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 your production costs or competitors’ prices; they only care about the value you're providing them.
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 product value. 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.
What is product value?
Product value refers to the benefits the product offers to the target customers. The overall value of a product is the degree to which it meets or exceeds customers' expectations. Product value directly affects product design and pricing strategy. Companies rely on the product value to prioritize, improve targeting, and brand messaging.
5 Ways to Increase Product Value
Increasing product value doesn't have to be difficult, but it takes some critical thinking and understanding of what makes a good customer experience. Here are the 5 best ways to increase your product’s value with minor tinkering to your product strategy.
1. Product functionality is key
This one might seem obvious, the value of a product is the strongest driver of the value of a company. If you aren’t selling something that meets your customers’ needs, then your customers obviously won’t be willing to pay anything, let alone a premium price. On the other hand, if your product benefits relieve 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 stickier your product. Remember to check your ego in the process. A product manager or marketer's favorite feature may not be your customers.
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 your product development roadmap has the goal of solving a real problem. A great way to increase your price is to add useful product features. Just make sure they're actually useful, not adding additional obscurity or friction.
2. Prioritize customer relationships
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 fundamentally the same, but customers value the tiny fantasy figurines less today because the tastes in entertainment have matured.
Similarly, realize that no matter what you're selling, taste and preferences are affected by time and "the herd." If you're a tastemaker and can get the herd to swarm your enterprise software solutions, then the perceived value of your product will rise as you gain more and more social proof and word of mouth spread. Yet, if you haven't maintained your level of clout, your brand can begin eroding into a generally negative perception, plummeting the value of your product.
Control the voice and brand of your product, maintain consistency, and ensure 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 they built a very successful product that is still viewed as a luxurious good.
3. Target customers by income
Surprisingly, you can influence the salary of your customers. Well, indirectly, and we don't mean by giving them discounts. Instead, adjust 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. 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.
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 a competitive advantage. Understand your unique product 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 conduct a detailed market research to avoid dropping down the rabbit hole too far. Don't differentiate your new 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. Find a product-market fit that works specifically for what your product value provides. Establish a healthy balance that perfectly aligns your customers to your offerings, and ultimately your price point.
5. Give customers the urgency to purchase
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 predictability. Think Herman Miller who, like clockwork, 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 thereof) are apparent and predictable, controlling customer expectation and perception.
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 make 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.
External factors you can’t influence
General economic conditions
photo credit: nromagna
Unfortunately, the one factor we can’t influence that impacts customer valuations and perceptions concerns 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 business though, because plenty has been written and will continue to be written surrounding the subject. We just thought we'd mention it.
We can’t control, but can 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. Fortunately, this diligence will pay off in constant refinement of your positioning, packaging, and pricing, allowing for a nice win-win situation as your business (and your customer) continue to grow.
Product value FAQs
How is the value of a product determined?
You can determine the value of a product by evaluating the ratio of product quality to its price. This means that products of higher value to customers can command a higher price point.
How to add value to a product?
To add the value of your existing product to drive sales and revenue, companies can:
- Add new product features that improve user experience
- Improve product packaging and design
- Improve customer onboarding
- Continue to innovate
- Refine after-sales service
- Increase speed of product delivery
- Offer expert advice
What is a product value proposition?
A product value proposition is the company statement that highlights the features and uses of a product. Value proposition clearly explains the benefits and unique qualities of a product, as well as shows how it solves customers' problems. To write a product value proposition, product teams take into account prospective customers' needs, expectations, and their biggest pain points.