How can you measure the perceived value of your product or service? This is a crucial question for any business analyst who wants to optimize pricing, customer satisfaction, and competitive advantage. In this article, you will learn about four methods to assess how much your customers are willing to pay for your offer, and how to use them in different scenarios.
Value-based pricing is a strategy that sets the price of your product or service based on the value it delivers to your customers, rather than on the cost of production or the market average. To apply this method, you need to identify the main benefits and outcomes that your customers expect from your offer, and quantify them in monetary terms. For example, if your product helps your customers save time, increase revenue, or reduce risks, you can estimate how much these results are worth to them. Then, you can set your price as a fraction of that value, while ensuring that it covers your costs and generates a profit margin.
It should be faster in Deployment. Easy to Learn and Maintain. Licensing should be lowest & provides flexibility in terms of white labelling and overall control. It shouldn't Tie the customer/partner from all angles and there shouldn't be pricing surprises. Before the start of the project, one should get clarity on TCO.
In a competitive market, for Value-based pricing to work, value delivered to customers is both a function of business benefits expected from the offering (i.e., product and/or service) and the pricing of the same or similar offerings in the market. This is important, because if your price is a fraction of the value being delivered, and your price is deducted from the expected benefit to calculate net benefit, then the customer will only choose your product if the expected benefit is higher from your product than the competition. This can be achieved through having a better product or having a cheaper price.
Value-based pricing is a strategy of setting prices primarily based on a consumer’s perceived value of a product or service. Value-based pricing is customer-focused, meaning companies base their pricing on how much the customer believes a product is worth. Value-based pricing is different from cost-plus pricing, which factors the costs of production into the pricing calculation. Companies that offer unique or highly valuable features or services are better positioned to take advantage of the value-based pricing model than companies that chiefly sell commoditized items.
> Measuring the perceived value of a product or service involves understanding the worth customers place on it. This can be determined by factors such as customer feedback, brand recognition, and comparison with competitors' offerings. > For instance, conducting surveys, analyzing online reviews, and monitoring customer preferences can provide insights into how consumers perceive the value of the product or service.
Start with customer surveys, asking targeted questions about features and satisfaction to directly gather feedback. Implementing the Net Promoter Score (NPS) provides a clear indicator of customer loyalty and their likelihood to recommend the product, linking directly to perceived value. Analyzing customer reviews and testimonials on various platforms offers valuable insights into their experiences and satisfaction. Usage metrics, such as frequency of use, can serve as practical indicators of perceived value. Monitoring customer support interactions allows us to gauge whether the product is meeting expectations, with a decrease in support requests often indicating a reliable and valuable offering.
Willingness to pay (WTP) is a measure of the maximum amount that a customer would pay for your product or service, given their preferences, budget, and alternatives. To estimate WTP, you can use various techniques, such as surveys, interviews, experiments, or conjoint analysis. Surveys and interviews are simple and low-cost ways to ask your customers directly how much they would pay for your offer, or for different features or attributes of your offer. Experiments are more complex and costly, but they allow you to observe how your customers behave in real or simulated situations, such as auctions, price changes, or discounts. Conjoint analysis is a sophisticated statistical method that reveals how your customers value different combinations of features or attributes of your offer, and how they trade them off when making purchase decisions.
Price sensitivity analysis is a quantitative method focused on understanding how changes in pricing impact customer behavior. A/B testing different price points or bundling options can provide quantitative data on the perceived value of your product in relation to its price.Now, shifting to qualitative methods, customer reviews and testimonials play a pivotal role. testimonials on your website provides qualitative insights into the specific elements of your product User interviews and focus groups are qualitative approaches that allow for in-depth exploration of customer perceptions. By engaging directly with users, you can uncover nuanced insights into the aspects of your product or service that contribute to its perceived value.
Value-based pricing means deciding how much to charge for your product or service based on how much people think it's worth. It's like finding the right price that makes customers happy because they feel they're getting good value. Understanding "willingness to pay" is just figuring out the most people are okay with paying for what you're offering. If your thing is really good, people might be willing to pay a bit more for it. It's just about making sure both you and your customers feel good about the price.
