July 15, 2013
5 Ways to Boost Product Values with Your Pricing Strategy

If you’ve read our blog before, you know how much we emphasize the importance of customer willingness-to-pay data. Not to beat a dead horse, but customer valuations should be the main driver of your pricing strategy, because your customers could care less about yout production costs or competitors’ prices; they only care about the value you're providing them. 

pricing is a process

photo credit: Barbara.K

Interestingly enough, determining willingness to pay and honing in on customer valuations isn't a one time exercise. Customer valuations constantly fluctuate due to numerous factors, all of which you can influence to increase the perceived value of your product. Intrigued? Well, let’s take a look at some of the most important drivers of customer valuations to figure out how we can raise the amount your customers are willing to pay for your product, before exploring some factors you shouldn't worry about, because they're out of your control.

Factors You Can Influence

1. Your product - It may not be as cool as you think

This one might seem obvious, but your product is the strongest driver of your value. If you aren’t selling anything that your customers need, then your customers obviously won’t be willing to pay anything, let alone a premium price. On the other hand, if your product relieves all of your customers’ headaches, then they’ll be willing to pay just about any amount you ask. In general, the more pain points you can solve with your product, the more valuable your customers will find your product to be. Remember though, a product manager or marketer's favorite feature may not be that of your customer. 

saas pricing

photo credit: guccio@文房具社

As such, if you feel like there's something wrong, and you've explored every other aspect of your business, it might be time to look inward. Talk to a few customers and make sure you're building to relieve their pain. A great way to increase your average selling price is to add useful features. Just make sure they're actually useful, not adding additional obscurity or friction.

2. Customer tastes and preferences

The second most important driver of customer valuations is customer tastes and preferences. Remember when GI Joe and Barbie dolls were all the rage when you were young? Now think about how much you would pay for them today. The product remains findamentally the same, but you value the tiny fantasy figurines less today because your tastes in entertainment have matured (or at least I hope so, but no judgment).

Similarly, realize that no matter what you're selling, taste and preferences are affected by time and "the herd." If you're a taste maker and can get the herd to swarm your enterprise software solution, then the perceived value of your product will rise as you gain more and more social proof and word of mouth spread. Yet, of you haven't maintained your level of clout, your brand can begin eroding into a general negative perception, plummeting the value of your product. 

Control the voice and brand of your product, maintaining consistency, and ensuring you align your target customer personas with where you want to be in the market. Sometimes it's ok to be the market leader for "discount" products and other times you want to guarantee you're the Ferrari. Either way, tastes and preferences play a huge role in how your product is perceived in your target market, and a great team has the ability to raise the value of your product dramatically.

If you don’t believe me, just look at Apple and the iPod. Steve Jobs and company did not invent the ability to play MP3s on a device, but they blazed trails by ensuring the product was perceived as a luxury accessory. Through brilliant marketing, the iPod eventually came down in affordability to the masses to the point that Apple's market penetration is obscenely high, but somehow the product is still viewed as a luxurious good.

3. Customer income - increase your customer's salaries (well...sort of)

Surprisingly, you can influence the salary of your customers. Well, indirectly, and we don't mean by giving them discounts. Instead, adjusting your customers income centers on either going upstream or downstream with your product. Countless products have come to market centered on one type of customer in a particular income bracket and quickly shifted to another.

Make sure you're identifying key demographics concerning your customers and that your personas are quantified and aligned.

4. Availability of substitutes - Use price comparisons to your advantage

No matter your product, customers will always compare the price to something. Maybe there's a direct comparison, like the dozens of brand-name and generic cereals in a supermarket, or maybe there's an indirect one, like a salesperson comparing the cost of a revolutionary new software application to a similar type of purchase she's made in the past. Either way, a comparison occurs; the thought is human nature.

Price Optimization

photo credit: Vox Efx

Typically, the more options that exist (both direct and indirect) the lower the willingness to pay, as different choices eat at your possibility of making a sale. Yet, this concept is easily used as an advantage. Understand your unique value proposition, whether it's your "organic" products, customer service, or even how you're solving the same problem, but in a 10X more elegant manner (look at Apple from above). Competition is something to be relished, not feared.

Of course, you do need to be careful as to not drop down the rabbit hole too far. Don't differentiate your product so much that you completely box yourself out of the market. Similarly, don't become so similar to a competitor that you can't carve out your own market. Establish a healthy balance that perfectly aligns your customers to your offerings, and ultimately your price point. 

5. Expectation of future prices - Light a fire with urgency

Whether with plane tickets, groceries, or even clothing, we've all been in a situation where we've thought about just waiting one more week to see if prices go down. Of course, prices could go up, but unless we absolutely need the item, we're more inclined to take the risk. Your customers are doing the same thing, no matter the obscurity of what you're selling.

Now, I know one of the first reactions might be, "Well, let's keep the sales and discounts going," and yes, that is a possibility. Yet, discounts are awful for most types of transactions (retail excluded, sort of) if done incorrectly and too often. The best ones are discrete, expire, and have some level of predictibility. Think herman miller who like clock work has a sale twice per year and that's it, or even many luxury brands that never go on sale. These types of promotions (or lack there of) are apparent and predictible, controling customer expectation and perception.

Pricing Software

photo credit: World of Good

Pragmatically, we suggest taking a look at what your customer expects and understanding how to fit within their perceptions of the purchasing process. Most retailers will need discounts. Software companies can employ a strategy of regular sales that coincide with price increases, or even making a policy that bans discounts. You simply need to make sure the strategy is consistent. After all, if you announce that you’re hiking up your prices in a few months, but are grandfathering in old plans, customers who are on the fence about buying your product today will be much more likely to pull the trigger. They’ll think that the future price of your product represents its future value, and will subsequently want to buy in at the lowest price they can.

Factors You Can’t Influence

General economic conditions - they're out of your control

Pricing Strategy

photo credit: nromagna

Unfortunately, the one factor we can’t influence that impacts customer valuations and perceptions concern market forces. Although we do get some pretty heavy hitter readers on this blog, for 99.99% of our businesses, we're not involved with enough market capitalization or control over commodities or durables to push the economy in one direction or another (at least individually).

Throughout your business there will always be things out of your control (inflation, interest rates, recessions, expansions, etc.). Even though we can't control these factors, we all must make sure our businesses are in an adaptable and level-headed position to constantly react to the forces we need to react to, and ride the ones that benefit our path. We won't get too into this aspect of buisness though, because plenty has been written and will continue to be written surrounding the subject. We just thought we'd mention it. 

We don't have control over, but we can easily influence customers

While you can’t stop the fluctuation of customer valuations, you do have the power to exert a positive influence. Simply remember to maintain a healthy balance of keeping the customer first, while also ensuring you're moving in the direction that the customer will be in the future (either through your influence or your predictions on the market. Fortunatley, this dilligence will pay off in constant refinement of your prositioning, packaging, and pricing, allowing for a nice win-win situation as your business (and your customer) continue to grow. 

To learn more about pricing specifics, check out our Pricing Strategy ebook, our Pricing Page Bootcamp, or learn more about our price optimization software. We're here to help!



Eric Yu is a software engineer at Price Intelligently.
comments powered by Disqus