When companies set prices, they traditionally use cost-plus pricing. This method adds all costs and the desired margin to set the final price of a product.
In reality, what gets customers to buy is the perceived value of the product, not the price tag. You can win over more customers by selling a quality product at a fair price.
Why Customer-Driven Pricing Works
When the customer grasps your product’s unique value and its benefits to them, the next question is how much should we expect them to pay for it? What is considered a good value when it comes to purchasing your product? Customer-Driven pricing place the focus on the customer, not the product. Position your price point to meet their expectations.
Customer-driven pricing is a deliberate strategy to determine the price of goods and services and take into consideration current market conditions. It ensures your product or service offers what customers actually want at a price they are willing to pay.
The Art of Knowing Your Customer Well
The key to a successful customer-driven pricing strategy is in understanding your customer well. What customers care about is an intensely personal question. To build an effective value proposition, you need to map the concerns, problems, and motivations of those you are trying to attract.
A key part of your customer profiling process is to understand their problem and show how your product or service can solve this. This will drive your customer perceived value of your product. Without this, they cannot understand the value you are offering them.
Other Ways to Add Value
Your product might solve several issues in a unique way, in a way that no one else does. It might also offer flexible pricing, whereas others have one-size-fits-all pricing models.
You might be offering fantastic technical support as part of the package, which is something none of your competitors is doing. It is something that sets you apart, even if it may not seem directly related to the features of your product.
The Challenges of Customer-Driven Pricing
To create your customer profile, gather feedback from your audience on their likes and dislikes. With this data, you can determine the correct price point for your products. One challenge here is that people aren’t always honest about the prices they’re willing to pay. Combining actual sales data with customer opinions will help you determine an accurate price.
The other challenge is that if you base pricing solely on your customers, you could lowball yourself and miss revenue opportunities or price too high and drive away potential customers. The key is then to ensure you strategically position your marketing and product for its uniqueness so you can charge more for them.
Establishing the true value of your product
The point of customer-driven price isn’t customer satisfaction, but rather to offer the best value in the long-term, not just for your own business’s bottom line, but also for your customer. By basing your price on those with who you, your team, and your company are proud to share the product, you’ll drive the conversation that begins to proliferate your products. As you engage with folks, you’ll be in a prime position to make changes, both in pricing and in your policies in how you support the product.