Charging less for your products than your competitors do can precisely signal the wrong message to your potential clients. The risk of introducing cheaper prices than your competitors is that your prospects can doubt the value of what you have on offer. Understandably in these inflationary times, it is only natural to assume that lower prices may attract more business, happier clients and offer better value for your customers. But what if your moves to decrease your prices and not charging what your products are truly worth were doing your clients a disservice in addition to leaving profit on the table? That’s exactly why with this article, we decided to examine how increasing your prices can benefit you.
At Pricefx, for more than a decade now we have been empowering businesses just like yours to find their own unique value-based pricing niches with the use of innovative pricing software technology. Along the way, we’ve seen how their value-based strategies have delivered incredible return-on-investment (ROI), so we thought we would share the top 4 ways companies can benefit by simply charging what their products are worth. It’s worthwhile to note that these same strategies can be easily applied across any industry.
So, let’s get started with taking a deeper dive into the 4 ways how increasing your prices can be good for your business and your potential customers alike.
The 4 Ways Value-Pricing is Good for Your Business
While we readily admit it may not be applicable to every business type, check out the 4 ways value-pricing (and increasing your prices), regardless of your industry sector you can potentially assist you in becoming a more profitable organization;
Your Clients See Value in Your Products
Higher Prices Attract Better Qualified Customers
You Can Offer Your Customers Better Service
Your Customers Get Better Outcomes
1. Your Clients See Value in Your Products
If you are signaling to your customers that you are willing to do almost anything to get the sale, including cutting your prices, it is a little like begging for their business. It shows your potential customers that they are in control of the business relationship. If that scenario plays out, you will often be treated like an employee rather than a trusted industry expert in your chosen field of business,
On the other hand, when you charge premium prices and an unwillingness to budge on what you are worth, offer specific and defined good and services and display best-in-class expertise in your field, you will be treated as a respected authority in your market.
By creating an element of exclusivity and by being out of reach to some clients, you actually shift customer perceptions of your business. Being on the front foot, you can dictate the terms of your dealings, and you get to decide exactly what value you provide to the customer instead of acquiescing to their price whims. By charging what your products are worth, you can become more focused on your business strategy and outcomes, and your client will treat you with respect.
One of the most famous examples of a successful value-based pricing campaign was created after World War II for the De Beers diamond company.
The price of diamonds had plummeted through a series of pre-war and postwar economic slumps.
With the introduction of a genius slogan, ‘A diamond is forever,’ De Beers convinced young men that the size and quality of the diamond in their fiancées’ engagement rings were directly proportional to their love.
Consequently, the value and price of diamonds skyrocketed.
Customers who only want to buy from you because you are the lowest cost provider will treat you as such. Generally, these “bargain shoppers” will have grand expectations from you, blame all their problems on you and more than likely, leave you for one of your competitors in a heartbeat.
On the other hand, when you raise your prices and position yourself as the market leader, you can attract clients who value your quality products.
Customers of this type tend to have reasonable expectations about what is possible to achieve from your goods and services or your work together. What’s more, they are more likely to remain loyal, instead of leaving your business for fresher fields the second a lower cost option becomes available.
Customers who understand the value of your products are easier to work with, easier to satisfy, and they add more to your bottom line by paying you more.
Clients like this have an understanding that “you get what you pay for” has more value than simply as a well-worn saying.
As a result, value-discerning clients will invest in quality and doing things right instead of continually seeking the lowest price.
If you want to make $5 million in revenue for your organization;
You could go about doing it by selling a $50 product to 100 000 people, or;
By selling a $100 000 product to 50 people.
The first method will not allow you to create a quality business relationship or provide excellent customer support to your clients. You cannot possibly individually address each of your customer’s unique requirements to ensure they receive the outcome or result from the goods or services that they paid for.
On the flip side, the second option gives you the opportunity to spend the time ensuring that each of your clients’ needs are addressed, quality customer and after-sales service are provided, and their unique challenges are overcome. Consequently, your clients receive the best possible opportunity to receive positive outcomes from your work together.
While their airfares cost more compared to low-cost budget carriers, passengers who choose to pay more for their airfares are willing to shoulder the additional cost because of the product’s high value.
Premium airlines add comfort, luxury, and premium service for their passengers. The value-added items justify the higher price to a customer, without the airline having to lower their airfare prices to match their competitors.
4. Your Customers Receive Better Outcomes
When your business charges higher prices, your clients will be more investedin getting better results.
Take our own industry, for example, pricing software. If we were giving pricing software away for free or at a small price, our clients might be inclined to give up on the implementation process at the first sign of difficulty or challenge to overcome. On the other hand, if our clients are paying in the range of $100k to $3.5 million to power more profitable and efficient pricing for their global large-enterprise business, we have found they are much more likely to stick with the process long enough to get the great pricing results, even if that means overcoming internal obstacles like data-readiness and user adoption.
Or consider what happens in the United States, a country where university education is rarely free or state-sponsored. Ivy league schools like Stanford, Brown, Yale, Princeton, and Harvard release their courses for free online. The average completion rate for the free online courses is less than 7%. Meanwhile, the average graduation rate at Harvard for full fee paying students is 97.5%.
If you are searching for different methods as a way to convert sales with your prospects, and you are certain of the quality of your goods or services, consider raising your prices and pricing for value.
How Pricing Software Can Help You Value-Price Your Products
Value-based pricing will not work for every business.
In a perfect word, if you offer a high-quality customer-focused product that differentiates itself from your competitors in a unique way, and your company excels in customer communication you may want to start considering it.
However, when done right, value pricing can maximize your profits through higher prices offered to your high-end customers while building revenue with lower priced goods offered to your price-sensitive clientele.
Time, effort, and technology will be required to reach that kind of price, product, and customer segmentation.
At Pricefx, we believe pricing software is necessary if you are going to embark on a value-based strategy at those kinds of segmented granular levels and uncover value opportunities you never knew you had. Pricefx’s real-world AI (Artificial Intelligence) guides you in setting optimized floor, ceiling and stretch prices. What’s more, price optimization software like Pricefx works together with our CPQ (Configure Price Quote) capabilities that can support your sales team in understanding, communicating, and defending your prices during negotiation.
If you’re interested in how price optimization software can support your potential value pricing initiative, check out the article below now:
Ken Edwards has many years of experience as a web content writer, from the dawn of time of the internet through to the current day. Included in this are varied topics from scuba diving travel, Australian Government Health & Ageing Policy Initiatives, Online Casino and Sports Betting, Vehicle and other Asset Finance, financial legislation and regulations, and now to AI-informed pricing software with Pricefx. When he’s not busy writing, you’ll usually find him hiking somewhere in Europe with his wife Lucie and his dog Max.