TL;DR
- Explore how value-based pricing, focusing on the perceived value to the customer, can revolutionize your SaaS business's pricing strategy.
- Learn about the two types of value-based pricing: Good Value Pricing, which emphasizes quality and service, and Value-Added Pricing, which focuses on additional features or services.
- Understand why SaaS businesses, in particular, stand to benefit from adopting a value-based pricing model, thanks to its flexibility and responsiveness to customer needs.
- Discover the advantages of value-based pricing, including the potential for increased profit margins, deeper customer insights, and enhanced customer satisfaction and loyalty.
- Consider whether value-based pricing suits your business by evaluating your product's unique value, customer willingness to pay, and competitive pricing strategies.
- Togai's role as an end-to-end metering and pricing infrastructure that simplifies the implementation of pricing strategies is crucial for businesses looking to adopt value-based pricing.
Learn about the two different value-based pricing methods to elevate your SaaS business. We help you understand with valid examples!
Value-based Pricing - An Overview
Whether you're a product manager launching a product, an entrepreneur starting a venture, or a business leader assessing your company's revenue curve, a value-based pricing strategy provides a practical and effective path forward.
So what exactly is the value-based pricing strategy?
It is a pricing model, where your product or service is priced based on their perceived value by the customer. Put simply, companies price their products or services depending on how much their customers believe the product is worth. This model differs from the cost-based pricing model as the cost of production is not really factored into the final price.
Implementing an appropriate pricing strategy may sound challenging, but with a metering and pricing infrastructure like Togai, you can easily implement any pricing strategy that fits your business needs.
When Does the Value-Based Pricing Strategy Work
Before adopting a value-based pricing strategy, it is crucial to understand if this will fit your product or service and align with your pricing objectives.
The value-based pricing model particularly works well if:
- Your product or service is niche and differentiates itself from the competition
- You offer a product or service that is customer-oriented - features or add-ons are dependent on the customer’s requirements
- You have the time and bandwidth to research customer preferences and your target market
- Your product demand is inelastic - the demand does not increase or decrease based on the price of the product.
There are essentially two types of value-based pricing that you can consider for your business. Let’s now explore them in detail.
Also Read: 9 Examples of Businesses Who Have Adopted Value-based Pricing
Understanding the 2 Main Types of Value-Based Pricing
Pricing a product takes into consideration not only the cost of the raw materials used but also the perceived value of the product by customers.
For example, a painting may be valued more than the cost of the paint and canvas used to create it. Similarly, an exquisite fine dining experience may be priced higher than a meal of the same quality at a regular restaurant. It is not only the perceived value of the food that determines the pricing. Instead, it takes into account the other value adds - the ambiance, quality of service, and the overall experience.
As highlighted by the above examples, two types of value-based pricing strategies can be employed by businesses.
Good Value Pricing
This is a pricing strategy that takes into consideration the quality and service provided to customers rather than the cost of production. The price of the product is determined based on the perceived value of the product and the service provided to the customers. It can be achieved by offering a lower price than competitors, or by offering additional features or services that justify a higher price.
For example, a luxury car will be priced higher than a regular car, as the luxury car offers more features and a higher level of service.
Value-Added Pricing
Value-added pricing is a pricing strategy that takes into account the additional value provided to customers through a service or product. The price is determined based on the perceived value of the extra features or services provided to the customers. This additional value can also come in the form of higher quality, better customer service, or other benefits that are not offered by competitors.
For example, a car manufacturer may charge more for a car that comes with additional features such as a sunroof or a high-end sound system. The value of these additional features is considered from the customer's perspective, and the price is determined accordingly. In this type of pricing, the focus is on the additional value provided to the customers through the product or service.
Who Can Benefit from Value-Based Pricing?
An obvious choice for value-based pricing is high-end brands. It enables them to target a larger market segment that is willing to pay more for a product based on its perceived value. But value-based pricing is also an effective strategy for Software as a Service (SaaS) businesses.
SaaS Companies: Utilizing the Flexibility of the Pricing Model
Value-based pricing involves setting the price of a product or service based on the perceived value it offers to the customer, rather than on its production costs, market competition, or historical prices. It is a flexible and responsive pricing model.
It enables the business to set prices for different levels of services based on the number of buyers who opt for each tier. This is done by surveying the target market, dividing it into segments, and then creating service tiers based on the needs of each customer segment.
For example, a SaaS company that provides different levels of customer support services can create tiers such as basic, premium, and VIP and price them accordingly based on the features and level of support provided in each tier.
Some clear benefits include:
- Companies can maximize revenue and increase their profit margins. Further, they can invest in differentiation and innovation.
- Develop a deep understanding of the customer's needs and preferences.
- Â Tailor its products or services to meet those needs in a more effective way than competitors. Further, they can create a more personalized experience for the customers and improve customer satisfaction and loyalty.
Does Value-Based Pricing Suit Your Business Needs?
Value-based pricing is an obvious choice for your SaaS business if your product delivers unique, high-value solutions to your customers or you offer different levels of value to different customers.
Value-based pricing is a pricing strategy that takes into account the following:
- Target customers and their willingness to pay for the value you deliver
- How competitors price their products and services
- Data and customer feedback help determine the price points aligned with the product value.
This type of pricing may not be suitable for all businesses, but it can be an effective way to enter new markets, increase profits and improve brand perception.
Utilize the Power of Value-Based Pricing
The key to successful pricing is to align the product with the customer's perception of value. This is where value-based pricing comes in. It takes into account all the elements of pricing and marketing to determine the best pricing strategy. By implementing a value-based pricing strategy, a business can strengthen its brand promise, stay adaptable to market changes, and gain a deeper understanding of customer needs and preferences.
If you are unsure about where to start, Togai is here to help. We are an end-to-end metering and pricing infrastructure that businesses can leverage to launch any pricing model in the shortest time possible. If you are curious and would like to take a look, sign up here. Or you can Schedule a demo!
