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Value Pricing: The most profitable way to price your product · Enhance.training

• 0:00
  SPEAKER_00: Hello and welcome to this Enhanced.training podcast of value pricing and why it is the most profitable way to price your product.
• 0:10
  SPEAKER_00: Enhanced.training provides online business training for busy managers, so take a look at the courses on offer and think about transforming your performance and your business.
• 0:20
  SPEAKER_00: My name is Anna, and I'm taking you through this subject because I love pricing.
• 0:26
  SPEAKER_00: And more than that, I love seeing the results come in when pricing is set right.
• 0:31
  SPEAKER_00: I have over 15 years experience from some top FFCGs working in finance alongside sales and marketing.
• 0:40
  SPEAKER_00: During that time I learnt a great deal.
• 0:42
  SPEAKER_00: I saw what worked and more importantly what didn't.
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  SPEAKER_00: And now I get to share these secrets so others can benefit from the skills I've learnt and don't have to spend 15 years learning what works.
• 0:56
  SPEAKER_00: Okay, let's get into the podcast.
• 1:01
  SPEAKER_00: When pricing your product, you really should be value pricing.
• 1:05
  SPEAKER_00: Now I know pricing can be confusing and I appreciate it's tempting to add up your costs and just add a bit or copy what someone else is charging.
• 1:14
  SPEAKER_00: However, while this may be quick, it's really unlikely to be doing your product justice.
• 1:20
  SPEAKER_00: You've most likely spent hours and hours on product design or packaging, marketing, so make sure you put the same attention into your pricing.
• 1:28
  SPEAKER_00: Your customers and your pockets will thank you for it.
• 1:32
  SPEAKER_00: Now whilst there are other pricing methods available to you, I'm going to tell you why value-based pricing is the one that you should put forward first and why it's the one which will make you the most profit.
• 1:43
  SPEAKER_00: So what is value pricing?
• 1:46
  SPEAKER_00: Well, value-based pricing is all about value, as the name suggests.
• 1:50
  SPEAKER_00: It's not about being the cheapest nor the most expensive, but the best value.
• 1:56
  SPEAKER_00: And while premium pricing strategy is about higher prices and quality, this strategy is about the value you're giving to your customer, whether that's a retailer, wholesaler, or a consumer.
• 2:07
  SPEAKER_00: Value pricing is based on setting a price that reflects the value you're giving to your consumer and not on the cost of providing the product.
• 2:16
  SPEAKER_00: I mean even the Romans understood it.
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  SPEAKER_00: Their word pretium means both price and value, so literally speaking, price and value are one and the same.
• 2:28
  SPEAKER_00: But to do this value pricing successfully, you'll really need to understand your consumer, what they like, what they value, and most importantly, what they're willing to pay for.
• 2:40
  SPEAKER_00: So when your customer values your product more than the money they have, they'll buy it.
• 2:47
  SPEAKER_00: Let's go through why value pricing works.
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  SPEAKER_00: Now first of all, customer focus.
• 2:53
  SPEAKER_00: So the key to this premium pricing strategy is the focus on your customer.
• 2:58
  SPEAKER_00: You will know how much a customer values your product when you understand them in detail.
• 3:02
  SPEAKER_00: The more you understand your customer, the more you can develop your product to suit what they need and what they'll value.
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  SPEAKER_00: Now there are no wrong or right answers here, as people are different and they value things differently, but you need to find what those things are.
• 3:17
  SPEAKER_00: So the most important thing is to get out and talk to your customers.
• 3:21
  SPEAKER_00: You need to do market research, complete a customer survey or discover what they want and their willingness to pay.
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  SPEAKER_00: Find out the features that matter to them most and how your product solves their problems or makes their lives better.
• 3:36
  SPEAKER_00: And you need to know what your what and who your product is aimed at.
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  SPEAKER_00: Your research should tell you where the biggest demand lies and who values your product and the most.
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  SPEAKER_00: This customer segmentation is vital to aim your product at your target consumer.
• 3:52
  SPEAKER_00: This will help you develop high-quality products.
• 3:55
  SPEAKER_00: You can develop products really suited to your customer and what they really value rather than just what you think they do.
