![]() This is probably the most difficult phase of the value based pricing method. In our example, the differentiation features are those related to the new capabilities of the camera.Ĥ) Put a price on the differentiation features. ![]() The next step is to identify which are the unique features that are different compared with the direct competitor product. Why? Because this alternative product serves as a pivot point when calculating the value-based price.ģ) Gauge the value of the differentiation features. Value based pricing strategy works best when there is a direct competitor product that clients may choose instead. Value-based pricing is catered for each segment of clients.Ģ) Identify the best existing alternative from competition and make the comparison. Company X targets smartphone clients interested in qualitative photography, not all smartphone customers. Remember value based pricing focuses on a specific segment. The real life application of the value based pricing:ġ) Target just one segment of clients. The rest of the features for both smartphones are similar. The direct competitor, company Z has recently introduced to the market a smartphone with 48 Megapixels camera resolution priced at $999. At the moment of the launch this is the best photo camera for a smartphone. The company’s purpose is to set the right price for their new smartphone with improved photo camera capabilities like 64 Megapixels resolution and pro features added. Let’s consider company X who wants to launch a new version of their smartphone. To clearly understand how value based pricing functions let’s look at an example. Here the markups are high to show the exclusivity and prestige of a product.Įxamples of value based markets are the luxury industry, the fashion industry, cosmetics, personal care, pharma. These are products for which the demand is high enough that a price reduction will have low or insignificant impact on the sales. Supplementary items to improve the functionality of the base products.
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