A value-based pricing strategy includes both the value creation and the value appropriation. Firstly, it is important to understand exactly what drives sustainable value for people. Creating these values in products and services is the foundation of the value-based pricing. The cosmetic brand La Prairie, for example, launched their Caviar Collection for a very special skin treatment.
By communicating the value of the visible improvement one’s face will receive, the perception and the willingness to pay a higher amount for the value can be raised. Different value communication strategies can be used to convince customers of the benefit and to capture the maximized value.
The difficulty in an international context is that the perceived value varies across countries and cultures. For instance, a customer in Ottawa is more willing to pay an extra for a vehicle with a park heating system than a customer in Miami, whereas in Miami a customer would probably pay more for a car with an electric sunroof. Providing customers in different regions with custom-made advantages or packages might be a strategy to maximize the product profitability.
With a value-based pricing, you ensure an increase in profitability for your company. But how to move from cost-based pricing to value-based pricing? Phil Symchych, President of Symco & Co, shares three measures which need to be considered.
Interesting post! Another strategy that is often applied especially in the luxury sector is called “Premium Pricing”. Here companies set prices artificially high in order to boost favorable perceptions among buyers. Or is there anyone who thinks that a Louis Vuitton bag is in fact worth several thousand dollars? Premium Pricing, however, is only feasible for real luxury goods. That the strategy has the potential to backfire, is something that Nokia had to experience lately: http://www.wired.com/gadgetlab/2012/09/nokia-lumia-premium-pricing-will-hinder-windows-phone-adoption/