Pricing Strategies: Value-Based Pricing (#03)
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- Опубліковано 1 жов 2024
- This is the third in my series on pricing strategies. Value-based pricing is probably the most important aspect of pricing that any service business can implement. Done correctly, it can transform your business.
#pricing #valuebased #pricingstrategy
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Congratulations and thank you. I've scoured UA-cam for videos about Value-Based Pricing. In 12 minutes you communicate more than scads of 40-minute videos on the subject. And unlike others, you actually illustrate the secret sauce, how to ask questions that lead to a value discovery.
🙏🏼 Thanks, Eric! I never realized how hard it is to find good info on value-based pricing. It's a powerful tool and I am glad my vid was useful. All the best!
I like the idea of value-based pricing, but I think there are some notable flaws in this form of pricing. 1) It is not always possible to accurate assess how much a product or service is worth to a company. Clients are usually reluctant to tell you how much a service is really worth to them, because it is not in their best interest. They know that it would result in them paying more for the same level of service. 2) Your product or service must be differentiated and segmented in such a way to justify higher profit margins. This often results in focusing on a niche market. This may result in greater profit margins in the short-term, but profits can easily dry up with the introduction of competition. I don't think this kind of pricing is necessarily better than cost+ or other forms of pricing. It depends on your product, business strategy, and customer preferences.
I do agree that this pricing strategy works best for certain kinds of offerings. For instance, it's hard to do value-based pricing for a consumer good sold through retail, like a candy bar. On the other hand, it's perfect for an offering like consulting. And, to your point about customers not wanting to share what a service is really worth to them ... well, that's only true if you don't know how to sell. Yes, if you approach the whole thing trying to get something for yourself, the customer will protect themselves. However, if you are committed to solving their problem and they know this, they will absolutely collaborate with you throughout the process and will share value. But, you have to be skilled at these kinds of interactions. Plus, you really should be experienced enough to have an idea what your solutions are worth without being told, but that's a whole other conversation. Regardless, thanks for the comment, John, and for bringing up some valid points. 👍🏼
I liked your message but your background music is distructing
Thanks. Old vid. Am always learning. ;)
I really like the humanly kind you made this video: no "like and hit the bell", no "here is my FREE CONTENT, give me your email" or other crazy things. Thanks for the great content, now i understand how to get value based pricing to work.
Thank you, Sebastian. That is a kind compliment and I am glad you got something useful from my video. I do hope you'll stick around!
Wow dude the music is way too loud
Yeah, look how old that vid is. One of my earlier ones. Live and learn.
Very informative but if you could please take out or decrease the volume of the background music that would be appreciated!
Thanks, Santosh. This is one of my earlier videos and I was (and am still) learning. You'll notice I am a little better with background music these days and often don't use it at all. I don't think I can change my older videos, but appreciate your critique.
You have great content BUT you messed up when you added music. Mike I cant hear your voice due to the background music you added. Granted, I know why you did it....but lower the music decibels down to 20% against your voice....otherwise its a massive distraction. Great content btw.
Thanks, Edwin. I agree. I started out not knowing much about video production. I realized that I was hitting the music bed too hard and have been getting better with it since this vid came out. Even so, I have a long way to go! Thanks for watching, thanks for the critique, and thanks for letting me know you like my content! 🙏🏻
thanks so much for sharing
you communicated really well and I have also learnt alot from this
thanks so much once again
It is my pleasure to help, even if just a little bit. I wish you great success!
Despite the hyperboles 😂 this was a great video and I thoroughly understood what you were explaining and what I need to do next. Thank you very much! 🙌
Glad you found it helpful! 👍🏼🙏🏼
Very good explanation of how to use value based pricing, thank you
Glad it was helpful! Thanks for watching and letting me know you got something out of it. 🙏🏼
VBP (Value-based-pricing) is a must-know for every Product Manager.
I love the idea of value based pricing but I have no idea how to apply it. My materials cost me 1,500.00 and to pay someone for trash and labor is 450. If a customer thinks the work is worth 1000.00 how can I even make any money? I'm in negative now.
What do you make/sell?
@Mike Gastin I provide mold remediation, water damage restoration, drywall repair, and painting.
Ah. Yeah, there's so much to a challenge like this. I think in ANY situation where you're going with value-based pricing, the success hangs upon the sales process. You can't just set a "value-based" price and hope it works. So, in your situation, I'd be selling on things like the cost of becoming sick from mold or the value to having a maintained home. I don't think it's simple, though and don't want to communicate that. There are opportunities to bring your costs down, as well as find add on services that help increase your margins. But, the long and short of it for me is that you have to figure out the sales process in order to be able to get higher rates. The customer has to see more value in what you're offering. Hope this helps sparks some ideas.
Watching this a few hours before my sem end exams!! 🫡
Hope it helped!
I really liked the way you conducted the video. However not sure as to how do I need to start my calculation in finding the value I will add since majority of the data will probably be confidential sort of data or I would not have access to most it...
Aditi, it s for this reason I only do a proposal for clients that will a) give me access to the real decision maker (aka owner, in my case); b) will sit down with me and openly talk about the problem, ways to solve the problem, and the value of those solutions. I essentially build the proposal in collaboration with the business owner. If we agree on everything then I tell them what I think my budget needs to be to deliver the results. If they say something like, "That's fair" or "Yes, that's reasonable" I will move forward and write a formal proposal. if not, I don't bother. But, your question is the right question. My answer is I have a direct conversation with my prospect to identify the value. if they are unwilling to talk about it then I know they are not a good fit for me and my business. Now, I may have not done a good job establishing trust, etc. But on a whole, that's how I approach it.
