Sell ​​by Price or Sell by Value? Which strategy is best for your company?

Sell ​​by Price or Sell by Value? Which strategy is best for your company?

In today’s business world, where competition is fierce and customers have more options than ever, companies must seek effective strategies to stand out. One of those strategies is to change the focus from the price of the product or service to learning how to sell based on value for the customer. But what exactly does it mean to focus on customer value and how can it change the way your company makes sales?

In this post, we’ll explore the difference between price and value, the different approaches to pricing, and how value-based pricing can benefit your business. We’ll also provide practical tips for implementing a value-focused sales strategy. Whether you’re looking to improve your sales, increase customer loyalty, or simply better understand the competitive landscape, we’ll provide you with valuable insight to consider.

So, if you’re ready to stop competing on price and start selling based on value, read on. We promise you that this approach can change the way you view sales and business success.

What is the difference between Value and Price, and why is it important to know?

You may have heard the terms “value” and “price” used interchangeably in conversations about products or services. Although these two concepts are interrelated, they represent very different ideas, and understanding these differences is key to the success of any sales strategy.

We will start by defining these terms:

Price is the amount of money requested or paid for a product or serviceIt is a quantifiable figure, determined by the seller, based on a variety of factors that may include the cost of production, the market, competition, supply, and demand, among others.

On the other hand, value is more subjective and is based on the buyer’s perception. It reflects the usefulness, relevance, or importance that a buyer assigns to a product or service about his or her need. The value can vary widely from person to person, depending on their individual circumstances, needs, preferences, and evaluation criteria.

Therefore, we can simplify it as follows: price is what the customer pays, but value is what the customer gets in return.

This distinction between price and value is critical to understanding the value-based sales approach. While pricing strategy is always important, the value customers perceive in a product or service can have a much greater impact on their purchasing decisions.

Different Approaches to Pricing

Pricing is a critical component in any company’s marketing and sales strategy. Let’s explore three main approaches: cost-based pricing, market-based pricing, and value-based pricing:

DescriptionExampleMain AdvantageMain DifficultyGeneral evaluation
Cost Based PricingIt is based on the total cost of production adding a profit margin.A t-shirt that costs $5 to produce sells for $10.Easy to understand and implement.You can ignore customer perceptions of value and changing market conditions.It’s a good starting point, but it may not adequately reflect the value the customer perceives.
Market-Based PricingIt focuses on the selling price of similar products or services in the market.If the coffee shops in the area sell coffee for $3, you also sell it at that price.Sensitive to market conditions and competition.It may not fully reflect the customer’s perceived value.It is more adaptive than cost-based pricing, but is still more competitor-focused than customer-focused.
Pricing Based on Customer ValueConsider the perceived benefit or value that a product or service offers to the customer.A $100/month software tool that can save a business $1,000/month in time and resources.It allows companies to capture greater value in their transactions.It requires a deep understanding of customers and what they value.It is the most customer-focused strategy and, despite its complexity, can be the most profitable in the long term.
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Cost Based Pricing

This approach is the most direct. It is calculated by taking the total cost of production of a product or service and adding a profit margin. This method is easy to understand and implement, but it runs the risk of ignoring customer value perceptions and changing market conditions.

Market-Based Pricing

This strategy focuses on the sales price of similar products or services in the market. Companies often adjust their prices according to what the competition is charging, what customers are willing to pay, and the position the company wants to have in the market. Although it is more sensitive to market conditions than cost-based pricing, it still may not fully reflect customer-perceived value.

Pricing Based on Customer Value

This approach recognizes that customers are willing to pay more for something they perceive as valuable. Instead of relying solely on production costs or competitors’ prices, value-based pricing considers the perceived benefit or value that a product or service offers to the customer. This method can be more challenging to implement, as it requires a deep understanding of customers and what they value, but it can allow companies to capture greater value in their transactions.

What are the benefits of competing on value and not price?

Value-based pricing can be a real game-changer in the business world. This strategy puts the focus on the customer, allowing companies to set prices that reflect the customer’s perception of value rather than production costs or competitors’ prices. This strategy offers several potential benefits:

  • Capturing greater value: If your customers perceive high value in your product or service, they are willing to pay more. Therefore, you can capture greater value from each transaction.

 

  • Building customer loyalty: By focusing on providing value that customers appreciate, you create a stronger connection with them, which can foster long-term loyalty and commitment.

 

  • Incentivizing innovation: This approach motivates companies to constantly look for ways to increase the value they offer to their customers, which can stimulate innovation and continuous improvement.

 

How do you know if your company should compete on value and not price?

Not all companies are suited to value-based pricing. To determine if this approach is right for your business, consider the following factors:

  • Diversity of perceived value: If your customers have a wide range of value perceptions – that is, some customers see great value in your product or service while others do not – this approach could be particularly beneficial.
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  • Product or service differentiation: If you offer a product or service that is highly differentiated from the competition, you may have the opportunity to set prices based on the unique value you provide.

