Value-based Pricing model has always been an attractive proposition for the business owners, and millennials are running businesses which are tailor-made for the value-based pricing model. But before discussing the impact of value-based pricing let us first understand the meaning of it.
What is value-based pricing?
Value-based pricing can be termed as the pricing strategy which is based on the perceived value of the service(s) or product(s) by the customer.
As this pricing model is not based on the costs incurred for the manufacturing of the products and/or services rendered, the profitability maximizes for the pricing model.
The growing use of value-based pricing in the start-ups
Traditionally, this type of pricing model works with the established brands for which the consumers are ready to pay the premium price because of brand recognition. But, in the recent years, many of the start-ups which are run the by the millennials are turning towards the value-based pricing, and they are running the business successfully even though their companies are not the giant brands.
These start-ups are using the innovative techniques to justify the pricing they have put on their products and/or services such as a social cause affiliated with their brand or niche products/services which big brands are reluctant to provide, or addressing the needs of people in a way which haven’t yet been addressed.
Impact of value-based pricing on client engagement
The benefits of offering the value-based pricing can vary from one business to another, and both clients and the business owners stand to gain from the value-based pricing model of business if the implementation and the execution are optimized.
As the value-added pricing is based on charging your clients for the value of your expertise and not by the hour, your clients are focussed on the knowledge, skills you bring on the table rather than just focussing on the clock.
The businesses can justify the added the value by attaching itself with the social cause which compels the clients to pay more. If you take the example Bombas Socks, who donate a pair of socks to the homeless for the purchase of every pair of socks. While they are offering premium quality socks, they are charging their customers more for that and customers are willing to pay more for the same since its going for a good cause and the customers are getting good quality in return.
As a client, you will be inclined to pay more for the products or services if that product or service is fulfilling your need in the way it had never before. Also, clients stand to get the full dedication from the business owner as they are paying the price based on the value the business delivers.
Clients with needs which are niche and unique in their own way are happily willing to go for the value-based pricing since that business is addressing their niche and unique needs properly and not to charge them based on an hourly rate.
While value-based pricing seems to be a valuable proposition for the businesses, you must analyse your business first and find out a reasonable justification for opting for the value-based pricing.
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