How perceived value affects your pricing strategy
08/02/2022 - Pricing strategy
The perceived value is the price customers believe they should pay for a product or service, according to their perception of it. This value is subjective and depends on emotional, societal, and cultural factors, and the user’s personal experience. The perceived value or price perception is determined by factors such as consumers’ trust in the brand or e-commerce business, its reputation, years of experience, or the staying power of its products. This perception of how much an item should cost is important, as it directly affects the final purchase decision. Therefore, retailers need to know how their customers think, and their expectations, to properly manage pricing.
Perceived value determines the rise and fall of prices
Once you know what prices your consumers expect, you can implement a value-based pricing strategy to drive a successful purchasing experience and optimise sales. This tactic, compatible with other forms of pricing, will allow you to alter prices according to your buyer persona’s changes in perception. For example, with a strong marketing campaign, you can improve the positioning of a long-forgotten item and make it more desirable, thereby increasing its perceived value. You can play with exclusivity or reduced stock, for example, to create a sense of urgency and increase the price consumers are willing to pay.
On the negative side, when the price does not match the expected value, two situations can occur:
- The e-commerce business can be seen to be excessively expensive, and users may choose to shop in competitors’ stores.
- Extremely low prices may cause consumers to question the quality of items
Both situations can negatively impact the company’s sales and brand image.
How to implement a value-based pricing strategy
- Assess your audience: Properly segment your customers and analyse who is more or less price-sensitive, and in which ranges their price perception fluctuates. At the same time, it is interesting to know what their preferences and tastes are, so that you can satisfy them with your products and services.
- Reduce the perceived risk: the perceived risk is the other side of the coin; the obstacles consumers believe they will come up against when purchasing a particular item. It includes waiting times, shipping costs, transaction security, etc. If an increased risk is added to a high price, users are very likely to abandon the shopping basket. That’s why you should try to maintain the relationship between competitive prices and a good purchasing experience.
- Take a closer look at your competition: You also need to know your competitors’ prices to set prices in line with market movements and customers’ expectations. If you move within perceived values but your prices are the highest in the industry, you may lose a proportion of buyers.
Using all this information, you can design the right pricing strategy to grow your e-commerce business. This strategy must be dynamic and changing. You can even set different prices for different target markets, taking their characteristics into account, or offer premium prizes for the most demanding consumers. You can rely on an automated, self-learning Dynamic Pricing tool to drive improved company performance. The most advanced tools have artificial intelligence to calculate the optimal price based on the variables that affect the company most. This saves you time and resources while increasing your competitivity.
Category: Pricing strategy
