Customer value

Value has many definitions depending on the customer perspective. However, two terms that come out most often are Price (value of a good meal?) and Benefit (how delicious is this meal?). Naturally, customers are willing to pay a good Price for products they consider Beneficial to them. 

Customer Value is the perception of what a product or service is worth to a Customer versus the possible alternatives. “Worth” implies if the customer feels he or she got benefits and services over what s/he paid. In a simplistic equation form, Customer Value is Benefits minus Cost (CV=B-C).

The cost to the customer is not only the cash element but also non-cash elements like time, effort, inconvenience etc. in engaging and using the product or service. This is the reason it is very key to ensure a well-thought through customer journey map for all products and services. All the touch points such as discovery, purchase, billing, usage and support need to be optimized such that the customer drives the best experience from each.

Some recommended pricing models

  • Premium pricing

High price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: luxury cars.

Pros:  Good if you are an established premium brand. Focus on the high value consumer niche.

Cons:  Hard to sustain as a small/unknown brand. 

  • Economy pricing

Low and no-frills pricing.

Margins are wafer-thin; overheads like Marketing and advertising costs are very low. Targets the mass market and high market share. Example: Ryanair, Southwest Airlines. 

    • Pros: Good for non-premium products and services targeting majority of low-income earners and businesses with low cash-flow.
    • Cons: Consumers will associate your low price to low product or service quality. You need to counter this perception by communicating and offering good value.

  • Freemium pricing model

This is very common in mobile apps and Games as well as digital services space. The mobile app is download free of charge and some basic features are free while the core features and in-app gems and power-ups (in terms of Games) are billed. It’s a very good model to lower the barrier to entry to your product. It also gives the customer a taste of your product before making any purchase decision.

  • Subscription model (daily, weekly, monthly, and yearly)

Customers would have to subscribe and pay upfront for your services. Typical subscription cycles include daily, weekly, monthly, quarterly, yearly etc. Ideally, the service or content is meant to be provided in an unlimited value to the customer within this subscription period. However, in reality, there are fair usage caps in the volume of content provided to avoid abuse and manage capacity.

 

  • Auto-renewal

This is not a pricing model, rather is a billing management model aimed at ensuring service continuity and quality experience to the customer. Automatic renewal (auto-renewal) means the subscription will be automatically renewed at the end of the validity period, unless it is canceled before the renewal date.

 

  • Grace period

Some service providers will grant you extra days to pay up the bill post expiry of current validity period. The services are terminated at the end of the Grace period and the customer fails to renew the subscription. This model is good for service continuity and customer experience enhancement as some customers would not have the required funds at the point of service expiry. It is good practice to duly notify the customer pre, within and post Grace period. This will remind and encourage them to pay up. It also helps the service provider to retain the customers for extra days before terminating the service to minimize discomfort, attrition and churn to alternative service providers.

 

  • Micro billing

Micro billing is an interesting model that allows the customer to pay for “micro” subscriptions when they do not have the full amount for the full subscription. Example, a service of 30 days validity costing 100$ can give micro billing validities of 15 days at 50$, 10 days at 20$ and 5 days at 7$ etc. This flexibility ensures service continuity, pocket-friendliness and allows the service provider to earn revenues s/he would have lost if the service only allowed for full subscription amounts.

 

  • Free trial

Free trial offers the service for free to new customers for a certain limited number of days. This model allows the customer to understand the product and its benefits before making any purchase decision.

14 great Pricing development tips

1. Create a free plan. It might be a good idea to have a lead magnet or low priced tripwire offer as a starting point. Maybe offer one or more of the evaluations for free.

2.  Trial plan…

3. $4.99 is interpreted by our brain as way cheaper than $5.  And this small feel-good factor at that moment of making a purchase decision can make the difference.

4. Create long term plans to a) Lock customers in (retention) and b) extract more value from them (getting payments upfront and carefully calculated discounts)

5. Clear visual contrast between sale prices. Visual distinction between the sale price and original price is powerful. If the new (lower price) is bold, big, and a different color, that will make the sale price seem more appealing.

6. Create a sense of urgency (even if it’s a false alarm).  

    • Very limited stock! 
    • Limited time offer
    • Prices will never be this low again! 
    • One chance left  on this Bus!
    •  700 people have this in their cart!

7. Overestimate the perceived value of a discount. 20% off $50 price sounds bigger than a $10 discount on the same price (though they are mathematically the same).

8. Communicate lifestyle value rather than price amount for relatively common and affordable (non-premium) products. “Our dishes are delicious and nutritious” would work better than “we offer the most affordable meals in this neighbourhood”.

9. Show consumers that a lot of effort and care was imputed into making the product. This upscales the perceived value of your products in their minds. Doing this without sounding complicated or confusing to consumers (need to adapt the language complexity to your target consumer segment, don’t use technical jargon for non-technical market segment etc) will let the consumers have a feeling that you put a lot of effort in making the product/service and must be a well thought-through product. Examples of sample phrases:

    1. Carefully curated content.
    2. Data analytics sourced from carefully curated data points and analysed by deep learning algorithms…
    3. Our Coffee is 100% organic…

10. Decoy pricing – this pricing model creates a sense that a particular price plan is the best. You can use this model to drive traffic to a particular price plan (may be the most profitable from your business case analysis). Let’s take for example you have a BASIC plan of $5, a PRO plan of $7 and a PRO MAX plan of $7.50, a lot of customers would go for the PRO MAX plan. The PRO plan in this case was just set up to boost sales of the PRO MAX plan.

11. A reversal of the Decoy price above would be to create a very expensive plan to serve as the anchor price. For example, you could have an expensive dish on your menu that most people won’t buy. By having a $50 dish on the menu, diners are more likely to shell out $30 for other menu items because it seems reasonable in comparison. This is called.

12. BoGoF: Buy one get one free. BOGO compels people to buy something at full price and often spend more than intended. Prices are set high enough to cover the “free” item. 

13. You need a refund policy

14. Social proof. People are more willing to do something if other people are doing it. Using reviews and testimonials as part of advertising earns trust.  One way to do this immediately is to include proof though testimonials, case studies, etc. 

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