As we have written in previous posts, a business’ unique value proposition (UVP) should clearly state why customers will want to buy from that business. It must identify the value promise being made for a service or product. That means that a strong UVP is relevant to a target customer group’s specific problem, promises certain benefits of quantifiable value, and states how a service or product is different from other offerings in the marketplace.
There are several common types of pricing strategies. Cost-plus pricing is simply calculating your costs and adding a mark-up. Competitive pricing is setting a price based on what the competition charges. Price skimming is setting a high price and lowering it as the market evolves. Penetration pricing is setting a low price to enter a competitive market and raising it later. Each of these strategies has its pros and cons and may be appropriate in certain situations.
However, after differentiating your business by building delivery capabilities so that the value promised in a strong UVP becomes reality, your best pricing strategy is value-based pricing. This means setting a price for products and services based on the value the customer believes they are getting from what you are selling. The better you solve people’s problems, which simply means the more value you deliver, the higher the price you can charge for your products and services.
If the product or service offering has been built to match the requirements of a strong UVP – it is relevant to customer problems, delivers beneficial quantifiable value, and is unique in some way – then the business owner and the customer have a win-win outcome when doing business together. When the target customer perceives beneficial value in the solution you offer, then you have a better customer fit. Value-based pricing allows you to be more profitable, meaning you can acquire more resources and grow your business.
You cannot be all things to all people. By establishing a UVP, you are assured that you will be targeting a market segment with a solid customer-to-product fit that will attract the customers who need and will appreciate your offering. The relationship between a UVP and a value-based pricing strategy can lead to greater success.