Recently, I wrote about the difficulties of pricing, and how important it is to choose a price specifically. To do this, I recommended a method I call “Price Framing.” What follows is another aspect to Price Framing. (As I mentioned in the earlier post, this method will be discussed at much greater length in a forthcoming white paper. Consider this a “sneak preview.”)
When we start the process of pricing our products or services, we tend to start from our own perspective (more on this next week). That makes sense since we know our cost and margin realities. Economics (the discipline of economists) teaches that — eventually — the market sets the price for a given product or service. However, in order to set prices — at the beginning of your market exploration — we must effectively put ourselves in the our customers’ shoes, and need to look at our offerings from their point-of-view.
Image credit: ilkerender on Flickr
There are at least a half dozen dimensions which must be looked at from the customer’s point-of-view in order to start getting at an accurate price. (“Accurate,” here, meaning effective in the context of your marketing objectives.) Since I can’t cover everything in this post (hence the white paper), I’ll start with one of the most important aspects: your perceived value.
Your Perceived Value
It’s imperative that your customers recognize that you — the vendor — offer a distinct value proposition. Your established value proposition should represent something to the customer that’s innovative, indispensable, and inspirational (in other words, what we call the Value Prop I³ test).
Many companies fall into the temptation of assuming their customers understand the value of their offerings, or relying on the sales/marketing team to explain it. Assuming your customers see your value — instead of knowing they do — means that you will have a tougher time marketing your product at the price you want. The problem with this, as Inc. Magazine reports, is that customers then view your approach, “as ‘selling’ and therefore, whatever value you suggest it is, the customer is likely to reduce its value because they will assume it is likely exaggerated to make the sale.”
In other words, if your customers do not perceive on their own that your product/offering is distinct — if you are relying on other ways to explain or convince them of your value — then your value proposition is unclear, and this will inevitably lower your price point.
A Distinct Value Proposition
In order to find out whether or not your customers recognize your value, you must test/compare your value proposition to your competitors’. The best way to do this is, simply, to ask your customers or target customer base the following questions:
- “Have you seen something like this product before?”
- “How would you use this offering over time?”
- “What do you like most about this product/offering?”
- “How does it compare to similar products/offerings on the market?”
- “What makes you choose this offering over others?”
What you need to discover is if your customers recognize that your product is different than the others on the market — not that you claim it is, not that you make them believe it is, but that they actually recognize it right now.
Remember that a value proposition “needs to be consistently communicated in everything your company does, from marketing materials to culture to user experience,” according to Sandra Wear, entrepreneurial writer for Inc. Magazine. Ensuring that your value is consistent across your entire company is the only way your customers will know — without a doubt — how valuable you are, and this will inevitably drive your pricing up.
- Do your customers view your offerings as valuable? How do you know?
- Have you considered this perceived or unperceived value when arriving at a price point in the past?
- In what other ways do you consider the customer’s point of view when deciding on a price?