Identifying the value of your products and pricing accordingly is important, but there’s another side of the same coin that businesses should consider. To maintain competitive prices, retailers must often establish the monetary value of their customers—that is to say, determine what they are willing to pay for your goods and services.
Also, considering value-based pricing may be beneficial since the strategy recognizes the needs of customers well. Essentially, finding an equilibrium of maximized revenue and competitive prices by curating customer value, however challenging, can be critical for growth in today’s dynamic retail sphere.
Segmenting Your Customers
Simply put, some customers are more important to a business than others—the more valuable customers might buy more expensive items, or simply shop at a retailer more frequently. When it comes to segmentation, identifying these customers is crucial.
Finding this consumer base could be a matter of intense data analysis, depending on the size of the company. If done successfully, a business should have a rough idea of the demographic that brings the most value, be it a specific age range or job field.
Once you have an outline of your most valuable consumers, there are a few ways you could go. This newfound information could overhaul the overall marketing strategy, shifting it to appeal to the more actionable and relevant customers.
While important, this is more a way of attracting valuable consumers than maximizing customer value. A timeless way of maintaining and (hopefully) growing your base of valuable buyers is through a rewards system; this doubles as a way to segment your customers, but has the benefit of making a business more valuable to the customer and vice versa.
Identifying Value Patterns
While being proactive in search of customer engagement and value maximization is vital, it’s perhaps just as important to keep track of the patterns that drive customer value. If you can identify the factors that make your customers more likely to buy, it can make your business more valuable for all parties.
What consumers perceive as providing value is constantly shifting and reflects the market environment. For example, consumers nowadays generally perceive digital firms as more valuable than their physical counterparts, as they make things more easy and convenient. You can see similar patterns (big or small) across most industries; be it apparel or car insurance, there are certain factors that customers value above all else when assigning value to a business.
Of course, quality of product and lower prices is bound to be on those lists, but other factors, like convenience and variety, can set a company apart. It’s essential to understand the patterns regarding what consumers value most in order to, in turn, make them more valuable to you.
Considering Value-Based Pricing
Value-based pricing is a strategy that effectively prices items based on what buyers are willing to pay. It might sound simple enough, but you might find drastically varying opinions across a given consumer base regarding the “right” price for a certain product. In addition, value-based pricing goes beyond simple pricing strategies, and delves into assigning value to intangible traits as well—these could include a brand name or excellent customer service.
Essentially, with value-based pricing, businesses should consider not just what customers are willing to pay, but what else they value enough to pay extra for. If your competitor comes out with a product priced at $100 and your brand name is worth $20 to your consumers, you would realistically be able to charge $120 for a similar product and stay competitive.
A key consideration when implementing value-based pricing, however, is to align it with existing objectives or long-term business goals. If you want to be the “premium” option in your industry or region, a value-based pricing strategy might revolve around building up a brand and adding value through quality, customer service, or perhaps overall convenience.
This would justify an increase in prices as the perceived value of your products would rise with your other value offerings. At the end of the day, value-based pricing is about understanding customer value, and can increase revenue and make a business stand out amongst its peers.
Setting Value Propositions
This has already been hinted above, but adding value propositions into your business strategy can make you stand out and boost customer value. A value proposition is a company or product’s message—what it offers that consumers should value and recognize the business for. Setting a clear value proposition gives you the opportunity to tell buyers why they should pick you over your competitors.
There are several types of messages that resonate with consumers, and it’s important to consider one that matches your objectives and overall philosophy. Customers see the value of businesses that offer the best products or lowest prices, more so if the respective proposition is outlined clearly in marketing or pricing strategy.
A well-defined value proposition could be what gives you a leg up over your competitors, as that’s what customers are likely to remember about your brand.
To summarize, customer value is something that could impact a business negatively if ignored. Segmenting customers based on value, identifying what those customers are likely to value, and building a strategy around those findings is essential to maximize revenue and stand out amongst your competitors.
Guest Post Author Bio
Yulia Beregovaya is a pricing solution architect at Competera with more than 10 years of practical experience in Marketing Research and Analytics.