The pricing and the value perceived (28)

Among the pricing guidelines, the price orientation based on the value perceived by the customer deserves special awareness.

Perceived value by the customer, or, as Alfred Oxenfeldt said, “the value that certain customer segments attribute to the company’s offering,” is understood here as the value of the set of benefits occurring throughout the entire life cycle of the sales object on the client perception.

Guiding the price to the customer perceived value has two substantial advantages. On the one hand, it prevents the offerer from pricing at a higher value than the client is willing to pay and, as a result, fails to sell. On the other hand, it encourages the practice of higher prices that the client agrees, increasing the offerer’s profit.

Even with these advantages, the offerer must overcome obstacles to implement this plan successfully.

According to research carried out by Andreas Hinterhuber with 81 executives from North American, European, and Chinese companies, pricing based on the value perceived  presents the following difficulties: (1) evaluating value, (2) communicating value, (3) market segmentation, (4) sales force management, and (5) top management support, some of which reported by a food industry manager in the following testimony:

We had developed a new yogurt with health benefits that I planned to launch at a premium price. However, I was frustrated because I could not get any of my colleagues (in marketing, sales, or key account management) to support my plan for a higher price. All I kept hearing was: “The customers care only about price! Purchasing agents for supermarkets benchmark your against their own in-house labels—so forget your premium prices”. So I gave up. We did not launch the product because launching it at parity to competition would not have allowed us to reach our profitability targets. The irony was that a year later, a competitor launched a similar product to the one we had just dropped—at a 60 percent premium!

Such hardships draw attention to the fact that, in addition to persuading the external public (initiators, users, influencers, buyers, decision-makers, and guardians) of the offer’s advantages, the price manager needs to obtain the buy-in of both superiors and subordinates as well as other offerer’s members at the value he proposes.

However, despite those challenges, the value-perceived orientation remains promising in terms of selling and profitability performance.

C. L.. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.