Much of the traditional approach to pricing starts with costs and then sets prices in some relationship to those costs. Penetration pricing is pitched low relative to costs. Price skimming seeks to recoup costs quickly.
A recent revision to this approach is value-based pricing, which turns the problem around. It starts by looking at price from the customer’s point of view. What would a satisfied customer be prepared to pay for a product? The company’s challenge becomes delivering the product at this price and still making a profit.
In other words, it must seek to reduce its costs to meet the market’s expectations on price while still making enough of a profit to make the transaction worthwhile.
Putting the focus on the customer
The value-based approach puts the customer at the centre of all pricing considerations. The costs incurred by the company are less important as a starting point than the value perceived by the customer as perception will govern how much a customer is willing to pay.
Market research can tell the company exactly what customers value. And an international marketing and promotional campaign can be an important tool in helping customers recognize value in the products or services offered.
Enhancing the marketing effort really means enhancing the value that the customer perceives in the product or service offered. Since the customer determines value, the customer is where companies should start when considering ways to enhance value.
And value means more than just price. Market research should have already provided some ideas about the characteristics of target customers, what they buy and why they buy it.
Much, of course, depends on the nature of the product or service offered.
What perceived value do customers see?
Knowing what characteristics enhance the customer’s perception of value is key to determining value. Many other factors come into play in any decision to buy, and their influence may be hard to predict.
For example, will current fashion trends or social consciousness influence the decision to buy a fur coat? Different levels of development will certainly affect perceived value: a car that appeals to the mid-range market in North America is an unattainable luxury in less developed countries. Religion, social taboos and cultural preferences will also affect perceived value.
Once the exporter understands what motivates customers and what they value, the next step is to deliver it. In some cases, enhancing value means actually changing the product to give it new features or a different design. In other cases, companies can enhance perceived value by changing how a product is sold rather than what is sold.
(Sourced from FITTskills International Marketing—Online course: Learn how to sell your products and services globally. Register now!)