Willingness to pay (WTP) is?the maximum price that a customer is willing to pay for a product or service. WTP varies depending on the context, different demographics, the specific customer in question, and can fluctuate over time. To estimate WTP, you can use various techniques, such as surveys, interviews, experiments, or conjoint analysis. Surveys and interviews are simple and low-cost ways to ask your customers directly how much they would pay for your offer, or for different features or attributes of your offer. Experiments are more complex and costly, but they allow you to observe how your customers behave in real or simulated situations, such as auctions, price changes, or discounts.
Willingness to Pay (WTP) measures how much customers are willing to spend on a product or service based on its perceived value. It involves surveys, conjoint analysis, price sensitivity testing, competitor analysis, and monitoring feedback to align pricing with customer expectations.
? Market Research: Understand customer needs and preferences. ? Segmentation: Identify groups with varied willingness to pay. ? Value Proposition: Clearly communicate your product's unique value. ? Pricing Tiers: Create different levels to accommodate diverse budgets. ? Feedback Loop: Continuously gather feedback to adjust pricing. ? Competitive Analysis: Analyze competitors' pricing for effective positioning. ? Perceived Value: Boost value through effective marketing and branding. ? Psychological Pricing: Leverage pricing tactics influenced by psychology. ? A/B Testing: Experiment with different pricing models for optimization. ? Data Analytics: Use customer data to refine pricing strategies.
Economic value to customer (EVC) is a measure of the total value that a customer derives from your product or service, compared to the next best alternative. To calculate EVC, you need to identify the reference product or service that your customers would choose if your offer was not available, and determine its price and performance. Then, you need to add the value of the positive differentiators that your offer provides over the reference, such as superior quality, functionality, or service. Finally, you need to subtract the value of the negative differentiators that your offer has compared to the reference, such as higher maintenance costs, lower reliability, or lower availability.
The Economic Value to the Customer (EVC) is helpful to integrate into your Value-based pricing strategy when determining the what fraction of the expected value you will set your price to. This will allow you to measure the relative value of your product to other similar products in the market, to help determine a price to win.
The Economic Value to the Customer (EVC) approach?focuses instead on the customer and how the customer perceives the value of a product. With this view, the purpose of price is not to recover costs, but to capture the perceived value for the product in the mind of the customer.
Measuring the perceived value of a product or service involves assessing the benefits and costs as perceived by the customer. This perception is subjective and can be influenced by various factors, including personal preferences, experiences, and social influences. To measure this perceived value, businesses often employ a mix of quantitative and qualitative research methods. For example, a company selling industrial machines. The EVC could be demonstrated by comparing the new machine's cost and operational savings over time to the existing machines. CLV models (Quantitative method) estimate the total value a business can expect from a single customer account.
Market research keeps us attuned to industry trends and evolving customer preferences, guiding us in adapting our product to maintain relevance. Social media monitoring captures real-time sentiments and discussions, reflecting public perceptions of our product's value Assessing price sensitivity reveals whether customers are willing to pay a premium for our offering, indicating perceived value. Lastly, post-purchase surveys immediately capture customers' immediate perceptions, helping us understand if the product met or exceeded expectations. By combining these approaches, we gain a comprehensive understanding of how customers perceive the value of our product or service. This insight allows us to make informed decisions.
Economic value to the customer means how much benefit or usefulness a customer gets from a product compared to what it costs. It's like asking, "Is this thing worth it for what I'm paying?" If a product helps a lot and the price feels fair, that's good economic value. It's about making sure customers feel they're getting a good deal and that the benefits they receive are worth the money spent. So, when we talk about economic value to the customer, it's all about how much bang for their buck they're getting.
Net promoter score (NPS) is a measure of the loyalty and satisfaction of your customers, based on how likely they are to recommend your product or service to others. To obtain NPS, you need to ask your customers a simple question: On a scale of 0 to 10, how likely are you to recommend our product or service to a friend or colleague? Then, you need to classify your customers into three categories: promoters (9-10), passives (7-8), and detractors (0-6). Finally, you need to subtract the percentage of detractors from the percentage of promoters. NPS can range from -100 to 100, and higher scores indicate higher perceived value and loyalty.