• 4:02
  SPEAKER_00: And it will stop you wasting time and money on things that the customer doesn't want, doesn't care about, and wouldn't pay for.
• 4:10
  SPEAKER_00: What else does value pricing do?
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  SPEAKER_00: Well, it's all about a fair exchange of value.
• 4:16
  SPEAKER_00: So value pricing helps you get the highest price for your product, and this is because you focus on what you're giving to your customer rather than simply on the price of it.
• 4:26
  SPEAKER_00: So it all comes down to the balance of value.
• 4:31
  SPEAKER_00: Picture a set of scales, with one side being the value you get from a product, and on the other side is the money you pay for it.
• 4:40
  SPEAKER_00: So if your customer feels that the money they are paying is heavier, so that one's right down low, and the value of your product that you'll give is too light, too high, then they won't buy it.
• 4:54
  SPEAKER_00: I mean would you pay money for something you didn't think would any be of any use?
• 4:58
  SPEAKER_00: Of course not.
• 5:00
  SPEAKER_00: But if we switch this the other way around, so they think the the value they're getting from your product is heavier, so that's the one right down low.
• 5:10
  SPEAKER_00: They think it's heavier than the cost, then they'll buy it.
• 5:14
  SPEAKER_00: I mean would you buy something you thought would be more valuable than the price to pay for it?
• 5:18
  SPEAKER_00: Well, most likely yes.
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  SPEAKER_00: In fact, this is something built into us.
• 5:22
  SPEAKER_00: For example, well we all love a bargain, don't we?
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  SPEAKER_00: We all we're all drawn to items we think are worth more but cost us less.
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  SPEAKER_00: So when you know what is important to your customer, you can tailor your product so it's worth paying more for.
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  SPEAKER_00: The customer will be happy as they have something they really value, and you'll be happy because you're charging more than you might have done had you used a more simple pricing method.
• 5:45
  SPEAKER_00: With value-based pricing, the value you've put into the product is reflected in the price, and the value that the customer is willing to pay for that value is also reflected.
• 5:55
  SPEAKER_00: So the price shouldn't be too high or too low, it should be a win-win scenario all round.
• 6:03
  SPEAKER_00: It also helps with customer satisfaction because customers will be more willing to pay and your product will be in greater demand if it has the benefits that your customers really want and value.
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  SPEAKER_00: They're more likely to buy gain and again and be loyal to your product.
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  SPEAKER_00: This becomes increasingly important should you wish to get your product listed in a key retailer.
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  SPEAKER_00: If you can prove consumer insight, consumer demand, and valued benefits, a retailer will be much more likely to list your product.
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  SPEAKER_00: Value pricing also helps you generate the most profit.
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  SPEAKER_00: It helps you design products your customers want and it helps increase demand as customers will value what you are selling.
• 6:46
  SPEAKER_00: But most importantly for your business survival and prosperity, value pricing is more likely to give you more profit than any other pricing method.
• 6:56
  SPEAKER_00: If your product is more useful or answers a specific need better than anything else, then customers will be willing to pay more for it.
• 7:04
  SPEAKER_00: Let's think about it.
• 7:05
  SPEAKER_00: Customers don't really care how much it costs you to make or what you think of your competitors.
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  SPEAKER_00: What they care about is if they're getting value for money.
• 7:15
  SPEAKER_00: Cost plus pricing might be easy, but it doesn't take your customer or market conditions into account.
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  SPEAKER_00: If you have no idea what the customer really wants and simply add a markup to your costs, you might well be leaving value behind, because the customer might have been willing to pay more.
• 7:32
  SPEAKER_00: And price is the element in your business that has the biggest impact on profits.
• 7:36
  SPEAKER_00: Increased sales and distribution are good as long as they're profitable, but once you have that distribution base, it's pricing that really makes or breaks your business.
• 7:45
  SPEAKER_00: In a famous study by McKinsey, they found that a price increase of just 1% led to an increase of 8% in gross profits.
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  SPEAKER_00: The numbers stack up.
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  SPEAKER_00: Think about it, if a company has 10% net profit margins, then raising prices by just 1% at the top can drive a 10% increase in net profit at the bottom.
• 8:06
  SPEAKER_00: Why don't you test it on your numbers and see the difference it can make?
