How to apply value-based pricing to online sales
10/31/2023 - Pricing strategy
A value-based pricing strategy involves setting prices according to the value consumers attribute to each product or service. The perceived value that determines this pricing changes from one customer group to another, so value-based pricing will also be a dynamic pricing strategy. Prices will vary and adapt to the needs and expectations of each consumer group. Before applying value-based pricing in your eCommerce’s and improving your competitiveness, you must consider several factors. Identifying the USP for each of your products and services is crucial. We explain how below.
3 step guide to creating a value-based pricing strategy
1. Segment consumers and analyze their willingness to pay
Firstly, identify your buyer personas and why they are shopping in your eCommerce. Then, analyze each group in isolation to determine how much they deem each item to be worth. For example, the amount a user relies on a smartphone will determine how much they believe it to be worth. When segmenting consumers, you need to include each group’s willingness to pay, in other words, the maximum price they are willing to pay for products that are identical or very similar to yours.
2. Analyze your competitors and identify your USP
Once you have studied your consumers, compare your products with the next-best alternative on the market and identify the features that make them unique (their USP) These could be physical characteristics, new or improved functionalities or the ability to achieve greater customization. These differences will allow you to define better prices and ensure your value and quality beat your competitors. The added value or USP will have an even greater impact if the improvements are based on what consumers want or need. Using the above example, the USP for a smartphone could be a longer battery life.
3. Setting value-based or USP-based prices
The last, and probably the trickiest step is to calculate how much these USPs or added value are worth in cash terms. What makes you outperform your competitors? You can conduct pricing research employing joint analysis or qualitative interviews with customers. Once you have identified how much your product is worth, you can change its retail price at any time depending on your goals and the fluctuations in supply and demand. But you will already have a benchmark to guide your dynamic pricingr rules.
Advantages of a value-based pricing strategy
A dynamic pricing strategy can increase prices, thereby boosting the profit margin. This strengthens the value of the brand or retailer and boosts customer loyalty. It also ensures that the eCommerce pays greater heed to consumers’ opinions when setting prices and improving the attributes of different products and services.
Despite these benefits, a value-based pricing strategy can be tricky to implement without the right tools. The most advanced pricing software available today can determine the best prices for your products and services based on competitors’ prices and complex pricing rules aligned with your business objectives. It can also help determine each target market’s minimum and maximum perceived value for each product.
Category: Pricing strategy
