![]() Value-based pricing is based on the customers’ perceived value that your software will contribute to their business. It’s a practical approach for implementing the ideal pricing method into operational reality-it’s how you walk the talk of customer centricity. There is a way to merge these pricing strategies, and keep strategy and execution fixed on customers, never sliding off that center. Because of problems in pricing strategy creation and execution, these pricing methods can end up being unfair to software buyers and produce less profitable results than they should for software sellers. But first, let me say that in practice both a value-based pricing strategy and needs-based pricing strategy often veer away from customer centricity. In this blog, I’ll explain and contrast these two approaches to B2B software pricing. That’s a more customer-centric approach than basing software pricing on, say, what competitors are charging. Value-based pricing and needs-based pricing are similar, in that they’re both grounded in attempts to understand customers. Find out how GoCardless can help you with ad hoc payments or recurring payments.Which type of B2B software pricing strategy is more customer-centric, fair to buyers, and profitable for sellers? If you’re interested in discovering more about the pros and cons of value-based pricing, or any other aspect of your business and its finances, then get in touch with the financial experts at GoCardless. This obviously increases your production costs as no corners can be cut with high-end items. If you are going to sell an item at the highest price possible, then that item needs to be of the very highest quality. With so few customers, losing just one to a rival can be a significant setback. The nature of a niche market means an increase in competition because of the smaller pool of customers available. ![]() A company selling £200 suits is going to shift a lot more units than the bespoke tailor selling £3,000 suits. However, the target demographic for such items is much smaller than other markets. High-end products can be very profitable if there are customers willing to buy them. The main disadvantages of value-based pricing mean that it is a pricing strategy that only works in certain conditions. This creates customer loyalty that is evident in high-end items where there are competing brands. This is the case with a purchase, too the more a customer pays for something, the more emotionally invested in that item they become. When people invest a lot into something, they become emotionally attached to it. The higher the perceived value of your product, the more customers are willing to pay for it, so setting the price as high as possible while ensuring there are still customers willing to pay for it will only increase your profit margin. You can massively increase your profits with value-based pricing, assuming the customers are actually willing to pay up. High prices generally make consumers perceive products to be of a superior quality, so the brand value of those products is also increased. Setting a high price for a product immediately increases the value of the brand, which in turn can increase the customer perceived value of the product. These competitive pricing advantages include: There are three main advantages to using a value-based pricing system. Cost-plus pricingĬost-plus pricing means calculating the full cost of acquiring an item you buy to sell, then selling it at a higher percentage for profit. You may also keep your prices exactly the same as your competitors and rely on other elements to attract customers, such as superior promotion or packaging. This means you can present your product either as the cheaper alternative or as a more expensive premium version. The competitive pricing advantages of this strategy are that you can market your product according to the prices set by your competitors for similar products. This pricing method allows you to set a much higher price and increase the profitability of each sale, although the product or service must have a very high perceived value in the eyes of the customer for this strategy to work. This means the price is not determined by however much the product or service costs to produce or provide, but by how much the customer is willing to pay for it. What is value-based pricing?Ī value-based pricing strategy involves setting the price of a product or service according to the customer’s perceived value of said product or service. Here we will focus on the competitive pricing advantages and disadvantages of using value-based pricing to sell a product or service. Value-based pricing is one of numerous pricing strategies that can be used to set the price of a product or service, with each having advantages and disadvantages that make them more suitable for certain markets and industries.
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