Value Based BUYING

Value Based PRICING is the most highly recommended pricing technique by consultants and academics.  The basic concept is setting a price to capture the majority of what your customers are willing to pay.  Before we explain Value Based Pricing, let’s look at Value Based BUYING (VBB).  VBB is how your customers make their decisions when they deliberate about which product to purchase.

Imagine you are at the grocery and you want to buy a can of green beans.  Two cans catch your eye, Safeway Select is a store brand and Del Monte is a National Brand.  Safeway Select costs $1.49 and Del Monte costs $1.69.  How do you choose?  You ask yourself, is the Del Monte can worth 20 cents more?

Is it worth it?   To answer this, you think of everything that is different between the two cans.  You may have had better experiences with Del Monte brand.  One may have less salt.  One may be cut differently.  One may have a prettier label.  It’s completely up to you as to what you think is important.  After you’ve determined the important differences, you place a value on them and then decide if the Del Monte brand is worth 20 cents more than Safeway Select.

Of course you don’t actually do this math.  But that is how your mind makes the decision.  You ask yourself and answer the question, is the Del Monte can worth 20 cents more than the Safeway Select can?

Notice there is no right or wrong answer.  People are different and value things differently.  Some people will prefer Del Monte and others will prefer Safeway Select.  This fact is important when we turn this around in the next blog to discuss Value Based Pricing.

Action:  You’ve been asking your customers what they would have bought if not yours.  Their answers tell you who your toughest competitors are.  Choose one of these competitors and do the Value Based Buying math for yourself.  How much is your product or service?  How much is your competitor’s?  What are all of the differences?  (Don’t be biased.  Be sure to list the areas where your competitor is better.)  How would you value these differences?  How do you think your customers value these differences?