value, value-based pricing serves as the lighthouse throughout the company on what you should focus on (meaning invest) and what you should not invest in. Value-based pricing points you to where waste should be eliminated.
If you use value-based pricing to charge for what the customer is willing to pay but you don’t reduce the price for what the customer is not willing to pay, this is a case where you use value-based pricing as an excuse to charge more. Now, you know what to do next.
Elithan Consultancy is a consultancy and interim management company that helps B2B technology
companies create, capture, position and launch customer value. Elithan Consultancy helps you make
informed and better decisions that lead to lower business risk and more positive outcomes.
