Netsale Asia

Value-based Pricing in E-commerce: The Ultimate Guide (Part 2/2)

PART 1 | What is Value-based Pricing and its advantages?

Target Products

We have combined a list of product lines where value-based strategy is applicable. In these segments, you can easily leave out the competitors to focus on what consumers need and charge accordingly.

 

  • Services: It’s hard to put a price on service. However, the range can be determined depending on brand reputation, type of service, target demographic, etc.
  • FMCG Products: FMCG is short for fast-moving consumer goods, used to describe products with a short shelf life and can be sold quickly. From food to cosmetics, housewares and office supplies, the decision-making process for FMCG products is relatively short, which you can take advantage of through packaging and added values to attract buyers.
  • Art-related Products: Arts are customarily priced as their perceived value, not its production cost. 
  • Niche Products: Niche is a subset market of a specific product that is of high interest to certain groups of people. For example, a Harry Potter merchandise might not be considered worthy to a lot of people, while fans of the franchise are willing to pay high prices for the product.
  • Consultation: Consultation is a specialized service where sellers provide buyers with knowledge and advice. The rates are usually negotiated between the two parties, but good consultants won’t come at a low price. 
  • Health products: As life is the most important thing to humankind, people are willing to pay large amount of money on medicine and heath treatment based on expected results.
  • Capital Goods: Capital goods are tangible assets used to produce other goods such as machinery, equipment and tools. Therefore, the price of a capital good is decided by its capacity of bringing in revenue. 
  • Superior Goods: Why does a piece of clothing from Louis Vuitton can cost you thousands? Why do these overpriced Beats headphones still relevant on the market? The answer is simple: Luxury products give a sense of high social status, which is exactly their added value. 
  • Veblen Goods: Contradict to the law of demand, the price of a Veblen good increases when its demand surges. Applicable for exclusive and expensive products like designer jewelry, watches and luxury cars, its potential buyers are affluent individuals with a strong brand identity. In this case, the higher the price, the more appealing the product since it directly reflects the buyers’ status.

 

Value-based Pricing in 3 Simple Steps

  1. Market Research: At first, you should be able to grasp the idea of who are your potential customers to create different buyer personas. They are representations of your ideal section in the market, so try to be specific and diverse as much as possible. The details include but not limited to:
    • Gender
    • Age
    • Location
    • Occupation
    • Marital Status
    • Races
    • Income Level
    • Education Level
    • Hobbies and interests
    • Motivation to buy
    • Concerns regarding the company and the product
    • Preferred online platforms

A thorough search of products within the range and relevant competitors is also necessary for you to learn about other alternatives and position your product.

  1. Product Development: 

By knowing who your potential buyers are and what motivates them to buy, it’s time to take a closer look at your own product. What are the selling points? Do those fulfill the need of future customers? Is there anything that can be added to create more values?

This process works best if you have a sample of customers or a study group as both will provide you with diversified opinions. Backed up by all the information, you can decide on the most promising adjustment for your products.

  1. Price Sensitivity Analysis: 

Price analysis is the most important step in value-based pricing. Feedbacks on different price points will be collected from a sample group using Van Westendorp’s price sensitivity meter, consisting of 4 cumulative distributions:

  • Too Expensive: Customers don’t even think of buying it
  • Too Cheap: Customers feel that the quality won’t be very good
  • Expensive/High Side: Customers see the product as pricey. It is not out of the question but requires consideration before buying. 
  • Cheap/Good Value: Customers believe that the product is a bargain – a great buy for the money

Based on the outcome of the first two steps, you should be able to find a fitting price range for your product that will convince the most percentage of buyers to open their wallets.

Value-based Marketing Strategy

Market research gives you People. Product development creates the Product. Price analysis brings you Price. 3 out of 7Ps in Marketing Mix is already presented for you in the previous steps with only 4 left: Place, Process, Promotion and Physical Evidence. Heavily based on the product itself, unfortunately there is no one-size-fits-all marketing strategy, but we strongly recommend that you integrate as much Ps as possible into the campaign, look for patterns of buyers to adjust correspondingly.

Value is king in E-commerce – so harness that power. Pricing according to value will help you understand how important a part that brand identity and customer experience play in the whole value of your product, perceived by your customers. Through a customer-first approach and strong communication, you can gain useful insights to improve your products even better. Starting bringing more values to the table, and soon you will realize what a huge difference it makes for your business.