Is Your Pricing in Line with Your Delivered Value?

Does your offering hit the value target? Are your customers getting all they need at a price that results in solid value? These are questions that businesses ask our pricing consultants every day.

Value is all about the balance between the price of your offering and the benefits it delivers to customers. Perceived value is key. When an imbalance exists between delivered benefits and price, you have three options for re-establishing balance: (1) Lower the price to bring balance back in line, (2) Increase the benefits to be in line with the price, or (3) Adjust price and benefits together to achieve a value balance.

How do you know if you have a value imbalance? Our pricing consultants find that the most common way is to talk with your customers about value. Customers actually like to talk about their needs and what they value, so these are easy discussions to initiate. Most often, these discussions are conducted within the framework of market or pricing research. This type of research is different from customer satisfaction as it focuses on the potential gap between benefits offered and price.

Here are three key efforts that should be included in value-based research:

• Gauge Perceptions – Perceptions are more important than reality. Never mind your offering’s actual price; ask customers how the offering impacts their business. What financial gain do customers realize from your offering? How does it help them increase revenues, reduce costs or reduce risk? These are the pillars of business value: At least one should be delivered in every offering.
• Understand the NBA – And we don’t mean basketball. What is the Next Best Alternative to your offering? If the customer stopped using your offering, what would they use in its place? How does the alternative compare in benefits and value to your offering? Ask your customers: They will almost always be up front and honest about alternatives. Then you will know exactly how your value compares.
• Talk Price – You can talk about price without talking about price. The word “value” is a great surrogate for price. Ask customers to rate the value of your offering on a numerical scale. If the rating is low, it is a strong indication that an imbalance between benefits and price exists. If the rating is very high, you may be leaving money on the table. Either way you will know the action you can take to remedy the situation. Remember that you can adjust benefits or price to bring value in line.

Having value discussions is critical in new product launches as well as in realigning existing offerings. Often, we find that opportunities for product versioning surfaces when we learn that different segments of users have different needs and value products differently.

Go ahead: Talk with your customers about value. They will thank you for it.