Customer satisfaction and ROI. Products can bring in value to customers which is qualitative or bring in revenue which is quantitative. This is the measurement which can make or break a product.
An NPS score?measures customer loyalty by looking at their likelihood of recommending a given business. Your NPS score is measured with a single-question survey and reported with a number ranging from -100 to +100, where a higher score is desirable. NPS is often held up as the gold standard customer experience metric.
NPS measures customer loyalty. Main NPS question is "How likely you'd recommend it on a 0-10 scale?" – Promoters (9-10): Highly satisfied and likely to recommend. – Passives (7-8): Satisfied but not enthusiastic. – Detractors (0-6): Unhappy customers. ? Calculation: NPS = % Promoters - % Detractors. ? Interpretation: High NPS signals loyalty; low NPS indicates areas for improvement. ? Strategic Insights: Identifies strengths and weaknesses in customer relationships. ? Benchmarking: Compares performance against industry standards. ? Actionable Feedback: Prompts action based on customer sentiments. ? Versatility: Applicable across industries, easy to implement and monitor.
Firstly, let's delve into quantitative metrics. One key indicator is customer surveys. By designing targeted surveys, you can systematically collect data on various aspects of perceived value, including features, pricing, and overall satisfaction. Utilize rating scales and structured questions to derive numerical insights that offer a quantitative snapshot of customer perceptions. Another quantitative approach is the Net Promoter Score (NPS). This simple yet powerful metric gauges the likelihood of customers recommending your product or service. It not only reflects overall satisfaction but also indirectly measures the perceived value, as customers are more likely to recommend offerings they find valuable.
While NPS is a useful measure, customer needs to understand the scoring scale and what they are specifically scoring on, for the measure to be useful. I've often seen customer perceive 7 and 8 as themselves being a promoter of the business rather than being a passive. I think this is because of the baseline context established in many of us through grades in school (i.e., 8/10 is an A, means one did well).
Perceived value includes cost in the calculation. One way of measuring this is: Perceived value = Tangible benefits/Costs paid. Actual value comes in the wake of the product being bought and used. If actual value goes beyond the perceived value, then the customer value is very high.
One fundamental aspect of perceived value not covered in this article is the nature of the value your product or service delivers. This nature will determine the value measurement method. You need to understand it to avoid measuring the value that your customers do not care about. Consider Steve Jobs's approach to or Seth Godin's vision of marketing. Say, a Mac versus PC, Starbucks versus 7-Eleven coffee, Mercedes versus Toyota. Although the product seemingly satisfies the same need in each case, it does not. If Starbucks measured the perceived value of coffee and based coffee pricing on it, we would not be paying $7 for a cappuccino. MacBook Pro would not be priced at $3,000 if customers only bought it for computing.
Other not mentioned ways to measure perceived value: ? Customer Satisfaction (CSAT) ? Customer Lifetime Value (CLV) ? Feature Adoption Rates ? Repeat Business and Retention Rates ? Reviews and Testimonials ? Brand Perception ? Market Positioning ? Social Proof
Apart from the mentioned metrics, it's essential to consider customer feedback, reviews, and testimonials. Actively monitoring online platforms and social media for user sentiments provides real-time insights into how customers perceive your product. For example, in a software company I worked with, positive user reviews praising the intuitive interface helped reinforce the perceived value, while addressing concerns raised in negative reviews allowed us to make continuous improvements and maintain a positive brand image. Additionally, staying updated on market trends and adapting your product to evolving customer needs ensures that the perceived value remains relevant in a dynamic business environment.
In my role as a business analyst, I've found social media monitoring to be highly effective in assessing the perceived value of a product or service. This involves analysing comments, reviews, and discussions about your product across various platforms. Pay attention to the sentiment expressed in these comments – are customers praising specific features or benefits? Are there recurring complaints or suggestions?This real-time feedback provides direct insight into what customers appreciate or desire in your product.Additionally, observing how your product is discussed in comparison to competitors can offer a clear view of its standing in the market. By consistently analysing this data,you gain a nuanced understanding of customer perceptions.