@@MikeGastin Rewatched the video and i love how this answer is even clarifying the process more! Thanks and keep up the great work :)
@@sebastianbauer4186 Thanks, man. I am glad to know these help! I need to get more vids out soon, though.
Excellent Really opened my eyes to how we should approach pricing and differentiate ourselves.
I'm glad it helped, Phillip. Thanks for letting me know!
Great content!
Why, thank you, Leon! 👊🏼
thanks for the concise explanation, will certainly use this module for my farming business
Best of luck!
I have heard many talk about the buzz word "value creation" but no one was as articulate as you sir. Thank you for hitting the point home.
Thanks! 👍🏼
Do you have any hands on reporting that shows what analytics are used to determine the best value based pricing
Prasneel, that's a fair question. The fact is, I *never* develop value-based pricing without the prospect. I have a process I developed where I am able to identify the value with my prospect and then easily negotiate my pricing. I've never relied on analytics to do that and don't think that's possible when it comes to my kind of work: consulting. One would absolutely need that kind of data for determining pricing for consumer products. To do so, I would conduct market tests using various price points, run voice-of-the-customer research, as well as employ whatever published data I could get my hands on.
An amazing comprehensive guide. Thank you.
Glad you found it!
Great video, Mike. But if you are a consultant, on the pricing page of your website, how do you present value-based pricing? Any sites you know you could share? Or inspiration? 🙂 Thank you.
Hi Charles. So, I am a consultant and I do not have a pricing page specifically for this reason. Value is ultimately for the client to decide, meaning I can't tell you how valuable my services are, you have to decide how valuable they are to you. I can, and should, help you think through that and I can even make an argument for how valuable, but ultimately, it's for you to determine. So, I go through a process with each prospect to identify the problem, determine how much of an impact solving that problem would make on their business, and then figuring out what that would be worth. As you can imagine, each prospect and each business is different, hence, there's no way to have a page with prices. That said, if you want to have a pricing page, I would use it to explain what I just described. This way, your prospects will have an idea of what to expect before they reach out. Does this help?
@@MikeGastin Thanks! 🙏
@@charliehxpe 👊🏼
Is it possible to do value based pricing when selling direct to customers - as apposed to to businesses? And how? I am a portrait artist, doing commissions and I am wondering if it is possible to apply value based pricing to my work, and if so, how would you help the customer determine the value to them?
ShaheeMedia.com/portraits
Okay, great question. And, like any decent answer, it depends. So, the main question is how does the sale happen? Obviously, if the sale is online, meaning I choose an option, enter a credit card, and the sale is complete, then no-value-based pricing is pretty much out of the question. Why? Because you need to go through a process with your customer to discover together what the value is. On the other hand, if your sales process involves interacting with your customer, then yes, value-based pricing is possible. In your instance, if someone gets in touch inquiring about a commission, you might take them through a process of discovery, asking questions about why they want a portrait done, how it will be used etc. In doing so, you should be able to get a better idea of the value to your customer. Even so, there are a couple limitations that come to mind. First, I assume your market has a certain range that's typical. you're going to be bound by that range. The only way you can break out of that range beings me to my second limitation, which is you have to find a way to differentiate. Why is your offering better than others? If there's a clear differentiation that your customer recognizes and values, then your fees can go up. Until you find whatever it is that makes you more valuable, you're going to be stuck within the typical range. That's not bad, btw. You can always charge the top end of the range. But, to truly break free and charge true value, you have to differentiate in a real way. What is your differentiation(s) that will allow you to create more value and charge accordingly?
BTW, I checked out your site and I want to compliment you on your work! Very skillful. I wish you great success!
@@MikeGastin Thank you so much for your advice and kind words about my portraiture! I appreciate your thorough answer. I have been thinking of how I might differentiate my self... other than quality of work. My focus has been on memorial / mile stone type portraits, however I don't think that is the differentiation of which you speak. What comes to mine is stylistic differentiation, however I assume I should be thinking more broadly than that. Any suggestions? Oh, I guess I should mention that, yes, I do interact directly with my customers before they order.
Of course in your work, the quality of artistry is a big factor. But, another element that one can control is the customer's experience and sometimes it is the small things that can make all the difference. I would try to map out what the customer's journey looks like from not needing a portrait all the way to installing and enjoying the finished piece. Once I had a good sense for that, I would look at the various stages and steps along that journey to figure out where I can innovate or improve in order to make their experience remarkable. You could even talk to former customers and ask them what they liked and what they wish was different about working with you. You're on the right path just because you're asking how you can differentiate. You'll get there! Gook luck!
@@MikeGastin Thank you very much! I Really appreciate your thoughtful feedback. I will think about what you said, and inquire with some past clients, and see what I can come up with. Thank you again!
Beautiful info. Thank you Sir.
It's my pleasure! Thanks for letting me know you found it useful.
Very informative video, thank you.
Glad you liked it, Ivan, and thanks for taking the time to let me know! 👊🏼
can you make a video about value-added pricing?
Value-added pricing is more of a cost-plus model. You just have to figure out what the value to the customer is. I'll make a note and add it to my list of possible vids. 👍🏼
@@MikeGastin Thank you and keep up the amazing content. The amount of value you deliver in such a short time frame is simply mind boggling, Happy to be subscribed right now and cant wait to see this channel blow up with its amazing content.
@@AlphaDavid66 Thank you, friend! 🙏🏼 I've got to get back to posting more often. I think the channel will grow if I do a better job of posting. Am grateful for your encouragement!
Nice Videos, keep it up.
Thanks! Haven't put one out in a while. Maybe it's time.