Value-based pricing – better than the “cheap and cheerful” alternative?

What is Value-Based Pricing and Why Should You Use It?

Here at TAG Accountants, we love to add value to our clients’ businesses by providing strategic planning advice as well as accounting services. One of the areas that gets our clients thinking is discussing their pricing strategy.

Beware of starting a race to the bottom!

It is so tempting for a business to decide to cut its prices to generate more business, but is that really the best strategy? It can start a “race to the bottom” where the winner attracts mainly price orientated customers who will switch again should a competitor undercut you later.

Establishing Value Based Pricing

As a result, we suggest our clients consider using value-based pricing (“VBP”). Rather than setting prices according to the cost of the product or historical data, VBP is determined by assessing the perceived value to your customer of a product or service. Once there is a real understanding of the value of the product or service you’re really selling, the next stage is to effectively communicate that value to customers so that they understand it unreservedly.

What are your prospects willing to pay?

The best brands price their products and services based on what they believe prospects will be willing to pay. For example, Apple produces iPhones relatively cheaply, but as loyal customers are seemingly willing to pay a premium for the very latest handsets, Apple consequently price these products at a premium and consequently generate great margins.

Of course, if a business proposes to charge more than your nearest competitors, it may also need to further differentiate the offering, e.g. by offering vastly superior customer service, but simply put, to create a successful VBP strategy, research is key.

Research is a key component

Ask your customers the right questions and you will get valuable answers. In listening to what your clients want and responding to those requirements, it is possible to convey that your business understands what really matters to them.

If you can build these priorities into your product or service offering, you should then be able to develop a pricing model that not only generates a better profit margin for your business but also improves customer retention rates.

See the difference with TAG Accountants

We differentiate ourselves from other Wolverhampton accountants by constructively challenging how you run your business in order that you may then be better placed to maximise its success. Of course, we also provide a top-quality accounts and tax service but we’re so much more than that – to see what our clients have to say, just click through to our testimonials page.

To book your free initial strategic business consultation, call TAG Accountants today on 01902 783172 or alternatively just complete our contact form HERE.

We very much look forward to hearing from you.