Effective value and price communication requires deep understanding of customer value combined with understanding of how and why customers buy.
When we talked about value communication earlier, we discussed that developing effective pricing strategy involves understanding the value you offer in order to set profit maximizing prices across segments.
At the same times, it involves communicating the value propositions in a compelling manner to accomplish three goals:
a) Enable customers to fully understand the benefits
b) Improve their willingness-to-pay (WTP)
c) Increase the likelihood of purchase
On one hand, a significant percentage of managers rate 'communicating value and price' as the most important capability necessary to enable successful pricing strategies, on the other, ironically, ability to communicate value is also one of the weakest capabilities in most organizations.
There are primarily 4 major challenges in value communication. We'll illustrate each of below with an example or a use case:
'Value communication' getting substituted with 'feature communication'.
Mobile phones are often advertised to have a 128GB memory or a 24 megapixel camera, yet very few sellers translate features into customer benefits such as ability to store a specific number of pictures (say 10000) or ability to print and display pictures on big screens. Have you ever observed the 'Shot On iPhone' billboards on your way back home or on weekend. What Apple is selling is not a camera with 24 megapixel camera with a phone but the ability to capture the highest quality photo on a phone that is so good in quality that it can be put up on big size billboards without the loss of pixel quality.
Focusing too much on features may lead to loss in fidelity especially among the less-experienced buyers and people lacking time for research.
Buyer is sometimes not sufficiently incentivized to figure out relative value propositions.
Especially in B2B settings, when a buyer is confronted with a cheap offer and a more expensive one with hard to understand benefits, the easiest path for the purchasing agent is to simply buy the lowest priced offer instead of doing some research and staying late in office to document economic benefits and justify price premiums.
In this scenario, a critical goal for the value communication is to provide the agent with information needed to justify paying higher value.
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Marketers often assume that the market demand is fixed and that the market alone will determine the price that buyer will pay.
Buying a set of tires for a family car is usually a less enthusiastic task. When confronted with numerous options in the tire store and lacking any knowledge of the category, the customer will treat this product as a commodity and will instinctively go for a lower priced set of tires at the store. BUT. Let's take another perspective. If one company changes its value proposition to safety and shows how a small premium paid increases the safety, it may help the buyer to understand the primary benefit and make the purchase decision. If you just put a baby in the advertisement and remind the buyers as to whose lives are at risk of safety is not considered a factor during purchase decision, it may add further to make up their mind to pay the premium. The Michelin advertisement 'Remember what is riding on your tires' had just done that.
In order to sell on value, one needs to sell to the person that recognizes value.
In a B2B buying business or in buying a product that has a collective utility for various stakeholders, there are usually multiple decision makers. For instance, when a company is looking to purchase flexible packaging options, the plant managers will value technical support, the brand manager will be interested in graphics capabilities, and the procurement group would want to understand the cost savings over existing suppliers.
A successful seller needs to break down the value story into discrete messages and deliver the most relevant story to each stakeholder in the buying process.
End Note
A buyer's perception of value is usually shaped by the way information and value story is conveyed.
A successful pricing strategy looks to create a value story that reduces the cognitive and physical efforts of the buyers and helps them understand the value in a clear fashion.
References:
The Strategy and Tactics of Pricing - Robert T. Nagle and Georg Muller.
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