Pricing strategy is the foundation of your business. The type you eventually choose will depend upon numerous factors such as your goals. The three primary pricing strategies include competitor-based pricing, cost-based pricing, and customer-driven pricing. Customer-driven pricing is also known as value-based pricing. This pricing model works on the basis that a customer is willing to pay a price based on their perceived value of your products and services. For these customers, the value that the products offer exceeds the cost. This can be seen in the case of designer labels where apparel is sold at exorbitant prices but so many people (who can afford it) flock to get a hand on their favorite piece.
The vital aspect of a customer centric pricing strategy is that it is based on value. When customers feel that you offer a valuable item, they will be willing to pay much higher than anyone else. A customer-driven pricing strategy works because it can lead to higher profits for your business. If you can charge the highest possible price that the customer is willing to pay, you can earn impressive profits. You can even enjoy better customer loyalty. If they love your offer then your customers will refer and this can mean repeat business for you. But this will last as long as the perceived value is in place.
The customer-driven pricing strategy is for businesses that offer unique products and services. The differentiation from competitors is what allows your business to stand out. It all depends on customers though. If any improvements are made to the product, then it must be done based on what the customer wants. If not, the customer-driven pricing will crumble and you will need to shift to other pricing strategies. Even if new features have to be added to the product, they should be added only after the current need evaluation. With the help of communication channels and regularly getting feedback from customers, a value-based pricing model can be successful for your business.
There are some key components of a customer-driven pricing strategy. The first is analyzing your audience. You must be in touch with your customers because they can give you valuable insights. Research is imperative at this stage because you need all the information you get to set the stage. Next, you must research the competitors who offer similar products or products that can have an impact on your pricing. Studying the market is also important because at the end of the day, if there are many retailers out there, customers have a choice and they can pick whichever retailer they want. Market evaluation can also provide immense knowledge about the various factors at play.
Doing so yourself is an impossible task because of the trends and how fast they are changing. If your research is solely based on historical data then it won’t be as valuable because the past cannot be replicated into the future due to the ever-changing dynamics of the market. Instead, an intelligence platform must be chosen that empowers by providing the right set of insights that can help in decision making or price setting. This can help you ride the wave of setting prices based on your customer’s perception of the product value. The role of big analytics is crucial in the market scenario today as retail has grown and changed.
Customer-driven pricing strategy works as well as you allow it to work. It must be implemented just as thoroughly as it was planned. Rather than make guesses and become lazy about its implementation, using a dynamic pricing AI solution can help. AI helps to accurately forecast and provide insights that you won’t find anywhere else. Solutions such as those offered by Intelligence Node help to take the guesswork out of pricing. You will have suggestions that count and that can make a difference to your business. Pricing is tricky but with the right tools you will know what to do so you can maximize the benefits and minimize the risks involved.