 

  • Significant benefits to customers: If your product or service offers significant benefits in terms of time, cost, or effort savings to your customers, they will likely be willing to pay more for that value.

How to overcome the difficulties of selling based on customer value?

Here are some tips on how to overcome the pitfalls of customer value-based selling:

  • Market research and constant customer feedback: To understand what your customers value, you will have to make a conscious effort to collect and analyze their opinions. Customer surveys, interviews, and analysis of customer behavior data can be valuable tools in this regard.

 

  • Pricing testing and flexibility: Value-based pricing often involves a degree of trial and error. Don’t be afraid to test different pricing structures and adjust your strategy based on results and customer feedback.

 

  • Patience and perseverance: Value-based pricing can take time to implement and adjust correctly. It’s important to be patient, persevere, and be willing to make adjustments as you learn more about what your customers value.

Tips for Selling with a Focus on Customer Value

If you have finally decided to focus your business strategy toward sales based on customer value, these tips will be of great help in the process:

  • Know your customer: To sell based on value, it is essential to know your customers thoroughly. Understand their needs, wants, challenges, and how your product or service can help them. Market research and customer surveys can be useful tools for this.

 

  • Communicate value: Customers don’t always immediately understand the value a product or service can provide them. It’s your job as a salesperson to make sure that value is communicated. This may include highlighting specific features, talking about the results customers can expect, or sharing testimonials from satisfied customers.

 

  • Show rather than tell: Sometimes the best way to communicate value is to let customers experience it for themselves. This could take the form of a product demo, a free trial, or even case studies showing how other customers have benefited from your product or service.

 

  • Create a unique value proposition: Your value proposition is the reason why customers should buy from you instead of your competition. It must be clear, convincing, and focused on the benefits that your product or service provides.

 

  • Don’t compete on price: When you sell based on value, price becomes less important. Instead of trying to compete on price, compete on value. Remember that customers will be willing to pay more for something they perceive as valuable.

 

  • Listen to your customers: Listening to your customers is essential for value-based selling. Pay attention to their comments and feedback, and use this information to continually improve your product, service, and sales strategy.

 

  • Test and adjust your strategy: Finally, you should always be willing to test and adjust your value-based sales strategy. What works for one client may not work for another, so it’s important to be willing to learn and adapt.
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Examples of companies that have adopted an approach of selling based on customer value

Now let’s move on to practice. Here are some examples of companies that decided to focus on customer value-based sales and have achieved extraordinary results:

  • Apple Inc.: Apple has built its brand around offering high-quality products with cutting-edge design and advanced functionality. Although its products are typically priced higher than those of its competitors, Apple has excelled at providing exceptional value through its ecosystem of integrated products and high-quality customer support services.

 

  • Starbucks: Starbucks has revolutionized the coffee industry by focusing on delivering a “coffee experience.” Although their prices are generally higher than other coffee shops, customers value the quality of their drinks, consistency across all their locations, and the pleasant, comfortable atmosphere of their stores.

 

  • Tesla Motors: Tesla has not limited itself to selling electric cars, but rather a vision of the future of transportation. Despite the higher prices of its vehicles, customers value its superior performance, its commitment to sustainability, and its continued development of innovative technologies, such as autonomous driving systems.

 

  • Louis Vuitton: This luxury fashion giant has been able to transmit value through the exclusivity and high quality of its products. Their prices are high, but customers are willing to pay for the prestige and exceptional quality that the brand represents.

 

  • Whole Foods Market: This supermarket chain has made a name for itself by focusing on organic, natural, and high-quality products. Although prices may be higher than other supermarkets, Whole Foods has managed to attract customers who value healthy, sustainable eating.

Do you know of any other companies that have achieved success by focusing on customer value and not price? Tell us in the comments!

Conclusion

We’ve come a long way in this post, exploring the difference between price and value, breaking down pricing approaches, and delving into the power of value-based pricing. But, most importantly, we have highlighted that true competitive advantage lies not in competing on price, but in maximizing and effectively communicating value.

Adopting a value-based sales and pricing approach may require a reevaluation of your current practices and a deep understanding of your customers, but the potential benefits are immense. From capturing greater value in every transaction to building a stronger relationship with your customers, value-based selling can completely change your business performance.

Additionally, let’s remember that implementing a value-based pricing strategy is not a one-time act, but rather a continuous process of learning and adaptation. It involves listening to your customers, understanding what they value, and being willing to adjust your approach based on that information.

Ultimately, selling on value is more than a pricing strategy; It is a business philosophy. It’s a commitment to focusing on what matters to your customers and finding innovative ways to provide and improve that value.

So, as you move forward on your entrepreneurial journey, we encourage you to stop asking yourself, “How can we lower our prices?” and start asking yourself, “How can we increase our value?”. We assure you that this simple reorientation can take your company to a new level.

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