• 8:09
  SPEAKER_00: You don't want to minimize your prices and your profits.
• 8:15
  SPEAKER_00: Now, while I've been explaining to you that value pricing is the best pricing method, I do accept there are a couple of pitfalls.
• 8:23
  SPEAKER_00: There are also a couple of instances where it's not the best method, and it would be irresponsible of me not to point these out.
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  SPEAKER_00: Now, first, for value pricing to be done properly, it takes considerable time and resources.
• 8:35
  SPEAKER_00: It's not quick, and even after all your research, the answers may not be conclusive.
• 8:40
  SPEAKER_00: However, I strongly believe that this effort's worth it, and your product and your business will benefit from this extra time spent.
• 8:46
  SPEAKER_00: I've seen businesses try and cut corners on pricing and then come to regret it later.
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  SPEAKER_00: It really isn't worth it.
• 8:54
  SPEAKER_00: Now, customers can be fickle, they can change their minds.
• 8:59
  SPEAKER_00: And costs, they can go up and down quite rapidly too.
• 9:03
  SPEAKER_00: So it's really important to keep talking to your customers about what they value and why, and you'll need to revisit your prices regularly to check they're still relevant and that the balance has not changed.
• 9:14
  SPEAKER_00: And thirdly, you can't use this method on its own.
• 9:18
  SPEAKER_00: So just because I said that value-based pricing is better than cost plus or competitor pricing doesn't mean that you should ignore them.
• 9:26
  SPEAKER_00: You must be aware of your own costs and your competitors' actions.
• 9:29
  SPEAKER_00: You must make sure that you can afford to sell your product at the price that consumers are willing to pay for it.
• 9:35
  SPEAKER_00: If you can't, don't.
• 9:37
  SPEAKER_00: Redesign your product until you can make the profit you need.
• 9:41
  SPEAKER_00: And do not ignore your competitors' actions.
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  SPEAKER_00: Your product should be clearly differentiated from the competition because no one will pay more for something that they can get exactly the same but for cheaper elsewhere.
• 9:55
  SPEAKER_00: So where does value pricing work best?
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  SPEAKER_00: Well, it works best in the following situations.
• 10:01
  SPEAKER_00: It works best for emotion-based products such as fashion items, cosmetics, personal care, or in niche markets where your product delivers something that no no one or nothing else can.
• 10:14
  SPEAKER_00: It works really well in shortages.
• 10:17
  SPEAKER_00: Think about it, a nice cold drink on a hot day at a festival, yes, you would pay a premium for that.
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  SPEAKER_00: Or it works for associated products, so think headphones for mobile phones, ink cartridges for printers, razor blades for razors.
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  SPEAKER_00: You'll pay more for the things that specifically go with a product you already have.
• 10:39
  SPEAKER_00: Where value-based pricing wouldn't work though is for products that are in a hyper-competitive environment where distinct advantage or value cannot be shown.
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  SPEAKER_00: In this case, it's a focus on price and not value.
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  SPEAKER_00: So an alternative method should be chosen.
• 10:56
  SPEAKER_00: But be careful though, make sure you can afford to compete in a price-driven market.
• 11:01
  SPEAKER_00: It may also not be appropriate when time is of the essence.
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  SPEAKER_00: I would always recommend thorough research into consumer belief and demand.
• 11:09
  SPEAKER_00: However, I'm aware that we do not always have the luxury of time, so another method could be used.
• 11:14
  SPEAKER_00: But this absolutely should be the exception and not the rule.
• 11:19
  SPEAKER_00: Please use value-based pricing wherever you can.
• 11:22
  SPEAKER_00: You and your business will thank you for it.
• 11:25
  SPEAKER_00: We hope you enjoyed our podcast on value pricing and why it is the most profitable way to price your product.
• 11:33
  SPEAKER_00: To learn more about product pricing, visit Enhanced Dot Training and check out the following.
• 11:39
  SPEAKER_00: You can sign up to our Pricing Learning Hub to get more free articles, podcasts, and videos on pricing.
• 11:56
  SPEAKER_00: The course is aimed at all who sell into retailers or distributors and want to gain confidence in pricing your products, sell larger volumes, and increase your profitability.